Author Mark Fairlie
Twice a year, the Office for Budget Responsibility (OBR) release their forecast for the next five years ahead of the Chancellor’s Budget. These forecasts are then used to assess the Government’s performance against their financial targets.
Back in Spring, the OBR released their predictions for what they believed would be in the Autumn Budget. And following Chancellor of the Exchequer Phillip Hammond’s delivery of the Budget on 22nd November, we can now see how the two measure up.
OBR Autumn Budget forecast
The top story on the OBR’s Spring forecast this year included a major windfall for the Treasury, with an estimated £160billion being brought in by raised property taxes.
Between now and 2022, the Chancellor was expected to rein in 60% more in revenues from increased stamp duty, capital gains tax and inheritance tax. This and other sources of revenue in the predictions were to raise the amount the public sector brings in £721.1 billion.
On the OBR’s website, they stated: “Over the next five years, we expect total receipts to rise by 21 percent, a little faster than growth in the cash size of the economy.
“We expect some taxes to rise more quickly, including capital gains tax, inheritance tax and stamp duty on property (driven by asset markets, like housing and the stock market).”
The Office for Budget Responsibility saw Stamp Duty revenues rising from £50.9billion in the last five years to £78.1billion by 2022. They also predicted Capital Gains Tax would almost double, from £28.9billion to £54.9billion, with Inheritance Tax also jumping from £19.8billion to £27.7billion in the coming five-year period.
The Chancellor “remains committed to a low tax economy”
Despite the OBR’s conviction that taxes would rise, the 2017 Autumn Budget suggests otherwise. According to the statement, “the government remains committed to a low tax economy, cutting taxes for both working people and businesses to help respond to short-term pressures.”
In fact, with stamp duty, capital gains tax and inheritance tax bringing in almost £100billion in the last five years, it would now appear the revenue could in fact decrease following the Autumn Budget.
The main story since has, of course, been Hammond’s commitment to abolish Stamp Duty Land Tax (SDLT) for first-time buyers. Those taking their first step on the housing ladder will now be exempt from stamp duty on properties of up to £300,000, lifting the usual threshold of just £125,000.
Homes costing between £300,000 and £500,000 will also have the first £300,000 discounted when calculating how much SDLT payable. A property costing £400,000 will incur a £10,000 charge in stamp duty land tax. But for a first-time buyer under the new rules, it will cost just half of that.
Research firm Jeffries estimates the average first-time buyer spends £165,000 on their first property, with the new cut in stamp duty will save them £800. Those buying in London and the South East, where first-time buyer properties usually hit £300,000 or more, the reduced rates will be greatly appreciated.
Britons spending more than £300,000 on their first home will save £5,000 on average, meaning they can put down higher deposits and effectively cut down their mortgage bills. The OBR said that potential first-time buyers with smaller deposits would now be able to borrow more, “allowing them to buy properties that they otherwise could not afford – but more expensively”.
Figures show that 95% of first-time buyers will benefit from the relief, with 80% paying no stamp duty at all under the new rules.
The change came as a surprise for the OBR, who have since stated they have had to “revise down” their fiscal predictions for the next five years. In 2017 alone, stamp duty raised £12billion for the Treasury. The OBR has since warned the stamp duty cut could also drive up house prices.
The Chancellor did not mention any changes to inheritance tax or capital gains tax in the Autumn Budget, with it already having been announced that the 30-day window for paying CGT will be deferred until April 2020.