In no more than a week’s time we will all be treated to a spot of pre-Christmas delight – the Autumn Budget. I cannot wait given how excited I am at the thought of the chancellor Philip Hammond droning on about the fragile state of the economy and attempting to bamboozle us all with a series of underhand stealth taxes. Bring it on.
Indeed, I believe the Budget will now become the new marker for the start of the Christmas festivities. Move over Bonfire Night.
Once the chancellor has heaped misery on us all, it will be time for us to get into the Christmas spirit and then spend our evenings marvelling at the John Lewis advertisement while wondering what we are going to buy the children and grandchildren. Chalk and cheese. Anger followed by expectant joy.
So, what kind of Budget is Mr Hammond going to present us with?
Will it be a Budget for the young with further incentives to enable them to own bricks and mortar and save more through pensions? It is a distinct possibility given the current government’s disconnection with the young – in stark contrast to the way the young have fallen in love with Jeremy Corbyn.
So, what kind of Budget is Mr Hammond going to present us with?Could it be a Budget which encourages investment in both embryonic businesses and infrastructure – and paves the way for the setting up of a sovereign wealth fund, an idea endorsed by Conservative grandee Michael Heseltine? Maybe, especially given the fact that the country could find itself isolated on the international stage once we stagger through the door marked Brexit; economic stimulation is the order of the day.
Will it be a Budget that encourages us to save more? I doubt it.
He could respond to the recent hike in bank base rate by getting National Savings & Investments (NS&I) to launch a range of improved fixed-rate savings bonds. Even better, given the scourge of inflation, he could get the savings organisation to reintroduce index-linked savings certificates.
The annual Isa allowances are already generous enough in the extreme so I cannot see them moving beyond the current limit of £20,000. There is also little scope for Mr Hammond to encourage the pension savings habit.
I would not be surprised if he uses the Budget as an excuse to cut again the cost of providing tax relief on pension contributions. Maybe he will reduce the maximum annual contribution that can be made into a pension. He could also fiddle with tax relief by offering bigger tax incentives to the young – while restricting those available to those approaching retirement. It is a proposal that has already been aired – presumably to test reaction to it (it went down like a lead balloon).
He could also introduce a flat rate of tax relief on pension contributions although I think such a move would be brave but foolhardy at a time when the Conservative administration needs to keep Middle England firmly on its side. Certainly, whenever I mention pension tax relief to readers, higher rate relief is sacrosanct.
One tax that Mr Hammond would be wise not to increase is insurance premium tax which applies to the premiums we pay for insuring our homes, cars, pets and paying our private medical bills. Premiums which are already rising steeply.
For once I side with the insurance industry on this issue. In the run up to the Budget, the Association of British Insurers has put together a video calling for the tax not to increase beyond the current 12 per cent.
The video is available to view on YouTube and it is well worth a watch. It shows an individual dressed in yellow fining people for doing the right thing – stopping to let a pedestrian step onto a zebra crossing, locking their front door at home and picking up what their pet dog has deposited in the local park. It is the best thing the Association has produced in many a year. Maybe it could now do something to address the issue of loyal insurance customers being offered more expensive cover than new customers (indeed they could make a video about it).
Insurance premium tax is a harsh tax because it impacts on all of our lives – it is sometimes inescapable unless we break the law (driving without insurance). It also hits the poorest and the young the hardest.
According to think tank the Social Market Foundation, households will pay on average £200 next year in insurance premium tax. In the process, the government will collect more revenue than it does for a number of so called sin taxes – beer and cider duties, wine duties and spirits duties.
If Mr Hammond were to increase the tax to 15 per cent (as some commentators believe he could well do) it would be a grave mistake. Indeed, as the Institute For Fiscal Studies argues, the case for cutting the tax is a stronger one.
So Mr Hammond. Do not increase insurance premium tax again. Leave it alone and let us enter the Christmas season in the best of spirits. Please do not ruin our Christmas.
Jeff Prestridge is personal finance editor of the Mail on Sunday
