As always when fiscal statements and subsequent rebuttals are delivered, it’s a challenge for us all to ascertain what it actually means, amongst all the political bluster and electioneering.
There is widespread speculation as to the timing of the next general election, with the polls having to be called by Jan-25. It was put to Jeremy Hunt, that the £10bn of tax cuts announced yesterday, indicate a Conservative appetite for a spring 2024 ballot, rather than wait until the autumn/winter.
But were they actual tax cuts? Or were they a partial reverse of tax rises already applied in this parliament.
Tax revenues can be generated in a number of forms. Some obvious such as a rise in the rates of income tax or corporation tax, and some more insidious such as the freezing of tax thresholds or exemptions. It’s this latter way, that has seen the tax burden remain at it’s highest level (measured as a share of GDP) since 1948.
Tax receipts are also influenced by how much we pay for things. A side effect of the high inflation we’ve experienced in 2023, is high sales tax income through VAT.
As eluded to by the Institute of Fiscal Studies (IFS) these additional receipts have been used to cut taxes (rightly or wrongly), rather than used to ‘ease the ongoing ‘fiscal drag’ effects of threshold freezes, or to compensate public services for higher costs.’
Lets have a look at the details:
OBR Forecast
The autumn statement is accompanied by a forecast from the Office of Budget Responsibility (OBR) on some key financial metrics.
This is important because it offers an independent, apolitical view of the prospects of this country in the medium term, and can influence financial decision making amongst us as individuals.
Recession is expected to be avoided in 2023. Recession is defined as where an economy contracts in two consecutive quarters, and it was widely expected to happen in the UK this year. So its at least some good news that we have performed better than predicted, although this is tempered by a modest expected overall economic increase of 0.6%.
Growth of around 1-2% (a downgraded forecast from Mar-23) is expected each year through to the end 2028 and inflation is forecast to be down to 2.8% by the end of the year, and down to 2%, in line with Bank of England targets, by the end of 2024.
Iain Wright, ICAEW’s Managing Director says ‘The Chancellor has implemented a package of sensible measures that should assist in advancing higher levels of growth, but the disappointment stems from the fact that these measures don’t seem to be shifting the dial on growth rates’.
Overall living standards will return to pre-pandemic levels, but not until 2028.
Businesses
Encouraging news for you if you’re self employed. Starting rate of Class 4 National Insurance Contributions (NI) will be cut from 9% to 8% from Apr-24 and Class 2 NI, a rather pointless compulsory levy purely to maintain state benefit entitlements, will be abolished completely, saving an average of £350 per year per person.
No direct changes to tax rates or thresholds applicable to you Company Directors. You may remember corporation tax charges were increased incrementally for businesses with profits over £50k from Apr 23, and this will continue.
However, further measures were introduced to stimulate investment by making permanent the favourable capital allowances rules for plant and machinery. This is known as ‘full expensing’, a term that you may have seen banded around this week. This means that rather than realising the tax relief on some capital expenditure over a number of years, you can now offset the full cost in year 1.
Other measures include the extension of support to investment zones (announced in Mar-23) and business rates discounting, additional spending on Artificial Intelligence and Scottish ‘Levelling Up’ projects, and more favourable rules on Research & Development Claims
Individuals
Further tinkering to the NI rates. Starter Class 1 NI levied on employees, will be cut from 12% to 10% from the final quarter of the 23-24 tax year. This will influence salary/dividend recommendations made by me, come Feb/Mar next year.
The national minimum wage will increase from £10.42 to £11.44 per hour from Apr-23, applying to both 21 and 22 year olds, as well as those over 23.
In line with the triple lock promise, state pension payments will increase by 8.5% from Apr-23.
Widespread reforms to the welfare state were announced. Increases to Universal credit payments and support for those seeking work with health problems was offered, but in return more stringent checks on claimants will be made.
Inheritance tax, expected to be looked at, was not included in this statement, perhaps due to less than favourable response from commentators in the build up to yesterday.
Other highlights
Alcohol & Fuel duty will be frozen until Aug-24.
Duty rate on tobacco products increases by 2% above inflation
Funding for projects to Institutions such as the Holocaust Educational Trust to tackle antisemitism. Imperial College and Imperial College Healthcare NHS Trust to set up Fleming Centre to work on health innovations, and the Tackling Paramilitarism Programme in Northern Ireland.
As always, if you'd to discuss what this means for you, please let me know.
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