When he stepped up to the plate after the financial markets roundly rejected his predecessor’s Growth Plan, Jeremy Hunt was hailed as the new Messiah. He might have been but the case was hardly proven.
In reality, he was like the boy who put his finger in the dyke. The big question was what would happen when the finger was removed.
In the wake of the antics of a duo reminiscent of Morecambe and (Un)Wise, who instead of bringing us sunshine initiated flash floods that necessitated the launch of numerous Bank of England dinghies to save the day, almost anything that Hunt and Rishi Sunak offered was going to seem like manna from heaven.
Pleasingly, the latest Chancellor eschewed nearly all of the snide and cheesy insults that have been so popular with recent holders of the office, coming over like a true, if comfortably unexciting, statesman. His sole joke was well received by all, which was a rare achievement.
Stability and fiscal credibility
This time around, growth, growth, growth had to take a back seat in favour of stability and fiscal credibility as we head into what the Office for Budget Responsibility (OBR) projects to be a long recession at the same time as the Consumer Prices Index (CPI) hit 11.1% (the carefully hidden Retail Price Index reached 14.2%) combined with the need to persuade markets that the United Kingdom really isn’t a basket case.
Inevitably, much of the information and excitement that one used to expect when a Chancellor arrived with the traditional red dispatch box has been dissipated with most key measures leaked to friendly newspapers in advance.
We had already been forewarned that the latest dynamic duo planned to raise around £55bn broadly divided equally between spending cuts and tax increases, which will usher in a new age of austerity.
The most significant tax-raising measure was taken directly from the opposition’s playbook. This will spray windfall taxes around like there is no tomorrow, increasing the charge on gas from 25% to 35% and catching electricity generators for 45%,
The same could be said for the highly commendable decision to link pensions, benefits and credits to inflation, a move that went against the prime minister’s instincts but was forced by a combination of popular sentiment, media speculation and the desire for many of his colleagues to have a chance of keeping their jobs at the next election.
Given free rein, most MPs on the government benches would also have preferred tax cuts to rises, but needs must.
Stealth taxes
Ironically, in a Budget packed with stealth tax increases primarily by freezing rates, and based on the principle that the wealthy should bear the greatest burden, perhaps the most significant hidden charge, the cap on average energy bills, was marketed very differently.
This is to rise by 20% next April from a barely affordable £2,500 to a completely unmanageable £3,000, though with some much-needed reliefs for those struggling most. The controversy is likely to focus on the fact that the wealthiest will benefit most from what is effectively a government subsidy, since they use the most power.
Struggling small businesses will also have been concerned that their own issues around energy costs were seemingly brushed under the carpet.
Many of the measures are either technical or long-delayed but the highlights from accountants might include some of the following.
- No tax rates are to change but neither are most allowances or rate bands.
- The latter will be frozen until 2028, which given the current inflation rate of over 11% and given OBR predictions that it will still be over 7% by the end of next year, barely counts as stealthy.
- The 45% Additional Tax Rate is to commence at £125,140, which will be a particular blow to the upper end of middle earners, including many accountants.
- The starting points for dividends and capital gains tax (CGT) are both to be cut significantly. Dividends over £500 will be chargeable from next year, while CGT will be due on gains over £6,000 next year and £3,000 a year after. This will not only bring into charge relatively inconsequential amounts but, additionally, mean that many more taxpayers will be obliged to complete tax returns to cover relatively footling amounts.
- Electric vehicles will be subject to excise duty from 2025. Even Jeremy Hunt admitted that this was a relatively cynical tax-raising measure and it is hardly eco-friendly.
- The stamp duty cut announced by Kwasi Kwarteng will continue until February 2025, which makes little sense in the context of everything else out on the day.
- Various measures are planned to limit tax evasion and unacceptable avoidance. Prima facie the changes announced seem to be tinkering around the edges rather than addressing the problems head-on.
- Business rates revaluation is to go ahead and there will be reductions over the next five years, which will be welcomed by enterprises that are currently struggling to survive, if they make it that far.
- 600,000 individuals claiming universal credit will be obliged to meet “work coaches”, which was dressed up as helpful but could be regarded by the victims as sinister.
- The same applies to a review of the state pension age, which could temper the delight felt by some who expected to benefit from the continuation of the triple lock in the years ahead.
- On the plus side, those in no paid work will be delighted to learn that the national living wages increasing by close to the rate of inflation, though they might wonder why the government didn’t go the whole hog and give 10.1%.
- On the cost side, schools and the NHS including social care are generally protected, although the numbers need unpacking to see whether there are any hidden catches, particularly in the light of very high inflation rates.
- As a quid pro quo, the Dilnot reforms to protect those needing care from losing their homes have been put back two years.
Eco-friendly measures
As always, there is a tendency to focus on what the Chancellor said rather than the options that he ignored. However, one appreciating that eco-friendly green measures made it into the speech, which puts Hunt one up on most of his predecessors, many will feel that his proposals could have been more positive in the wake of the promises made at COP 26 last year.
Equally, despite ideas floated in the media, the Sunaks and other non-dom families can heave a sigh of relief at not losing their undeserved tax breaks, there is no unification of income tax and CGT rates and, unless it is hidden in the small print, bankers’ bonuses are no longer subject to restrictions.
Finally, it remains that there is no suggestion that the vindictive decision of the previous regime to axe the Office of Tax Simplification has been ditched. Every reader of this column will surely hope that this worthy body not only survives but is given additional teeth.
Find out the devil in the detail of the Autumn Statement at AccountingWEB Live Expo on 30 November - 1 December. Tax experts such as Rebecca Benneyworth, Paul Aplin, Dan Neidle and many more will explain the impacts of the fiscal statement for you and your clients.
