Osborne should focus on more than avoidance in Statement

IN SPITE OF THE EVER-INCREASING BLUSTER on tax avoidance in recent weeks, I don’t expect much more than further condemnation of the practice in the chancellor’s Autumn Statement today.

There is a good reason for that – the highly anticipated draft of the general anti-abuse rule is due out next week, while other legislation, including the changes to child benefit and shares-for-rights employment contracts will also be released.

Indeed, Osborne has a very fine line to tread, with political pressures being exerted from both his own party and the Lib Dem half of the coalition, as well as attempting to reconcile maximising the tax take and maintaining and (hopefully) enhancing the UK’s attractiveness to investors.

That is only exacerbated by the confirmed drop in income and corporation taxes due to come in from April next year.

Options, then, are limited.

But it seems the main thrust of today’s announcements will be about encouraging business and entrepreneurialism.

That, to me, appears to be sensible, especially given the likelihood that the statement will see Osborne announce that the state of the economy is worse than expected.

In light of that, reliefs for the creative industries would be welcome, although quite what is meant by the requirement that their work be “culturally British” in order to qualify is anyone’s guess. Enforcing that criterion could well prove troublesome in the future.

The chancellor may be tempted to increase VAT as a lucrative method for supplementing the upcoming drops in income tax and corporation tax, but following the backlash over pasties, grannies and caravans earlier in the year, I would appeal for him to leave it as it is for the moment. After all, spending is to be encouraged at the moment if any recovery is to be sustained.

Pensions are likely to draw Osborne’s attention as another source of revenue, but with just £600m to be gained from a drop to a tax-free maximum contribution of £40,000, I would suggest a drop to either £30,000 to glean £1.8bn or not at all – in for a penny, in for a pound. Speaking of pennies, saving, too, is to be encouraged and so any drop should make a substantial difference, lest it be seen as tokenism.

National insurance contributions could be a useful source of extra income, but that has not been mentioned, and it would go down as quite a surprise, should the chancellor change the rates.

Most important, though, is to increase the resources available to HMRC, not only in its fight against avoidance and evasion, but in its efficiency. Eradicating error and inaccuracies would go a long way to driving down the tax gap, which last year accounted for £8.1bn, far more than the £4bn and £5bn avoidance and evasion represented in the same period.

Perhaps the taxman will be relieved if it is to avoid the further cuts to government departments, which have been well trailed this week.

In all, it is unlikely to be a particularly drastic statement on the tax front, but as ever in these delicate matters, the devil is in the detail.

Calum Fuller is the tax correspondent for Accountancy Age and Financial Director.