Autumn Statement kick-starts Chancellor’s tax cutsby
Chancellor Jeremy Hunt today used his Autumn Statement to deliver a fiscal pick-me-up for the Conservative backbenchers at the start of an election year with a 2% cut to national insurance, and making the full expensing capital allowance scheme permanent.
This afternoon’s Autumn Statement was somewhat of a step change compared to the sobering state of the economy this time last year, where the Chancellor then used his fiscal speech to brace the UK for the “storm” of tax rises.
But after having been handed a fiscal windfall of about £26bn to play with after inflation fell to 4.6% in October, Hunt was today able to turn his attention to cutting taxes.
With the Conservative government lagging in the opinion polls, and an election next year, Hunt took a punt at changing the fiscal narrative with “110 growth measures”, including a 2% cut to the main rate of national insurance from 6 January alongside confirming incentives to encourage business investment such as permanently extending the full expensing initiative.
For the self employed, Hunt also abolished class 2 national insurance and cut class 4 national insurance from 9% to 8%.
As for individuals, he also confirmed that the national living wage will increase for 23-year-olds and over to £11.44 per hour from April.
“We cut taxes to help bigger businesses invest, we cut taxes to help smaller businesses grow. We cut taxes for the self employed and keep our country running and from January we cut taxes for 27m working people whose hard work drives our economy forward,” said Hunt.
“We are delivering the biggest business tax cuts in modern British history. The largest ever cut to employee and self employed national insurance and the biggest package of tax cuts to be implemented since the 1980s. An autumn statement for a country that has turned a corner. An autumn statement for growth which I commend to the House.”
The speech may have done more to answer the restless calls from the backbenches for tax cuts than was expected a few months ago, but Hunt did hold off from announcing any changes to inheritance tax or a 1% cut to income tax, despite much media speculation, leaving those rabbits to be potentially pulled out of the hat in the pre-election Spring Budget.
Among the tax measures Hunt announced in response to having a more-generous-than-expected fiscal headroom were:
- Main rate of national insurance cut to 10%
- abolishing class 2 national insurance contributions (NIC)
- a 1% cut to class 4 NIC
- a permanent extension of the full expensing capital allowance scheme
- national living wage increased for 23-year-olds and over to £11.44 per hour
- freeze all alcohol duty until 1 August 2024
- increase state pension by 8.5%
- confirmation of the new merged research and development (R&D) scheme
- freeports extended for another five years
- 75% business rate discount for retail, hospitality and leisure extended until 2025
- tax relief for visual effects expenditure
The Chancellor left the cut to employee national insurance from 12% to 10% until the end of the speech. In a surprising twist, and probably much to the chagrin of payroll software providers, Hunt said the cut will be rolled out from 6 January 2024.
The Chancellor said the cut to class 1 NICs will benefit 27m workers and the average worker in 2024/25 will pay over £1,000 less in personal tax than they otherwise would have done.
The cut to national insurance comes only a couple of years after the government hiked the tax by 1.25% with the addition of the health and social care levy.
Hunt turned his attention to the self-employed national insurance contributions. He first abolished class 2 national insurance and then cut class 4 national insurance from 9% to 8%. He said these reforms would save around 2m self-employed people an average of £350 a year for the average person earning £28,200.
In order to encourage more UK investment, Hunt also announced big changes to ISAs. The reforms, dubbed the biggest in more than a decade, will change rules around fractional shares and long-term asset funds. The simplification comes ahead of an increase to the £20,000 threshold of the tax-free savings allowance.
Hunt also confirmed that the national living wage will increase next April from £10.42 an hour to £11.44 per hour. The minimum wage increase will be welcomed by lower earners, but could add further strain on struggling businesses.
When the rate increased in April, accountants raised concern that with insolvencies at a 13-year high, some businesses may need to “closely monitor and improve cash generation to survive”.
The Chancellor was keen to position business investment as one of the key pillars of the Autumn Statement.
The higher-than-expected tax receipts enabled him to confirm that the full expensing relief will be permanent going forward, since the proposal was set to only run two more years.
