Autumn Statement policy measures
James Browne
© Institute for Fiscal Studies
What’s coming up
• Personal taxes
– Transferable personal allowance for married couples
– Cut in employer NICs for those aged under 21
– Fuel duty cut
• Benefit changes
– Free school meals for all children in first 3 years of primary school
– Freeze in universal credit work allowances
• Business taxes
– Business rates
– Bank levy
• Anti-avoidance measures
© Institute for Fiscal Studies
Transferable tax allowance for married couples
• From 2015–16, can transfer up to £1,000 of unused personal
allowance to a basic-rate taxpaying spouse
– Worth up to £200/year
– Couples where both pay income tax, neither pays income tax or
someone pays higher or additional rate income tax don’t benefit
• Only one third of married couples benefit
– Exchequer cost rises from £495 million in 2015–16 to £775 million in
2017–18 as take-up expected to rise over time
• ‘Cliff-edge’ at higher rate threshold not sensible
– Only small at the moment, but worrying if policy expanded
• Gains more focused on lower-income households than increase in
personal allowance
© Institute for Fiscal Studies
Distributional impact of transferable allowance
0.20%
£40
£ per year (right axis)
Percentage of net income
0.15%
£30
0.10%
£20
0.05%
£10
0.00%
£0
Poorest
2
3
4
5
6
7
8
Income Decile Group
Note: assumes full take-up.
© Institute for Fiscal Studies
9
Richest
All
Fuel duty: to uprate or not to uprate, Act V
Dates uprating
due before
Budget 2011
Apr 2011
Apr 2012
Apr 2013
Apr 2014
Apr 2015
Apr 2016
© Institute for Fiscal Studies
Budget
2011
AS 2011
June 2012
AS 2012
Budget
2013
AS 2013
Fuel duty: to uprate or not to uprate, Act V Act VI
Dates uprating
due before
Budget 2011
Apr 2011
Apr 2012
Apr 2013
Apr 2014
Apr 2015
Apr 2016
© Institute for Fiscal Studies
Budget
2011
AS 2011
June 2012
AS 2012
Budget
2013
AS 2013
Fuel duty: to uprate or not to uprate, Act V Act VI
Dates uprating
due before
Budget 2011
Budget
2011
AS 2011
June 2012
AS 2012
Budget
2013
AS 2013
Apr 2011
Jan 2012
Aug 2012
Jan 2013
Cancelled
Cancelled
Cancelled
Apr 2012
Aug 2012
Cancelled
Cancelled
Cancelled
Cancelled
Cancelled
Apr 2013
Apr 2013
Apr 2013
Apr 2013
Sep 2013
Cancelled
Cancelled
Apr 2014
Apr 2014
Apr 2014
Apr 2014
Sep 2014
Sep 2014
Cancelled
Apr 2015
Apr 2015
Apr 2015
Apr 2015
Sep 2015
Sep 2015
Sep 2015
Apr 2016
Apr 2016
Apr 2016
Apr 2016
Apr 2016
Apr 2016
Apr 2016
© Institute for Fiscal Studies
Real duty on a litre of petrol
Pence, April 2013 prices
75
70
65
£5.4bn
per year
60
£0.7bn
per year
55
Historic
Fuel escalator
Coalition (post-Budget 2013)
Coalition (post-AS2013)
© Institute for Fiscal Studies
Apr 2016
Apr 2015
Apr 2014
Apr 2013
Apr 2012
Apr 2011
Apr 2010
Apr 2009
Apr 2008
Apr 2007
Apr 2006
Apr 2005
Apr 2004
Apr 2003
Apr 2002
Apr 2001
Apr 2000
Apr 1999
Apr 1998
Apr 1997
Apr 1996
Apr 1995
50
Cut in employer NICs for those aged under 21
• Employer NICs abolished below the upper earnings limit (£813 per
week in 2015–16) for those aged under 21 from April 2015
• Cut in a ‘jobs tax’
– Reduces wedge between employer cost and take-home pay
– Some of benefit will be passed on to workers in higher wages
• Likely to increase employment among this group
– Particular concern about youth unemployment
– Will firms employ 20 year olds rather than 21 year olds?
– Encourages young people to work rather than continue in education
© Institute for Fiscal Studies
Free school meals for children in first 3 years of
primary school
• From September 2014, all children in first 3 years of primary
school will receive free school meals
– Costs £620 million in 2014–15 including capital cost of expanding
school kitchens etc.
• Currently only children in families claiming out-of-work benefits
or full child tax credit eligible
– Better off families gain from extension
• IFS research on pilot scheme in disadvantaged areas found that
universal free school meals improved educational attainment
– But not clear why: didn’t reduce absences from school or improve
parental perception of children’s behaviour
– Results wouldn’t necessarily be replicated elsewhere
– Best way of spending £600 million to improve educational
attainment?
