What next after the general election?

Transcription

1 Tax Services What next after the general election? In the ten days since they won a majority in the House of Commons, the Conservative party has both confirmed the make-up of the new Government with its ministerial reshuffle and started to set out its priorities for the upcoming session of Parliament. The Chancellor has now confirmed that he will hold a Stability Budget on 8 July. This is intended to continue with the Government s balanced plan to deal with the national debt, invest in the health service and reform welfare to make work pay. There will also be a laser-like focus on making our economy more productive and measures to crack down on tax avoidance and aggressive tax planning. Before the Budget we will also get an indication of the Government s priorities from the contents of the Queen s speech on 27 May. We can also expect a further Finance Bill this year, to deliver the remaining March Budget decisions and perhaps the promised lock to prevent increases in income tax, VAT, and NIC rates throughout this Parliament. In establishing the new Cabinet, George Osborne was reappointed as Chancellor and also confirmed as First Secretary of State, making him the ranking Cabinet Minister after the Prime Minister. Sajid Javid, a former Treasury Minister, moves to Business Secretary and will head up business and industrial policy. It has also been confirmed that David Gauke will continue in the role of Financial Secretary to the Treasury. In that positon he will continue to have strategic oversight of the UK tax system including direct, indirect, business, property and personal taxation and be responsible for HMRC and the Finance Bill. We expect that he will continue the Government's 'open for business' agenda. In this Alert, we summarise some of the main policy implications (both non-tax and tax related), based on the manifesto commitments and announcements. In the tax section we consider what we might expect from a second Finance Bill this year.

2 The upcoming balancing act Commitments Savings and taxes Key dates Infrastructure Whitehall efficiency savings 27 May Queen s speech Devolution of powers/the Northern powerhouse NHS Five Year Forward View Welfare savings Tax avoidance 8 July Stability Budget July? Draft Finance bill clauses November Autumn statement Deficit reduction New taxes? Non-tax measures The need for spending cuts A key part of the Stability Budget will be some more detail of the substantial savings required for most Whitehall departments under the new Government. It is expected that there will be a drive for 25bn to 30bn efficiency savings at Whitehall. A right to mutualise will also apply within the public sector (especially for NHS trusts) as well as the expectation of further savings from the continuation of the Government s Red Tape challenge. The Government also aims to find 12bn from welfare savings and the roll out of Universal Credit will be used to review how best to support those suffering from longterm yet treatable conditions in returning to work. On health, the Government has committed to providing the estimated additional 8bn needed to deliver the NHS plan for changes required over the next five years, if the widening gaps in the health of the population, quality of care and the funding of services are to be closed known as the Five Year Forward View. David Cameron has pledged to deliver the world s first seven day-a-week universal health service.

3 Devolution of powers from the centre The Government has made a commitment to measures that will have far reaching implications for the way that power and decision-making is exercised in key areas both in Europe, in the constituent parts of the UK and in the English major cities. Firstly, there is a commitment to an in-out referendum on EU membership by 2017, following the outcome of negotiations with other Member States and Commission. We understand that the negotiation process has already begun but questions have already been raised as to whether it will be possible, even if amendments are agreed, for them to be made to the EU treaty by the time of the referendum, Separately, in their election manifesto, the Government proposed the abolition of the Human Rights Act and its replacement with a British Bill of Rights. Michael Gove has been appointed Justice Minister to oversee progress on this issue. The Government has also pledged to implement the Smith Commission proposals for greater devolution of power to Scotland, so that more than 50 per cent of the Scottish Parliament s budget will be funded from revenues raised in Scotland and it will have significant new welfare powers to complement existing devolved powers in health and social care. There will be a full devolution of income tax rates to Scotland but the Scottish Nationalist Party is demanding further devolution, including control over the minimum wage, welfare and national insurance contributions. The SNP is also seeking devolution of corporation tax, as is scheduled to happen in Northern Ireland. A referendum in Wales is expected to decide whether the power to set income tax rates should be devolved to Cardiff. As part of any new constitutional settlement, the Government has pledged the introduction of the concept of English votes for English laws which among other implications would mean that income tax rates for England would have to be approved by English MPs. An outline of this measure has been promised within the first 100 days of the new Government. On 14 May, the Chancellor outlined details of a Cities Devolution Bill offering greater powers over transport, housing, planning and policing as part of plans to devolve farreaching powers to large cities which choose to have elected mayors. These powers are part of the Government s commitment to rebalance the UK economy and build a Northern Powerhouse. Modernising the UK s infrastructure In the context of a constrained outlook for public spending over the next five years, the Government is committed to the substantial modernisation of transport infrastructure on a scale that may challenge the capacity of public agencies to manage it. The Government has set out a plan to invest over 100bn in infrastructure, 38bn in rail and 6bn on roads. There are plans to better-connect the Midlands by electrifying the main rail routes and build the Northern Hub. As part of the investment in rail and improvements to roads, the Government has proposed to deliver High Speed 2 and develop High Speed 3; upgrade major roads in the North and South West; and roll out near universal broadband and better mobile phone connections.