He said the extension of the relief, which provides cashflow for large-scale investment, will provide businesses with the confidence to make long-term investments beyond the original end date of 2026.
“This is the biggest ever boost for business investments in modern times. A decisive step towards closing the productivity gap with other major economies and the most effective way we can raise wages and living standards,” said Hunt.
While the business community welcomed the certainty that came with the announcement, Emma Rawson from the Association of Taxation Technicians noted that it does very little for the vast majority, seeing that it’s only for companies and not sole traders or partnerships.
“‘Full expensing’ isn’t quite what it sounds like – many assets are still excluded. This includes the obvious like land and buildings, but also includes cars, and assets bought for leasing,” she wrote on X, formerly Twitter.
“There’s also a sting in the tail of full expensing – if you later sell the asset, a standalone balancing charge arises. In other words, the proceeds are taxable. This means that some relief might be clawed back in the future, and you’ve also got to keep track of the assets carefully.”
Elsewhere, Hunt confirmed that he is simplifying the R&D tax relief, with the much-expected merger of the R&D expenditure credit and small or medium-sized enterprise (SME) scheme. He expanded that the merged scheme will “reduce the rate at which loss-making companies are taxed within the merge scheme from 25% (as per the current RDEC scheme) to 19%”.
Investment zones also made an appearance. Hunt confirmed that he will extend the scheme and the tax reliefs for Freeports from five to 10 years. There will also be three further investment zones in the West Midlands, East Midlands and Greater Manchester.
The Chancellor emphasised throughout the speech how the announced initiatives and tax cuts were aimed at boosting economic growth.
Expectedly, Hunt highlighted at the start of the speech the fall in inflation from 11.1% to 4.6%. He said the Office for Budget Responsibility (OBR) has forecasted that headline inflation will fall to 2.8% by the end of 2024 before falling to the 2% target in 2025.
“I will not take risks with inflation and the OBR confirmed that the measures I take today make inflation lower next year than it would otherwise have been,” said Hunt.
Turning to the prime minister’s pledge to reduce debt, Hunt said that debts were predicted to rise to be almost 100% of GDP by the end of forecast, but the economy has “outperformed expectations”.
According to the OBR, he said underlying debt will be 91.6% of GDP next year, 92.7% in 2024/25, 93.2% in 2026/27, before falling in the final two years of the forecast to 92.8% in 2028/29.
He said the OBR expects the economy to grow by 0.6% this year, 0.7% next year and then rising to 1.4% in 2025.
The devil will be in the detail, but Hunt also revealed that he will provide HMRC with the resources it needs to ensure tax compliance, which he said would raise an additional £5bn across the forecast period. Although he didn’t say whether this is new funds.
Rabbits hibernating for Spring Budget?
The Autumn Statement ended up being more eventful than previously expected. But as Giles Mooney, the director at PTP Training, said on X, formerly Twitter: “A reminder that, if the election is May, purdah prevents anything meaty in the Spring Budget having time to be passed. So this is his last chance.”
However, as is often the case, these fiscal statements are more newsworthy for what was not included rather than what was. In the weeks leading up to the Autumn Statement, there had been a lot of noise generated about inheritance tax. The Chancellor opted against tackling this contentious tax this time around.
However, Hunt could be saving his plans to either reduce the rate or abolish the tax altogether until the Spring Budget or as an election manifesto. A cut to inheritance tax now could have blown back at the government, especially with lower and middle earners still feeling squeezed from the cost-of-living crisis.
Also missing from the Autumn Statement was any further news on stamp duty land tax (SDLT). Jason Croke, a director at Rayner Essex and regular AccountingWEB contributor, highlighted the lack of SDLT announcements in the Budget earlier this year, since changes are eventually expected after the HMRC consultation.
Again, the Chancellor may wait until the spring to make any bold changes to SDLT. As Tom Evenette from EY pointed out before the Autumn Statement, there is no urgent need to make any further changes since an increase to duty thresholds introduced last year will remain in place until 2025. He added that “the post-pandemic stamp duty cut received criticism for contributing to a temporary housing market price bubble that accounted for the duty cut ahead of the deadline.”
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