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What does the election of Boris Johnson as the UK’s new prime minister mean for the accounting industry?

15th Aug 2019
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The Association of Accounting Technicians (AAT) has questioned Boris Johnson that whether his tax and spending proposals are affordable and valuable.

The AAT asked Johnson to limit his drive to boost the income tax threshold completely and warned that there would be enormous cost indications for the several other expenditure commitments he has made, important or not.

Phil Hall, leader of public administration and public affairs at AAT, said, “The proposals being put forward by Boris Johnson are very expensive and benefit only the highest 5% of income earners – who are mostly men in London and the southeast.”

The proposal will increase employees’ 40% income tax threshold to £80,000 from the current £50,000. This would cost almost £9 billion to the Treasury. The AAT accepted that in the first decade of this century, there was a substantial erosion of personal allowance, but the situation has improved since 2010. Thus, a considerable rise in personal allowance can be expected, and the tax approach is accurate as it is.

In 2018 Budget, Hall said that the AAT cleared that the period of fiscal drag, the tax approach is now correct. Any additional increase in the high-rate tax threshold should only be limited to yearly increments in accordance with the Consumer Price Index (CPI).

In recent weeks, Johnson’s income tax proposal has garnered extensive attention, and the most significant is the spending commitments.

Along with proposing income tax revisions, Johnson has also set out several eye-catching spending engagements. However, the AAT is hardly convinced that his plans are realistic and can be achieved.

 

£1bn for extra police

On policing, Johnson has promised to deliver extra 20,000 police officers, which would cost approximately £1.1bn.

Spending cuts in education 

Johnson has authorised reverse spending cuts on education. Almost one-third of English secondary schools reported a shortage last year, and school spending declined 8% per student in real time this decade. However, reverse spending cuts on education would be an extravagant commitment, and the AAT seems unconvinced that Johnson can deliver on all these expensive commitments.

Hall said that by 2022-23, reversing spending cuts and spending more on schools will be a popular decision and a possible vote winner, but these steps do not come cheap, as they would cost £4.6bn, an additional price tag for primary and secondary schools.

Plans to “unleash” fibre broadband by 2025

The government has already pledged to guarantee full-fibre broadband access to all houses and offices by 2023. By 2025, Johnson has promised to expedite processes with an aim to unleash full fibre for all. However, this step could cost as much as £34.5bn, according to a cost investigation authorised by the National Infrastructure Commission, and infact it doesn’t reflect the additional costs of achieving the objective eight years advancing of schedule. Hall outlined that the ideas as “beyond ambitious” with a “myriad of regulatory hurdles”.

The need for greater full-fibre broadband access is obvious. Productivity gains are enormous, and it will abolish the digital divide that separates rural societies. However, it shall also require a substantial amount of money and is far from ambitious in scale. The £34.5bn cost of full fibre is likely to increase as short-term labour prices, the complexity of the civil engineering process and myriad regulatory hurdles have to be overcome.

Notable tax savings

Although the AAT is bothered about Johnson’s tax and spend policies, it believes that further savings can be achieved. It argues that Johnson has hinted that his multiple spending commitments originate from the recently created “fiscal headroom” (the contrast between the contemporary UK budget debt and spending), which currently persists at 1.2% of GDP, approximately £26.6 billion. However, spending promises made so far already outpace any fiscal headroom. Thus, the question is “Where else could funding be obtained from if borrowing or taxes do not improve?”

Last year, the AAT identified that £27bn of yearly savings could be made by increasing the age at which specific advantages are paid, making changes to pensions tax relief and utilising technology in place or road tax, fuel duty, and VAT on fuel, amongst various other measures.

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