Last week we hosted our first Deep Dive webinar into artificial intelligence and we would like to thank Alister Jones (Transparity), Chris Weavill (Hertzian), Amy Ralston…
Jeremy Hunt has presented his Autumn Statement. It sought to raise £55 billion by 2027/28, made up in roughly equal proportions by tax rises and spending cuts. Much of this is intended to be achieved through freezing tax allowances and thresholds, and not increasing public spending by as much as was hoped. Maintaining another round of belt tightening over a period of five years looks a tough ask.
The Chancellor’s strategy appears optimistic and is based around keeping the gilt markets happy for now, whilst hoping, in the words of Mr Micawber, that “something will turn up”. This is even more the case, given that there has to be a General Election by January 2025 at the latest. If Labour were to be elected, then they will have different priorities in terms of where the tax burden should fall and how spending is allocated.
On that basis, it makes sense to focus on the period up to April 2025. Still uncertain, but less uncertain than the years afterwards. The table shows the headline tax changes announced in the Autumn Statement.
Tax measures announced in the Autumn Statement – amount raised/(spent) to the nearest billion
|Energy windfall taxes||2||7||6|
|Reducing additional rate threshold & cutting dividend/CGT allowances & exemption||1|
|Freezing employers’ national insurance & VAT thresholds||3||6|
|Global minimum tax & R&D changes||1||3|
What is clear is that the big money raiser is the windfall taxes on energy producers. There are now two windfall taxes – the Energy Profits Levy (a tax on oil and gas) and the new Electricity Generator Levy. This new levy on the electricity generators is scheduled to last five years and applies to groups producing 100 gigawatts a year – so, big ticket stuff. It is possible that both the time period could extend or the energy generation limit reduce in future, but this new tax is already impacting the market price of smaller producers, as the potential buyers include large groups.
What else is headline news? Well, the next big items are coming from fiscal drag (the effect of freezing tax thresholds so that people are dragged into paying more tax as their income increases) and reducing the additional rate income tax threshold. However, the big item in this category is freezing the threshold at which employers’ National Insurance becomes due and so is effectively a burden on larger employers.
Corporation tax changes
The next largest category relates to the clampdown on perceived abuse of R&D tax credits by companies, tightening up the rules and cutting the rates of tax relief as well as implementing the new OECD Pillar 2 rules on multinational companies. These are the tax rule changes that have been negotiated over a number of years and that Rishi Sunak trumpeted when he was Chancellor.
Finally, there is a reduction in business rates with a particular desire to alleviate the burden on the hospitality sector (albeit with those businesses still being impacted by fiscal drag on employers’ National Insurance and an increase in the National Living Wage). What is noticeable, though, is that this tax break on business rates is being paid for by increased taxes on larger businesses – so it is shifting the burden, but the Government isn’t picking up the bill for it. In due course, the business rates tax reductions then phase out, so that by 2024/25, about half the additional tax take is coming from increased tax on larger businesses with the other half coming from the windfall taxes.
For those individuals pushed into paying additional rate tax, especially on dividends and salaries taken from owner managed companies, then that may seem like a significant tax rise, but for the country as a whole, it’s not raising that much. There is, however, a chunk of our clients where their businesses are getting hit for additional taxes and they are having to pay more tax as well when they extract any profit. And that is on top of higher energy costs, higher interest rates and a much higher background level of inflation.
Overall, it does seem that Jeremy Hunt has looked to increase the tax take from higher earning individuals and larger corporates. He hasn’t gone after wealth and has left much of the population alone, whilst trying to provide some relief for smaller businesses on business rates. Whether a new government post-election leaves wealth alone remains to be seen.
For more analysis, visit our Autumn Statement hub.