Those with memories that span five chancellors ago (admittedly, only just over five years ago!) may remember that Philip Hammond determined that Budgets should be in the Autumn and Economic Statements should be in the Spring. Officially, the current incumbent of Number 11 was following many of Hammond’s successors in breaching this edict and delivering instead an Autumn Statement. In practice, this had all the trappings of a Budget, including the pre-leaking of policy choices, rabbits from hats and, in contrast to a notable fiscal event of last year, a forecast from the Office for Budget Responsibility. To all intents and purposes, this was the second Budget of the year, with another now promised for next Spring. After last year’s lack of any official Budget, there’s a certain saying about buses that may now seem appropriate?
The Statement’s first message was that things have changed. Having met the three economic pledges set by the prime minister (on growth, debt and halving inflation), the chancellor was now ready to move on and leverage the full power of the Treasury to achieve his new goal.
That goal was, paradoxically, fairly similar to his predecessor’s: growth. There the similarity ended, with very few of the measures published last week by the Growth Commission echoed in the official Statement documents. Instead, the focus was on building long-term growth by supporting investment, together with a few traditional giveaways.
Much was made of the chancellor’s package of 110 (count them) growth measures; however, if we add up their costs, we find that they are dwarfed by the tax measures set out in the Statement.
All told, the tax measures delivered a cut of nearly £80bn over the six year scorecard period, while the spending measures come in at around £14bn.
The Statement’s most significant costs related to a making-work-pay package focused on NICs for both employees and the self-employed. The chancellor dedicated much of his speech to the self-employed by abolishing class 2 NICs altogether and cutting class 4 NICs by one percentage point, costing a combined £3.7bn. However, this was swamped by the two percentage point cut for employees (costing £46.8bn). Together, these constituted over 60% of this Statement’s tax reductions.
On the business side, we saw full expensing made a permanent relief, following initial speculation that it would be extended by one year. Across the six year period, this will cost around £30bn, representing a significant proportion of the remaining tax giveaways. Of course, the bulk of the ‘cost’ of this ‘tax cut’ will reverse over time as the tax relief provided upfront will not be available in later years. Nevertheless, this still provides a significant cash flow advantage for businesses, particularly at a time of high interest rates, so perhaps it is not unreasonable for the chancellor to expect it to generate £20bn of additional annual investment over the next decade?
In fact, the detail reveals that permanent full expensing should actually generate £1bn extra tax in the first couple of years. This perhaps indicates that businesses, now certain that all such future investment will qualify, may not immediately accelerate investment quite as significantly as they might have done under a time limited relief. That’s not the message that the chancellor will have wanted to hear from the OBR.
No. The rest of the Autumn Statement tax measures added up to £630m, but this includes some significant rises and cuts. The largest of the ‘tax rises’ is in fact a result of spending, as the chancellor has authorised £163m to improve HMRC’s ability to better distinguish between ‘those who can afford to settle their tax debts, but choose not to, from those who are temporarily unable to pay and need support’. This will be achieved through the recruitment of staff and the acquisition of new data, anticipated to add £4.7bn in additional tax receipts over the six year period – if this comes to pass, it would be quite a handsome return on investment.
The next rise is the fourth element of the global minimum tax, the under taxed profits rule, which has transitioned from ‘not before’ to ‘from’ 31 December 2024. This is expected to generate £1.6bn over the six year period, after offsetting any loss from the repeal of the offshore receipts of intangible property (ORIP) rules.
Interestingly, the OBR has also re-costed the wider Pillar Two package, which is now expected to raise £2.6bn per annum by 2028/29. In what might be seen as a masterful understatement, the OBR notes that ‘every aspect of this costing is subject to high levels of uncertainty’, going on to say that data uncertainty is ‘very high’.
Finally, on the international aspects, the OBR helpfully provides a description of Pillar One (a reallocation of taxing rights) before going on to say that it will ignore Pillar One for the purposes of the economic forecast and that it ‘continue[s] to treat [Pillar One] “as a policy ambition’”. That doesn’t sound like a vote of confidence in the OECD’s ambitions in this area!
Beyond this, significant revenue raisers included the increase in duty (by RPI+12%) on hand rolling tobacco, the ‘maintaining’ (a.k.a. ‘freezing’) of ISA limits, reforms to the construction industry scheme and two pre-announced measures: the expansion of the UK emissions trading scheme to maritime and waste sectors and the adoption of the OECD rules on digital platforms.
Upcoming changes included a freeze on all alcohol duties until August next year. Then came further amendments to research and development tax credits, including combining both credits into an expenditure credit and changing some of the constraints inherent in the small business regime.
Another much-campaigned-for announcement was the extension of the 75% relief for business rates for the retail, hospitality and leisure sector by a further year. These reliefs remain capped at £110,000 per business and so, like some additional changes to the business rates system, will be of most value to small businesses.
Some prospective measures had been the focus of continued media speculation ahead of the Statement, but would eventually fail to appear or even be referenced. In the case of inheritance tax, this may reflect an intention to defer this decision until the Spring Budget, rather than the abandonment of the idea.
Similarly, the intense speculation about the retail export scheme (or ‘tourist VAT’ to use its colloquial name) was not matched by a change on the day. However, a note found of page 95 of the Statement documentation did explain that ‘the government will continue to accept representations and consider this new information carefully, alongside broader data’. To many, this will sound like code for ‘I’m minded to do this, but can’t quite afford it yet’. We should expect further activity in this area as we approach the Spring Budget.
The overall scorecard shows significant tax cuts, with employees, self-employed, capital-intensive businesses, retail, hospital and leisure businesses all feeling the benefit of the chancellor’s apparent fiscal headroom. Beyond the areas discussed above, the relative losers may include those service and capital-light businesses that are still subject to the 25% corporate income tax rate while failing to benefit from full expensing.
Alongside the tax giveaways, there were also some announcements, including a call for evidence on recent trends in the visual effects industry to inform the design of the audio-visual expenditure credit.
Beyond this, we have a Finance Bill to be published imminently and a raft of items to anticipate at the Spring Budget. We can also expect an election. With the employee class 1 NICs changes coming into effect in January pay packets, a May election could appear more plausible than before, although many still believe that next November remains more likely. Whatever the eventual date, this Autumn Statement certainly had a pre-election feel. Roll on the Spring and the official Budget.
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