The Chancellor’s inherited £22billion of unfunded pledges, a drop in interest rates, the IPO’s warning about misleading invoices, plus much more
Today’s blog post discusses potential plans the Chancellor could introduce in this Autumn’s budget, the Bank of England drop the base rate to 5%, HMRC outline their proposal for the abolition of the furnished holiday lettings (FHL) tax regime and the IPO issues warning about misleading invoices.
Chancellor’s speech paving the way to a potentially difficult Autumn budget
The Chancellor of the Exchequer, Rachel Reeves, addressed the House of Commons last week to detail the results of a Treasury spending audit. She has alluded to this in previous comments when referring to making assessments of the public spending inheritance.
She claimed that the audit revealed £22 billion of unfunded pledges that have been inherited from the previous government. These include commitments made to the Rwanda scheme, the Advanced British Standard and the New Hospital Programme. Shortfalls were also found from not increasing Departmental budgets to cover public sector pay settlements.
As a start on dealing with the overspend, the Chancellor announced savings of £5.5 billion for this year, with a further £8.1 billion to come next year. These measures include:
- Cutting winter fuel payments to only those who receive other State support. (Note that winter fuel payments are devolved in Scotland and Northern Ireland.)
- Scrapping the Rwanda migration partnership and retrospection of the Illegal Migration Act.
- Cancelling the Investment Opportunity Fund and other small projects.
- Next year, cancelling the Advanced British Standard and unaffordable road and railway schemes.
- The New Hospital Programme will also be reviewed.
The Chancellor did confirm that the Independent Pay Review Body recommendations for pay uplifts for public sector workers have been accepted. These will average 5.5%.
New plans were outlined for Spending Reviews to be set every two years but cover a three-year period so that there is a one-year overlap with the previous Spending Review. This should allow for a more joined up approach to public finance.
The Chancellor also committed to a single major fiscal event a year, as has been the case for the last few years. This presumably will continue with the recent pattern in which the Budget takes place in the autumn, covering all significant tax and spending announcements. Any spring Statement would simply be in response to the second forecast that the Office for Budget Responsibility makes.
As part of her speech, the Chancellor also outlined tax plans that will be confirmed in the Budget, which is scheduled for 30 October. These include:
- Ending VAT tax breaks for private schools from 1 January 2025.
- Replacing the non-domicile regime with a new residence-based regime (this was already planned under the previous government)
- Extending the Energy Profits Levy for one year to 31 March 2030, tightening its investment allowances and increasing the levy rate to 38% (from 35%) from 1 November 2024.
- Closing the carried-interest loophole used by private equity fund managers to reduce their tax.
These measures have all been discussed in the Labour Party manifesto so there are no great surprises here.
Of course, you don’t need a calculator to see that the £22 billion shortfall in public spending will not be covered by the saving measures the Chancellor has already announced. So, it remains to be seen whether there will be any further ‘pain’ in the October Budget.
Alternatively, the Chancellor may be delivering all the bad news now, while it’s expected following the change in government, and she’s saving some good news for the budget. We wait to see, but we will keep you posted on all the changes that may affect you. If you are concerned about how any of these measures may affect you, please feel free to get in touch, we will be happy to help you.
See: https://www.gov.uk/government/speeches/chancellor-statement-on-public-spending-inheritance
Bank of England reduces base rate to 5%
As anticipated, the Bank of England reduced their base interest rate on August 1 from 5.25% to 5%. The decision was a close call, with a majority of five to four voting in favour of the cut.
The Monetary Policy Report that accompanies the decision explains that while higher interest rates have helped return inflation to the Bank’s target of 2% and allowed them to make this cut, they are expecting a temporary increase to 2.75% later this year.
Why might inflation increase again?
The fall in household energy prices has been helping to bring inflation down, however as energy prices normalise, the downward pull they’ve been exerting on inflation will end. Prices for services, such as hotels and restaurants, insurance and rents for housing, on the other hand continue to rise at rates well above their past averages.
In addition, demand for goods and services this year have been higher than expected and this may contribute to higher inflation.
However, the Bank consider this to be a temporary situation and expect inflation to fall back to their target level next year.
Is another cut likely?
The Bank are prioritising making sure that inflation stays low and have said that they will not cut rates too much or too quickly. This suggests a further cut when they next meet on 19 September is unlikely.