4 Tax measures Tax avoidance In their manifesto, the Government promised to raise 5bn from combatting tax evasion and aggressive tax avoidance. In his announcement on the Stability Budget, the Chancellor confirmed he would crack down hard on tax avoidance and aggressive tax planning by the rich. Having confirmed that it will lock itself out from the main levers for increasing taxes (with its commitment not to increase income tax, VAT, and NIC rates), the Government might be expected to announce further anti-avoidance or base broadening measures, both for individuals and businesses. Examples of such measures from the last Parliament include the diverted profits tax, the annual tax on enveloped dwellings and related capital gains tax charge, along with the claw back of tax allowances from higher earners. Personal tax pledges The Government has promised to increase the income tax personal allowance in the life of the Parliament to 12,500 and introduce legislation so that the personal allowance rises in line with the national minimum wage. Other personal tax proposals include: increasing the transferable marriage allowance in line with increases in the personal allowance increasing the higher rate threshold to 50,000 by the end of the Parliament restricting pension tax relief for those earning over 150,000 while reducing the lifetime allowance to 1mn introducing an additional inheritance tax allowance of 175,000 for a main residence, transferable between spouses (to add to the current nil rate band of 325,000 for each spouse) increasing charges for those claiming the remittance basis of tax by virtue of having non-uk domiciled status and to 'tackle abuse' in this area, and implementing the tax free childcare rules and providing 30 hours per week of free childcare for three and four year olds. Business tax pledges The Government proposes to maintain the most competitive business tax regime in the G20 and there is no indication that the main corporation tax rate will rise from its current 20% (or that a small profits rate would be reinstated to distinguish between sizes of companies for tax rate purposes). Separately, the Government plans to complete their business rates review by the end of Going forward, the Government has promised the annual investment allowance would be permanently set at a level significantly greater than 25,000. Currently there is a special 500,000 limit in force but this is due to reduce to 25,000 on 1 January On the issue of tax transparency, the Government has pledged to consider the case with other G20/OECD members for public country-by-country reporting on a multilateral basis, as well as ensuring that developing countries have access to automatic information sharing systems. There will also be a push for all countries to sign up to the Extractive Industries Transparency Initiative, which imposes additional transparency requirements on both taxpayers and governments. However, we do not expect the

5 EY Assurance Tax Transactions Advisory Government to make unilateral moves to publish country-by-country reporting returns in the absence of an international agreement. The Government has repeatedly emphasised that it supports action on base erosion and profit shifting (BEPS) and wish to participate fully in the OECD discussions. At the same time, it has indicated that it is determined to maintain the UK s position as a competitive place to do business in and from. New Finance Bill A second Finance Bill for 2015 is expected to take forward many of the measures announced under the previous Coalition Government while perhaps including pre-election commitments such as restrictions on tax relief for pension contributions and the introduction of a 175,000 inheritance tax allowance for main residences that can be transferred between spouses. The new Finance Bill is also expected to contain some of the provisions in the draft Finance Bill clauses of December 2014 that did not make it into Finance Act Other promises, such as increasing the personal allowance, married couples allowance and the higher rate threshold, are to be delivered over the life of this Parliament. We also expect the Government to commission further work from the Office of Tax Simplification to feed into future Finance Bills. About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF Ernst & Young LLP. Published in the UK. All Rights Reserved. ED None Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material. ey.com/uk Further information Should you have any queries or comments, please contact your usual EY contact or: Claire Hooper chooper@uk.ey.com Chris Sanger csanger@uk.ey.com What next after the general election? 5