Queen's Speech - Tax Announcements

A pre-election commitment to ban rises in income tax, VAT and national insurance (the so-called ‘triple tax lock’) will be enacted in a National Insurance Contributions Bill and a Finance Bill and is among a number of laws affecting taxation. The legislation will also prohibit the Government from extending the scope of VAT or raising the National Insurance upper earnings limit.

Other proposals that will appear in the Finance Bill include a commitment to ensure that the minimum wage (currently £6.50) remains tax-free for those working 30 hours per week or less. The speech also confirmed the Government’s intention to raise from £10,600 to £12,500 the threshold at which earnings become liable for income tax.

The Government have not said anything about other measures the Finance Bill (or possibly a second Bill) will include. Based on the Conservative manifesto it could include some of the following:

• Increasing the income tax higher rate threshold towards a target of £50,000
• Increase transferable tax allowance for married couples at least in line with the personal allowance.
• Reduce the tax relief on pension contributions for additional rate taxpayers towards an end goal of an annual allowance of £10,000 
• A new Help to Buy ISA 
• A new £175,000 per person transferable IHT allowance for main residences when they are passed to children or grandchildren
• Allow farmers to ‘smooth their profits’ for tax purposes over five years, up from the current two years, to counter income volatility
• Expansion of tax incentives for the creative industries sector 
• Further anti-avoidance and evasion measures towards a target of raising at least £5 billion more annually from these areas
• Increases to the annual tax charges paid by non-doms
• Criminal offence for those companies which fail to put in place measures to stop economic crime, such as tax evasion, in their organisations (NB. This might appear in separate criminal justice legislation)
• Establish the Office of Tax Simplification (OTS) on a permanent basis and expand its role and capacity

We will have to wait until the Budget on July 8th and the expected publication of the Finance Bill shortly afterwards to see which of these are being brought forward in this first session of the new Parliament.

A Full Employment and Welfare Benefits Bill will freeze most working-age welfare payments, including tax credits and child benefit. An Enterprise Bill will reform the business rates system ahead of the 2017 revaluation, including by modernising the appeals system.

Devolution was a key theme of the speech, concentrating on new powers for Scotland and cities. The Scotland Bill promises to devolve "wide-ranging powers" over taxation - including income tax rates and thresholds - and spending to Holyrood following the recommendations of the Smith Commission. The Scottish Parliament will now receive new powers to raise 40% of taxes and decide about 60% of public spending. A portion of VAT (control over the first 10% of standard rate VAT revenue raised in Scotland and a 2.5% reduced rate) and the whole of Air Passenger Duty will also come under Edinburgh’s control.

The Cities and Local Government Devolution Bill seeks to deliver on manifesto commitments to devolve greater fiscal autonomy to cities including a pilot scheme to allow certain councils to retain 100% of growth in business rates.

‘English votes for English laws’ will be progressed by a change in procedural rules in the House of Commons (the establishment of an English parliament has been ruled out); changes to taxation and spending that affects England only will require majority consent of English constituency MPs.

On Europe, the Government have proposed a European Union (Finance) Bill. The Bill is designed to give UK approval to the financing aspect of the seven year EU Budget deal agreed in 2013. According to the Government, it will preserve the UK's rebate, and prevent new EU-wide taxes to finance EU spending.

By James Knell, CIOT External Relations Officer.