Chancellor tinkers around the edges of the tax system for employees
23 November 2016
So Phillip Hammond's first Autumn Statement was as notable for what it didn't contain as much as what it did.
He inherited tax restraints from his predecessor which prevented him from raising the main rates of tax in this Parliament, and committed much of the loose change available to pushing the tax free personal allowance and basic rate band up to £12,500 and £50,000 by the end of this Parliament.
Within these constraints, the Chancellor was left with only the ability to tinker around the edges of the tax system. The head scratching and long grappled with reforms needed to the personal tax system, such as changing the way tax relief works on pension contributions, were once more put back in the 'difficult' box for another time.
The Chancellor continued the plan to increase both the personal allowance and basic rate band upper limit to £12,500 and £50,000 by the end of the Parliament. The rise in the personal allowance now makes it close to double the size it was in 2010, taking millions out of paying income tax during that time.
But will this help those just about managing, the so-called 'Jams'? Certainly not the lowest paid who currently earn less than the personal allowance so will feel no benefit. Low paid 'Jams' will be disappointed that the Chancellor has chosen to continue to cut the tax bills of those earning over £40,000 before helping those earning between £8,500 and £11,000. He could have done this by raising the national insurance primary earnings threshold substantially. Some of our lowest paid workers, such as apprentices, part-time workers and those on zero hours contracts, will feel they have been dealt a losing hand.
The Chancellor also announced a part reversal of previous welfare savings. These planned welfare cuts are likely to impact millions of people in the UK. The Chancellor has bowed to pressure from both sides of the house and mitigated some of these cuts by amending the Universal Credit taper, but concerns will remain as to the fairness and impact of planned welfare changes. Political pressure will likely remain high as the true impact of welfare reform is understood.
A new savings bond was announced, which will give a return of over 2% on savings. The last six years has seen a radical redesign of savings taxation, but many have been left dazed and confused at the myriad of alternative products now in the savings market. The new savings bond adds yet another product to the savings options out there for people - it may have some limited appeal for those who understand it, but interest rates remaining stubbornly low is the biggest issue for savers.
Finally, certain salary sacrificed benefits will see a changed tax treatment from next April. The expected change in salary sacrifice rules will impact those employees who may look to take out benefits like health screening and mobile phone contracts through these schemes. For those who are already in these schemes, there looks to be some grandfathering of current tax treatment, but it is clear these changes will impact employee choice of benefits in the future.