George Osborne delivered the coalition Government’s spending review today, the first since taking office. There will be more reviews – notably the Economic and Fiscal Spending Review (which is to take place on 29 November 2010), this review confirmed the main changes to taxation (Capital Gains Tax, VAT etc) that had already been delivered in the June Emergency Budget, before going on to identify the three main principles in delivering the savings required – Reform, Fairness and Growth. However, there were no ‘real’ surprises to report and the main points as they relate to the world of financial services are summarised below.

Banks

UK banks will face a permanent financial services levy to replace the previous ‘bonus tax’ and must sign up to a code of practice by the end of the month. Currently, only four out of the 15 major banks operating in the UK had signed up to the code.

NEST

The National Employment Savings Trust (Nest) has been given the go ahead in delivering auto-enrolment and will be ready to launch in low volumes in 2011.

Public Sector Pensions

The public service pension review carried out by Lord Hutton has been welcomed by the chancellor who noted that the highest earners in the public sector should contribute substantially more to the previously unfunded schemes, but that civil servants on lower wages should be protected. The changes to funding are expected to be progressive and final recommendations will be made in the early part of next year.

On a similar note, the current final salary pension arrangements enjoyed by MPs will be replaced.

State Pension

The state pension age (SPA) will rise to 66 by 2020 for both men and women over a phased period between December 2018 and April 2020.

This means that the rate of rises for women will be accelerated. The women’s SPA will reach 65 by November 2018. This will be done by imposing increases at a rate of three months in every four as opposed to the current one in every two.

Following the faster increase to 66, the government is also considering future increases to the SPA in order to address the rise in longevity. The extra revenue raised will be used to increase the state pension.

Equitable Life

Compensation for the victims of the collapse of Equitable Life is expected to be in the region of £1.5 billion and policyholders will begin to receive payments next year.

Compensation will be based on the difference between what policyholders actually received and what they would have received elsewhere.

It was also announced that the government will make regular payments over the lifetime of with-profits annuitants replacing the income stream that they had lost.

Tax Evasion

£900 million has been promised to address tax evasion. HMRC estimates that an additional £7 billion per year in tax revenues could be clawed back by 2014/15 using the added resource.
The investment will include;
• A five-fold increase in criminal prosecutions to act as a deterrent to others
• A new dedicated team of investigators to crack down on offshore evasion
• More resources for the prevention of tobacco and alcohol fraud
• An increase in registration checks, and a cyber team to address repayment fraud
• Dedicated tax experts to extend HMRC’s coverage of large businesses, focused on providing resources to tackle high risk areas
• Improving the scope of in house debt collection and placing up to £1 billion per year of tax debt to private sector debt collection agencies.

Other highlights in brief
• Public Sector employment is set to fall by 490k in the next 4 years
• Welfare – an additional £7bn. of savings identified on top of the £11bn already targeted
• No change on the child benefit abolition for high rate earners – but an emphasis that the £2.5 billion raised allows them to maintain benefit until the child leaves full-time education
• Have identified £6bn. scope for reduction in the administrative costs of government departments (against initial target of £3bn cuts)
• Schools budget will increase by 2015 from £35bn. to £39bn.
• Scotland: the overall block budget allocation will rise but beneath the rate of inflation; 6.8% cumulative real terms reduction by the end of the period, and 38% reduction in capital funds available to the Scottish Government

Thanks to 360 for this helpful summary.