Next Wednesday the chancellor will present his Spring Statement amid a sharply rising cost of living, an international conflict, and a tax burden not seen for 70 years.
The statement will come against a backdrop of inflation being expected to reach around 8 per cent in April, a 1.25 percentage point national insurance and dividend tax hike and the lifting of the energy price cap in April, which mean steeply rising bills for many this year.
The chancellor will have a difficult task in balancing public finances with supporting growth while some have called on next month's tax rises to be postponed.
The Institute of Fiscal Studies predicted he might need to pledge more than £12bn on top of the £9bn already committed to protect households from higher prices.
Anthony Villis, managing director of advice firm First Wealth, shares his hopes for the Spring Statement and explains why going much further with higher taxes is "politically very difficult and wrong".
FTA: What are your hopes for the Spring Statement?
AV: A package of measures that encourage entrepreneurs and business. It’s a difficult balance, as we have huge pandemic debts to pay back, but we need to encourage wealth creation and not stifle long term growth. Some reduction on the planned 25 per cent corporation tax increase would be welcome, but unlikely.
FTA: Which tax policy is the most helpful for financial planning?
AV: Working with entrepreneurs, we find the enterprise investment scheme particularly useful. Business owners tend to understand and appreciate the risks involved, but are also happy to back relatively new ventures with a solid business plan and strong team that need to access capital.
The 30 per cent income tax credits and ability to carry back relief is incredibly useful in planning, so to the loss relief for investments that fail. First Wealth uses EIS to offset dividend tax for clients, and where business owners have exited and have previous income tax liabilities to consider.
FTA: Which tax policy do you find the most disruptive?
AV: The annual allowance and lifetime allowances taxes are both complex and deter savings for the future. If HMRevenue & Customs wants to reduce total tax relief, then move the rate to a standard rate of relief for everyone, not cap lifetime value of pension pots.
Ultimately, we need to encourage people to provide for themselves, and rely less on the state. The complex mess of pension legislation helps this ambition in no way.
FTA: How do you help clients get around the tapered annual allowance?
AV: First, just by helping clients see that they have an issue. Due to the complexities of the rules, many people don’t even realise there is an issue until they receive an unexpected and unwanted tax bill in the post.
The next step is to reduce contributions accordingly to avoid taper relief. This is relatively easy if you are self-employed or run your own company. If you are employed you can talk to your employer about offsetting the reduced contribution through higher salary, some will help accommodate this request.
