Last month Boris Johnson was confirmed as the next UK Prime Minister by claiming over 66.4 per cent of Conservative members votes. Clearly a popular choice but whether he is the right man for the job remains to be seen.
One thing is for certain, he enters Downing Street at a time when the UK economy faces some turbulent times. For example the Bank of England has warned Britain has a one in three chance of plunging into recession by early 2020 and the strength of the pound is at best volatile.
While nothing is set in stone yet and we won’t know more until the next budget which usually happens in November, Boris Johnson, during his leadership campaign was particularly vocal about taking steps to make the UK tax system a more fair and dynamic one. And this has been subsequently echoed by his new Chancellor Sajid Javid, a “low tax guy”.
So, what should we expect from the PM that once said “My friends, as I have discovered myself, there are no disasters, only opportunities. And, indeed, opportunities for fresh disasters.”
Income tax cuts for around two and a half million people
Prior to becoming PM, Boris Johnson said that “We should be raising thresholds of income tax – so that we help the huge numbers that have been captured in the higher rate by fiscal drag”.
At present, we pay 40% income tax on any earnings above £50,000 (£37,500 Basic Rate Band + £12,500 Personal Allowance). So, a person earning £55,000 a year, pays 20% up to £50,000 and 40% on the £5,000.
Boris wants to raise the £50,000 threshold by £30,000 so that the point at which we have to start paying income tax at 40% is when income levels reach £80,000. Up until then the basic rate of 20% would apply. According to the Institute for Fiscal Studies (IFS), raising the threshold for the higher rate of tax would give a tax boost to 4 million income tax payers and benefit the top 10% of earners by around £2,500 a year. The proposal would shift around two and half million people out of the higher rate income tax band
However, it remains to be seen if the plans are feasible as it is estimated to cost just under £10 billion to implement.
The PM says that it wouldn’t cost the tax payer any extra as It would be paid for by the “headroom” available to the government after borrowing came in lower than originally forecasted and had been set aside by the chancellor for no-deal Brexit planning.
That all sounds great however, the money can only be spent once so there are question marks over the sustainability of the proposal and certainly wouldn’t seem to offer a permanent solution. The long term funding of the proposal would presumably come from raising taxes elsewhere, spending cuts or continue to be funded from government borrowing.
Increasing the point at which people start to pay National Insurance Contributions (NIC)
National Insurance is a tax primarily paid for by both employees and employers to fund state benefits, such as the NHS, although the self-employed also contribute on slightly differing scales.
Mr Johnson wants to raise the point at which people start paying NIC, absorbing some of the cost by countering this by also raising the point at which they stop paying NIC.
The increase would cost around £3billion for every £1,000 raised. So, raising it to the current personal allowance level, as proposed, would cost around £11billion. It would however take £2.4 million workers out of paying NIC altogether.
Based on the two proposals outlined above, it is wealthy pensioners who stand to benefit the most – up to £6,000 per year. This is because pensioners don’t pay National Insurance to begin with.
Some are calling the plans mentioned above a “Brexit bonanza” as they are intended to boost the take home pay of millions of families and soften the blow of a No Deal Brexit.
Changes to Stamp Duty
Boris has made it clear that he wants to get the housing market moving.
He has previously said that it’s a “problem” that stamp duty is so high and cutting it would free up more houses for first-time buyers.
The early speculation is that he is planning to scrap stamp duty on homes worth less than £500,000 and some reports are claiming that he may switch stamp duty liability from the house buyer to the seller.
This move will be music to the ears of those wishing to buy a new home and in turn creating more demand for houses. However, if new homes are not built to meet the increased demand, Britain could see a new issue of house price inflation resulting in people ending up back at square one.
Resolving pension crisis within the NHS
Reports have suggested that GPs and consultants earning above £150,000 have threatened to reduce their hours or take early retirement due to the tapering of the annual tax free pension allowance.
Boris hasn’t indicated how he intends to deal with the issue, although scrapping the tapper altogether would be an obvious solution. This could then lead to the scrapping of the taper across all industries allowing individuals earning over £150,000 to contribute up to £32,000 net per year into their pension pots and in turn benefit from the resulting tax relief.
Whilst it’s inevitable that the PM’s focus over the next few months will be Brexit , it is encouraging that his Chancellor has already turned his attention on tax policy and not let Brexit overshadow what is so important domestically. The forthcoming Budget may be an interesting one!