Autumn Statement Predictions

Autumn Statement Predictions. 22nd November Calendar on autumn leaves background. 1st July 2023

The Chancellor, Jeremy Hunt, has confirmed that the Autumn Statement is scheduled for 22 November 2023. This will give the Chancellor the opportunity to set out future tax plans and give some indication of whether there are likely to be any potential tax cuts before the general election, which must be held before the end of January 2025. 

 

It would be no surprise to see the government use this opportunity to re-commit to the state pension triple-lock, a costly and controversial policy that is unsurprisingly particularly popular with older voters.

 

The date leaves plenty of time to assess whether Prime Minister Rishi Sunak has met his target to halve inflation, although Hunt may resist making significant pre-election tax cuts if it makes reducing inflation trickier.

 

Hunt is likely to face pressure from Conservative MPs to commit to tax cuts ahead of the next general election, as the party is currently behind Labour according to the polls.

 

The Spring Budget in March 2023, which handed a tax cut to wealthy pensioners – led to warnings that people will be hit with the biggest fall in living standards since records began.  The Chancellor has stressed that ‘as a Conservative I want to bring taxes down as soon as we can afford to do so’.

 

The message seems to be ‘double down’ on inflation, not ‘pump billions of pounds of additional demand’ into the economy.  The Chancellor and Prime Minister seem to be at one in their belief that ‘long term sustainable growth’ is ‘not possible with high inflation’.

 

The Chancellor will also set out departmental spending plans with pressure to address the serious problem of poor-quality concrete structures in schools, which need urgent repair and have forced over 100 school closures before the autumn term starts.

 

A number of backbench MPs are calling for tax cuts as UK taxpayers face the highest tax burden in decades due to the fact that thresholds have been frozen for five years until 2028.

 

The Office for Budget Responsibility (OBR) has been commissioned to prepare an economic and fiscal forecast to be presented to parliament alongside the Autumn Statement.

 

 

Our thoughts are as follows:-
  • Whilst the Chancellor may be against making tax cuts during the current economic environment, this has to be balanced against bringing down inflation and how the Conservatives position and present themselves to voters in the best possible light prior to an upcoming general election.

 

  • Whilst we do not have a ‘crystal ball’, our thinking is that there will not be any significant tax announcements made ahead of the next general election, particularly in respect of tax rises.  Given the complexity and breadth of UK tax legislation currently in force, we would not think that the government would have the time, focus or resource available to them in order to prioritise looking at the detail required in overhauling specific areas of tax legislation before a general election.

 

  • As recent budget announcements have focused upon freezing bands, thresholds and limits for the medium to long term, we can’t see any changes to the implementation of this strategy, although to appeal to the masses whose annual taxable income falls within the basic rate threshold, it is feasible that the government could consider reducing the rate by 1% from 20% to 19%.

 

  • In order to appeal to the country, we can’t see any cuts or reversal of announcements being made to recent pension contribution taxation rules on the basis the government want to encourage individuals to save towards their retirement, nor can we see any further watering down of business tax reliefs before the next general election.  In order to ingratiate themselves more to the younger electorate, we could see the government providing further tax breaks and incentives to such individuals as they have done so to the older electorate over recent years.

 

  • Given recent announcements by Labour stating that they would look to potentially scrap the non-domicile regime altogether should they win the next general election, this could be an area that the government look at between now and the next general election, particularly as the UK’s Statutory Residence Test has not been significantly altered since it was introduced on 6 April 2013.

 

  • Whilst there have been recent rumours circulating about the government’s supposed plans to abolish inheritance tax (IHT), some form of replacement would surely be required to plug the gap. Yet reform might not be the answer, particularly for a government looking to make a big statement ahead of the general election.  With that in mind, the thinking may be to look at Capital Gains Tax (CGT) as a ready-made replacement for IHT.

 

  • We are surprised this is not more widely discussed as an alternative.  CGT is a relatively simple solution that could be adapted for factors such as reliefs, charges on cash and applications to Trusts that could allow it to function as a replacement for IHT.

 

  • The wider point is that CGT is arguably the regime that IHT should be.  There is a school of thought that suggests CGT to be fairer and easier to both administer and understand because everything which is deemed to be sold, is done so at market value, with the cost of the asset being taken into account, and therefore tax is assessed on the increase in value rather than the whole value of the asset.

 

  • Investors love certainty and consistency and one of the loudest complaints from investors into the UK economy is the constantly changing tax environment and the perceived unfairness of some of the rules.  Changing IHT so that it only taxes growth while protecting genuine business assets from tax would potentially be a huge draw for investors both within and from outside the UK.

 

In connection with this, a shift towards CGT could make the UK a more attractive destination for foreign investors who crave a tax system that rewards long-term investments.  With so much discussion around London’s position as a global financial capital, this could send a positive signal to the rest of the world. It is not widely discussed, but CGT is a simple, ready-made solution that could plug many of the gaps left by IHT whilst also arguably supporting a fairer and more inclusive tax system, which may be worth future consideration by the government.

 

  • The idea of scrapping IHT altogether is not novel and there are other examples we can look to for taxing wealth upon death.  For example, Ireland and Canada have historic links to the UK’s financial system and provide interesting alternatives to examine if an alternative system is required.

 

However, we believe that there is a long way to go until IHT is abolished and even if it is, a new government might choose to reinstate it.  Yet for the first time in a generation, there is a very real possibility of a significant reform or even a complete scrapping of the IHT regime.

 

  • It may be possible that the government looks to accelerate streamlining of the tax system.  Although a simplification process started 12 years ago, a full review of the current UK tax system, with particular emphasis on clarification and decision making, is arguably more necessary now than it ever has been.

 

 

If you have views or tax queries, then please do not hesitate to get in touch with our tax departments based within either our Ely office at Bartholomew’s Walk or at our Bury St Edmunds office at Greenwood Court.

 

Disclaimer - All information in this post was correct at time of writing.
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