What should you do about the rate cut?
Regardless of future decisions, the cut to 5% is good news for borrowers, but may not be so good for savers.
Commercial banks typically tend to follow the Bank of England, but not necessarily all to the same degree. If you have loan finance on variable interest rates, check to see that the interest rate reduces. Many loans and overdrafts have a rate that is tied to the Bank of England’s base rate so these should reduce automatically.
For savings it may be worth shopping around to make sure that you are getting the best rates on the market.
See: https://www.bankofengland.co.uk/monetary-policy-report/2024/august-2024
Abolishment of Furnished holiday lettings tax regime confirmed
HM Revenue and Customs (HMRC) have published draft legislation and a policy paper outlining the proposal for the abolition of the furnished holiday lettings (FHL) tax regime. This was originally announced by the previous government and any hopes that this may be stalled by the new government are now laid to rest.
The new measures are proposed to take effect on or after 6 April 2025 for income and capital gains tax, and from 1 April 2025 for corporation tax.
The proposed revisions will remove the tax advantages that furnished holiday let landlords have over other property businesses, as follows:
- Loan interest will be restricted to the basic rate for Income Tax.
- Capital allowance rules for new expenditure will be removed and replaced with the replacement of domestic items relief available to other property businesses.
- Capital gains tax reliefs based on disposing a business asset will no longer apply to furnished holiday lets.
- Furnished holiday let income will no longer be included within relevant UK earnings when calculating maximum pension relief.
There are some specific transitional rules that will apply to these changes.
If you own properties that currently qualify for the FHL tax regime, we recommend that you review the effects that the change in legislation will have on you so that you can determine if you need to take any action. If you need any help with this, please do not hesitate to contact us, we would be pleased to help you.
See: https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition
IPO issues warning about misleading invoices
The Intellectual Property Office (IPO) has issued a warning for businesses to beware of unsolicited payment requests.
There has been a recent upsurge in these bogus requests being reported. The unsolicited request may ask for payment for trademarks, designs or patent services. Following payment, the ‘services’ may not be provided, or may not have any benefit to the payer.
Invoices may also request payment for services at a much-inflated price that are available directly from the IPO at a much lower amount, or even free of charge.
The IPO say that the payment request will usually come from an organisation that you do not recognise and may be accompanied with a copy of a fraudulently signed agreement designed to get accounts departments to automatically approve payment.
Examples of misleading invoices have been released by the IPO and it has also published a list of names that are currently known to be used by these organisations.
If you receive such an invoice, you should not pay it and should report it to the IPO immediately. If you believe you have been a victim of fraud, then you should report this to the police.
For more information and links to example invoices, see: https://www.gov.uk/government/news/ipo-issues-fresh-warning-to-beware-of-misleading-invoices
Cyber Security and Resilience Bill to help the UK’s critical systems stay online
The widely reported IT outage in July caused significant disruption worldwide. In this case the fault was essentially due to a bug in a security update rather than a cyber-attack, but it demonstrated the vulnerability of networks.
The government announced its plan during the King’s Speech to introduce a Cyber Security and Resilience Bill. The National Cyber Security Centre (NCSC) report that the threat to services we all rely on, such as water, power and healthcare, is under increasing threat. Both ransomware actors and state or state-aligned groups have shown interest in targeting these systems.
NCSC have welcomed the prospect of the new Bill, which they say will make it harder for weak points in the UK’s critical national infrastructure to be exploited.
See: https://www.ncsc.gov.uk/blog-post/legislation-help-counter-cyber-threat-cni
New mandatory housing targets for councils
The government have announced an overhaul of the housing planning system, with all councils in England being given new, mandatory housing targets. The targets are being set to allow for achieving the new government’s pledge to deliver 1.5 million more homes.
The reforms include making brownfield development much easier to grant. Councils will also need to review their green belt land if necessary and identify and prioritise ‘grey belt’ land. A definition for this has been provided and includes land on the edge of existing settlements or roads, as well as old petrol stations and car parks.
Land that is safeguarded for environmental reasons will continue to be protected. Any land that is released in green belt areas will need to provide 50% affordable homes as part of the development.
These reforms should create opportunities for all construction related businesses.
See: https://www.gov.uk/government/news/housing-targets-increased-to-get-britain-building-again