© Institute for Fiscal Studies
Universal credit
• Significantly delayed: OBR now expects 0.4 million universal credit
claimants in 2015–16 rather than 4.5 million
• Universal credit work allowances frozen for 3 years from 2014–15
to 2016–17
– Amount claimants can earn before benefits start to be withdrawn
– So low-income working families receive less
– When universal credit fully in place (2017–18), will save £315 million
per year
– Weakens work incentives for single people and those whose partner
does not work
– But strengthens the incentive for both members of a couple to work
rather than just one
© Institute for Fiscal Studies
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
Change in net income
1.0%
0.5%
0.0%
-0.5%
Announced yesterday
-1.0%
Poorest
2
3
4
5
6
7
Income Decile Group
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
Change in net income
2%
0%
-2%
-4%
-6%
Announced yesterday
All changes
-8%
Poorest
2
3
4
5
6
7
Income Decile Group
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Business rates in England, 2014-15
Increase of
2% rather
than 3.2%
50%
45%
Average tax rate
40%
£1,000
discount for
retail premises
35%
30%
25%
20%
Extension of
small business
rate relief
scheme for
another year
15%
10%
5%
Before Autumn Statement
After Autumn Statement
After Autumn Statement - retail
0%
£0
£10,000
£20,000
£30,000
£40,000
£50,000
Estimated market rental value of premises
© Institute for Fiscal Studies
Note: assumes outside London
£60,000
£70,000
Business rates
‘Temporary’ discounts for small retailers and all of smallest firms
• Complicate the system
• Almost all cost is deadweight: a one-off giveaway to affected firms
Permanent cut in rate:
• Reduces disincentive to property development
• Much of cost is deadweight: mostly a giveaway to landowners
© Institute for Fiscal Studies
Business rates: stability in the tax system?
• Two of the three main changes are ‘temporary’
– Though one has been repeatedly extended
• The other is the first time since 1990 that rates not increased with RPI
– Following first time since 1990 that regular revaluation delayed
 Has become much harder for firms to predict future tax
© Institute for Fiscal Studies
Increasing the bank levy
• Rate to rise from 0.130% to 0.156% of banks’ liabilities next month
– Was already due to rise to 0.142%
– And measure of taxable liabilities to be broadened from January 2015
• Has been increased in every Coalition Budget and Autumn Statement
– 7 announcements in 3½ years
• 2014 rate will now be more than double that originally intended
– 0.156% instead of 0.070%
• Yet will raise little more revenue in 2014-15 than originally expected
– £2.7bn instead of £2.4bn
– Would have been £4.3bn if each announcement raised what expected
© Institute for Fiscal Studies
Anti-avoidance measures
• Two big ones
– Onshore employment intermediaries
– Alternative investment fund partnerships
• Each forecast to raise £400m a year
• Both close off ways to channel earnings into more lightly taxed forms
– Business income taxed more lightly than employment income
• Hard boundaries to define and police
• Would be better if legal form did not affect tax rates at all
– Give allowances for capital invested instead
© Institute for Fiscal Studies
Conclusion
• Giveaways to middle-income households and small businesses
– Transferable allowance, free school meals, fuel duty, business rates
• Tax rises on banks and anti-avoidance measures
• Benefit cut for low-income workers in the future
• Two broad themes
– Instability: business rates, fuel duty, bank levy
– Complication: transferable personal allowance, business rate changes
© Institute for Fiscal Studies
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
£80
Change in weekly net income
£40
£0
-£40
-£80
-£120
-£160
-£200
Announced yesterday
-£240
All changes
-£280
-£320
Poorest
2
3
4
5
6
7
Income Decile Group
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
4%
2%
Change in net income
0%
-2%
-4%
-6%
Households with children
-8%
Pensioner households
-10%
Working-age without children
-12%
-14%
Poorest
2
3
4
5
6
7
Income Decile Group
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
£80
£40
Change in weekly net income
£0
-£40
-£80
-£120
Households with children
-£160
Pensioner households
-£200
Working-age without children
-£240
-£280
-£320
Poorest
2
3
4
5
6
7
Income Decile Group
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
Single, no work
Single, in work
Lone parent, no work
Lone parent, in work
Couple, no children, no work
Couple with children, no work
Couple, no children, one earner
Couple with children, one earner
Couple, no children, two earners
Couple with children, two earners
Single pensioner
Couple pensioner
Multi-family household, no children
Multi-family household with children
All
-14%
-12%
-10%
Announced yesterday
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
-8%
-6%
-4%
Change in net income
All changes
-2%
0%
2%
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
Single, no work
Single, in work
Lone parent, no work
Lone parent, in work
Couple, no children, no work
Couple with children, no work
Couple, no children, one earner
Couple with children, one earner
Couple, no children, two earners
Couple with children, two earners
Single pensioner
Couple pensioner
Multi-family household, no children
Multi-family household with children
All
-£80
-£70
-£60
-£50
-£40
-£30
-£20
-£10
Change in weekly net income
Announced yesterday
All changes
© Institute for Fiscal Studies
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
£0
£10
£20