CSA reacts to the Chancellor’s Budget

Analysis of measures as they impact on the collections and debt purchase sector

With his early thoughts reflecting on today’s Budget announcements by the Chancellor, our chief executive Chris Leslie writes:

“At a headline level, this is a Budget that raises the level of general taxation in a few years’ time, relies on extra government borrowing for higher spending in the short term and significantly increasing welfare spending. The Chancellor is likely to need to return for more tax rises next year because – although there is welcome headroom to meet fiscal rules – this headroom is likely to erode over the coming year. 

“The £20bn+ tax rises from 2028 onwards will hit the wider working population through the little-understood tax threshold process, dragging a larger number of basic rate taxpayers into the 40% income tax band. This is the biggest tax take in the Budget.

“Higher inflation is forecast over the next few years, staying higher for longer than expected, and economic growth projections are dampened somewhat from previous forecasts. Topline: the economic isn’t going to be going ‘gangbusters’ in the years ahead, but no immediate threat of recession either. 

“The removal of the two-child limit in Universal Credit payments will cost £3bn annually, on average giving an extra £5k to around 560,000 families, many of whom will be on lower incomes. From our sector’s point of view, this additional income will take a number of families in debt and with deficit budgets into a position where they are likely to be more able to afford debt repayments. 

“The Chancellor has also started to introduce new ‘niche’ higher rates of tax for certain types of income – not commented on yet more widely – including an extra 2p on the income tax rate for property income, dividend income and savings income. 

“For our sector’s firms as employers, a number of additional costs have been announced, including a rise in the minimum wage especially significant for young employees; significant curtailment of the Salary Sacrifice pension scheme but only from April 2029; for wider financial services (not specific for our sector) the Economic Crime Levy rate is also increased. 

“For the collections sector, some interesting points to note on public sector collections:

• The government will invest £64 million over the next five years in HMRC’s existing partnerships with private sector debt collection agencies to collect more tax debt. In their background document the Treasury state that this will be used to expand HMRC’s existing use of third-party debt collection agencies to increase collection of overdue tax debt. Interestingly they calculate that over the period until 2030-31 this will in turn yield an aggregated additional revenue of £860m (starting low at +£25m in 2025-26 this year and rising to an annual additional £485m+ in 2030-31). This looks like a rather impressive return on investment of £13 for every £1 committed to this effort.
• In addition, the Government announce an extra £89m for additional HMRC staff focused on tax collection, yielding they estimate £585m over the period to 2030-31.
• They also say: “The government is publishing a new tax debt strategy at Budget, outlining HMRC’s approach to reducing tax debt as a percentage of receipts, and to improving debt management and customer support.”
• There will be an establishment of a ‘Public Authorities Fraud Investigation & Enforcement Service’ to trial new approaches to fraud enforcement.”