October Budget 2021 6 Changes That Could Hit Your Pocket
UK Chancellor Rishi Sunak will set out the government's tax
and spending plans on Wednesday 27 October.
The BBC is predicting six tax and budget changes at a time
when Rishi Sunak has already announced a £7 billion spending spree on northern
transport links and childcare help for families. There is also a possibility of
extended loan support, due to end in December for businesses struggling to come
out of the recession, or subject to another winter lockdown?
This will be the second Budget of the year, after one in
March, and will coincide with the conclusions of the 2021 Spending Review,
which will give details of how government will fund public services for the
next three years.
Here are six possible things to watch out for in the Budget
that could affect your personal finances.
1. VAT on energy bills
The chancellor is reportedly considering a cut to the 5%
rate of value added tax on household energy bills.
The move would be popular and timely against the background
of soaring energy bills this winter and is something the government is now able
to do because of Brexit.
But the move could attract criticism as it would - in effect
- mean subsidising fossil fuels ahead of the climate summit.
Also, a VAT cut on domestic energy bills would cost about
£1.5bn a year, which may just be too much for the chancellor.
2. Alcohol tax
There are rumours the chancellor is planning to simplify the
way that alcohol is taxed in the UK.
The 2019 Conservative election manifesto promised to review
it, so now could be the time.
One suggestion is to reduce the premium on sparkling wine to
the same level as still wine, which could knock 83p off a bottle of Champagne
or Prosecco.
"The government should stop trying to favour certain
parts of the industry, instead focusing on removing distortions and creating a
simpler system of alcohol taxes targeted at socially costly drinking,"
said Kate Smith, associate director of the Institute for Fiscal Studies.
The drinks levies have been in place since the 1600s and
raise £12bn a year for the government.
3. Capital Gains Tax rates
There are rumours that the current Capital Gains Tax rates
may be tinkered with.
The tax is paid when people sell assets such as shares or a
second home.
It's been suggested that rates could be aligned more closely
with income tax rates, which could mean scrapping the current tax rates of 10%
and 20% (or 18% and 28% for property) and instead making everyone pay income
tax rates on their gains.
A report by the Office of Tax Simplification, published in
November 2020, recommended that CGT rates should be increased to bring them
into line with income tax.
But it would be unlikely to raise significant extra amounts
of tax, as it is typically paid by only about 275,000 taxpayers and raises less
than £10bn a year.
Shares can be sold quickly to avoid higher CGT, but
properties can take months to sell.
4. Student loan threshold
There are reports that graduates may be asked to start
paying back student loans earlier.
The chancellor could do that by lowering the threshold at
which people start repaying their student loans, a move that could save the
Treasury about £2bn a year.
Currently, English and Welsh students who enrolled at
university after 2012 pay 9% of everything they earn above £27,295 per year.
They repay the same 9% until the loan is fully repaid or until 30 years after
graduating.
If the threshold were reduced to £25,000, it would cost
anyone earning more than the current limit an extra £206 a year, while if it
were slashed to £20,000, it would cost an extra £656 a year.
Ministers are rumoured to have proposed cutting the
threshold to as low as £23,000 and giving graduates 40 years as opposed to 30
to repay their debt.
5. Minimum wage rise
In his March Budget, Mr Sunak announced that the National
Living Wage (what the governments call the minimum wage) would increase for
workers over the age of 23.
Since then, the government has come under pressure to help
employees further - especially as younger workers have been some of the worst
hit by the economic downturn.
One solution the chancellor has been reportedly looking at
is to increase the National Living Wage by 5.7% to £9.42 per hour from its
current rate of £8.91.
That would bring it close to the Living Wage Foundation's
current recommendation of £9.50 an hour.
6. Pension higher rate allowance
The government could raise cash by cutting tax relief on
pension savings for those on high salaries.
But pension experts warn such a move would not be as simple
as it sounds, Steven Cameron, pensions director at Aegon, said: "A move to
a flat rate of pensions tax relief, rather than the current system where relief
is based on the rate of income tax paid, would be far from simple to
implement."
He said it would be particularly difficult for
defined-benefit schemes and could mean medium to high earners, including
doctors in public sector schemes, facing big tax bills.
"Removing higher-rate relief would be a direct attack
on middle Britain, leading to people who do the right thing and save for their
future being hit with extra tax costs," said Tom Selby, head of retirement
policy at AJ Bell. Source BBC
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