This year’s budget is likely to be overshadowed somewhat by the ongoing debate over whether the UK will vote to leave or stay in the EU. This appears to have prompted the recent decision by the Chancellor of the Exchequer to drop plans to cut the rate of tax relief on pension contributions as the government looks to reform the pensions system.
The systematic tinkering by successive governments of private pension schemes has created a situation where a good number of people aren’t saving enough to fund a secure retirement, creating a disincentive to save over concerns that governments will use pension funds as cash cows.
The Chancellor appears to have taken a political decision to either drop or delay any prospective changes until after this summer’s Brexit vote lest the voters punish the government in the Governments fight to keep Britain in the EU.
While this delay reeks of political calculation there is nothing to stop the Chancellor in trying to implement the changes in his Autumn Statement later this year, while still lowering the ceiling at which tax relief kicks in.
Even though he may have dropped his pension plan changes the Chancellor still faces the prospect of missing his borrowing target for this year unless we get a significant surge in tax revenues in the remaining months of the current tax year.
With two months to go the chancellor has already borrowed £66.5bn this year, £7bn short of his target for the whole of the year.
This means that the Chancellor is going to find it difficult to indulge in a giveaway budget even allowing for the financial jiggery-pokery that allowed him to drop his tax credit reforms in November.
While the prospect of lower interest rates for longer have helped keep down debt interest repayments he will still have to consider measures of the kind that he’s been reluctant to use in the past, including increasing fuel duty, since lower fuel prices mean less revenue in the form of tax receipts.
Some of the usual measures that are likely to see changes are personal allowances and tax bands as well as the usual sin taxes.
With the referendum just over three months away the government are likely to be significantly exorcised to not do anything too controversial to alienate voters in what could well be a once in a lifetime vote on the UK’s future relationship with other European countries.
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