It was a somewhat unsurprisingly subdued spending review statement from the chancellor yesterday as he unveiled a set of worrying figures on the state of the UK’s finances.
Rishi Sunak announced that the government is expected to borrow £394bn this year, while the level of unemployment had increased to 1.62 million, up 300,000 on last year.
Worryingly unemployment looks set to hit 7.5% next year with 2.6 million out of work; unemployment will come down to 4.4% by the end of 2024.
He also announced that the economy was predicted to contract by 11.3%, which is the largest fall in output for more than 300 years, but looks set to grow by 5.5% next year and 6.6% in 2022.
“Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022. And the economic damage is likely to be lasting,” the chancellor said.
But there was a sigh of relief for those working in the property industry and elsewhere as Sunak did not mention any changes to taxes.
There were some concerns prior to yesterday’s announcement that Sunak may look to introduce higher taxes, with widespread speculation that this would lead to a hike in capital gains tax rates.
The government’s tax adviser recently recommended that capital gains tax be overhauled with proposals that could see the number of people hit by the duty rise significantly.
Rishi Sunak is said to be considering proposals by the Office of Tax Simplification (OTS), a Treasury-based body, to reform capital gains tax in light of the economic and fiscal impact of the Covid-19 crisis.
The move has the potential to bring in an extra £14bn by reducing exemptions and doubling rates, according to the review, which was commissioned by the chancellor.
The OTS concluded current CGT rates were too complex, and suggested that the government bring them closer in line with the rates of income tax.
CGT is currently charged at 10% and 20% for most taxable assets, or 18% and 28% for residential property that is not a main home. Income tax is charged at rates of 20%, 40% and 45%.
But the chancellor clearly decided that now is not the right time to make such major changes.
Adam Feather, managing director of Robert Anthony Property, commented: “Yesterday’s spending review was not the right time for the chancellor to announce any tax increases, but it does look highly likely, based on the Treasury’s messaging in recent weeks, that the introduction of tax increases in 2021 are now inescapable.
“But I do worry that higher CGT costs may deter many people from investing in the residential property sector.
“The proposals made by the OTS would radically reform capital gains, but I do not see how this would simplify the tax. It would, in my opinion, merely complicate the existing CGT regime.”