The pull of the fiscal black holeby
After yesterday’s Autumn Statement, Paul Aplin keeps finding his attention drawn towards the gaping public finance black hole.
Perhaps it is my age, perhaps it is a kind of OCD, but sometimes when I am reading, I find that I must keep flipping back to a single line or paragraph. Yesterday’s Autumn Statement had that effect on me and the thing I kept going back to was the debt interest figure.
A year ago, in the 2021 Autumn Statement (delivered by then Chancellor, now prime minister Rishi Sunak) net debt interest for 2022/23 was forecast at £33.7bn. The Red Book noted that: “While the higher level of borrowing is currently affordable as the interest rate the government pays on its debt remains close to historical lows, the public finances remain vulnerable to future shocks due to the government’s large stock of debt.” How prophetic that rider was.
By the time of the 2022 Spring Statement, the Office for Budget Responsibility (OBR) was predicting that figure would reach £83bn, “the highest nominal spending ever and the highest relative to GDP [Gross domestic product] in over two decades… nearly four times the amount spent on debt interest [in 2020-21] and [greater than] the budgets for day-to-day departmental spending on schools, the Home Office and the Ministry of Justice combined.”
Yesterday’s Green Book increased the figure even further, to £120.4bn.
The rate of interest the government has to pay on the debt pile is such a strong factor now that no element of the 2022 Autumn Statement could really escape its effect.
A matter of style
In his mini-Budget at the end of September, Kwasi Kwarteng reached for some big fiscal levers, omitted any OBR analysis and delivered – with bravura – a speech setting out measures focused on driving growth. The markets reacted dramatically. The cost of government borrowing rose.
The Autumn Statement took a very different approach. OBR forecasts were included and Jeremy Hunt’s delivery was sober – one might say sombre – and business-like. The markets seemed largely untroubled. Most of the mini-Budget’s announcements had, of course, already been abandoned. In terms of tax announcements, much of what was announced on the day seemed rather flat.
It’s a (fiscal) drag
Much of the heavy lifting – beyond the reversals to the mini-Budget measures that had already been announced – was down to fiscal drag: the personal allowance, higher rate threshold, national insurance upper earnings limit and upper profits limit (as well as the primary threshold and lower profits limit) and the inheritance tax nil-rate band and residence nil-rate band will remain frozen for two more years, to April 2028. The national insurance secondary threshold will be fixed at £9,100 from April 2023 until April 2028 and the Class 2 lower profits threshold will be fixed from April 2023 until April 2028 to align with the lower profits limit.
The VAT threshold will remain frozen until April 2026.
The income tax additional rate threshold will be lowered from £150,000 to £125,140 – the point at which the personal allowance withdrawal taper ceases – from 6 April 2023.
The reduction in the capital gains tax exempt amount, first to £6,000 and then to £3,000 and the reduction in the dividend allowance to £1,000 and then to £500 will raise further revenue, but at the administrative cost of requiring more people to complete tax returns.
The contrast with the “big lever” headline-grabbing measures in the mini-Budget could hardly have been greater.
Over at HMRC
There was only one tax-related document on HMRC’s website: a policy paper (and some draft legislation) on share-for-share exchanges involving non-domiciled individuals.
There were also changes to R&D reliefs, clearly aimed at curbing abuse of the system.
One other announcement that caught my eye was the investment of a further £79m over the next five years to enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. This investment is forecast to bring in £725m of additional tax revenues over the next five years.
There was, however, nothing on Making Tax Digital (MTD). The numbers in the pilot are still well below the level we should be seeing with April 2024 now less than 18 months away. The restriction allowing only businesses with fiscal year ends to join needs to be removed as a matter of urgency. There are also several other mission-critical issues relating to quarterly returns, the impact of basis period reform and income from jointly let property to resolve.
Things to come
The Spring Budget is only four months away.
Who knows what will happen between now and then?
I’m sure the Red Book will again provide plenty for my eye to keep wandering back to.
The black hole will retain its power.
Paul Aplin will be appearing at AccountingWEB Live Expo on 30 November and 1 December, alongside Rebecca Benneyworth, Ian Holloway, Glenn Collins and many other tax experts. You’ll be able to hear in person what the measures really mean for your clients.
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Paul Aplin was for many years a tax partner with an independent West Country firm. He is a past president of ICAEW, a former Chair of the ICAEW Tax Faculty, a member of CIOT Council and the Tax Technology Committee of CFE. He is a non-executive director of three companies, a member of HMRC’s Admin Burdens Advisory Board and the OTS Board....