Many watching the UK Chancellor’s Summer Statement were left with unanswered questions, particularly as there is understandable public concern over how the ever-increasing Government debt is to be repaid.
Despite this, it is mostly understood that the UK Government’s preoccupation is not so much with paying the debt (or the largely affordable, low- interest cost of servicing the debt) but the more pressing challenge of re-starting the economy, stimulating recovery and preserving and creating jobs.
Unsurprising then that the Chancellor completely focussed on these immediate and important objectives in his Summer Statement calling this second phase of the Government’s economic response their “Plan for Jobs”. The plan has three key objectives:
1. To support Jobs.
2. To create jobs.
3. To protect jobs.
Highlights from the initiatives announced were:
- The “kick-start scheme” to encourage employers to create new jobs for 16-24 year olds with the Government contributing to their wages and associated overheads (including associated employer National Insurance Contributions and employer minimum automatic enrolment contributions) for six months.
- Further financial incentives to employers to offer apprenticeships- including apprenticeships for the over 25’s.
- A Job Retention Bonus of £1,000 for employers bringing back workers from Furlough into meaningful jobs continuing through to January.
- Investment in infrastructure projects.
- Incentives to create “green” jobs.
- Grants to make homes more energy efficient for homeowners and landlords.
- An immediate temporary “Stamp Duty holiday” until 31/3/21 by raising the threshold above which the main rate of stamp duty is payable from £125,000 to £500,000.
N.B. It is important to note that the additional 3% stamp duty payable on second or subsequent properties is unaffected by this change.
- A temporary cut in VAT for the hospitality sector (e.g. on food and accommodation) from 20% to 5% from Wednesday (15 July) to January 2021.
- Half-price discounts on meals at participating restaurants on Mondays to Wednesdays inclusive in August, of up to £10 per head.
So, as expected, we heard nothing in relation to tax changes beyond the referenced temporary VAT and stamp duty changes. We do however know that a much wider and deeper Budget and Spending review will take place in the Autumn. At that time the Chancellor will have more hard information and insight into “how things are going” and as a result will be better placed to plan in relation to more stimulus and any tax changes.
As for any debt, thought needs to be given to servicing it and repaying it. As noted above, due to low current interest rates (some Government gilts even have a negative yield) servicing the debt is not a problem. In considering capital repayment, typically one would look to a combination of the following:
- Getting more in (taxation);
- Spending less …efficiency and focus without a return to austerity; and
- Some help from inflation to reduce the real burden of the debt over time – though that doesn’t look too likely currently.
Any raising of taxation needs to be very carefully considered to ensure that it does not negatively impact on the recovery. Income tax, VAT and National Insurance Contributions all raise considerable amounts of revenue but increasing any of them would almost certainly have a negative effect on propensity to spend – and right now, the Chancellor is looking to encourage the opposite.
So how does this affect you?
In summary we can expect the subject of tax reform to be considered in the Autumn Budget later in the year, and, in the meantime, planning ahead remains vital to protect your wealth from the impact of potential future tax changes – but this must always be done in a non-contentious way that is compliant with both the letter and the spirit of the law.
As everyone’s financial situation and goals are different, before acting you should take professional advice to consider the effectiveness of any proposed course of action, the level of flexibility offered and the costs versus the benefits – in other words:
- does it work?
- can you change it easily if the rules change?
- does it provide value for money?
To find out how you can protect your wealth in the new normal, speak to your AAM Wealth Manager or email [email protected]
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