What tax cuts and fiscal policies could the Government introduce in their Autumn Statement, to ease the cost-of-living crisis and boost economic growth?
The Autumn Statement on 17 November is going to be pivotal in laying out the new Government’s economic approach for the next few years.
As an ex-Chancellor and the UK’s new Prime Minister, Rishi Sunak will want to make his mark and has already stated he is committed to a “Low Tax, High Growth” economy. His Chancellor Jeremy Hunt aims to create confidence and stability in the UK economy, whilst lowering debt – it’s going to be a careful balancing act to achieve these objectives.
Our team of tax and industry experts share the measures they believe the PM and his Chancellor should focus on, for short-term and long-term growth across businesses and industries in the UK.
Tax Cuts, Spending & Growth – it’s tricky!
Patrick King, Head of Tax
The tax cutting agenda of Liz Truss was a reasonable approach to the problem of low growth and investment and business and entrepreneur friendly. However, it wasn’t presented as part of a viable costed plan and therefore failed the “sniff test” for the international markets.
The country is already wilting under historically high taxes but one area of the goose as yet unplucked is higher rate relief for pensions. Notoriously difficult to do though, it could provide a sizeable amount of additional tax with limited political fallout (given the simple fact that most of the tax relief is received by the top few percent of earners). Considering the political issues the government currently faces; this may be a step too far and with luck it will not be needed! However, I know the advice I will be giving clients who currently can get higher rate tax relief on their pension contributions - use it or lose it!
Income Tax Rates – clarity is needed
Michael Court, Senior Tax Manager
Clarity is needed around the income tax rates for the next few years. There have been multiple changes this year alone and the fact that dividend rates are still set to increase by 1.25% across the board, coupled with the rise in Corporation Tax, may result in OMB’s bearing the brunt of any rises in taxation. With the new PM also being a former Chancellor, it will be interesting to see how this pans out over the coming weeks.
Energy & Renewables – incentives for investments would be a good step
Rachel Nutt - Head of Renewable & Sustainable Energy Sector Head, Partner
The government needs to fix the UK energy market. Part of that solution in the short term is ensuring businesses are less reliant on ‘purchased’ power, by increasing their green credentials. Although businesses do currently receive tax relief on investments into green and renewable equipment this isn’t enough to make it economic for most companies to really make the transition and the substantial financial commitment.
The payback time for investment in renewable energy is typically 5-7 years. So, the best ways to encourage companies to invest money into renewables would be an interest free loan scheme available to fund green investment, which could be paid back over 5-10 years, effectively smoothing out energy costs. Alternatively, companies could receive accelerated or enhanced tax relief, as happens with R&D relief, where you receive in excess of 100% relief on the amount you spend.
Sustainability & ESG – a transparent plan for Net Zero transition
Jose Hopkins - Sustainability & ESG Technical Director
The new UK government needs to lead by example and need to ensure the BEIS produces a transparent and easy to understand Net Zero transition plan for the UK economy. We need to find incentives for organisations who are taking this matter seriously and are really pushing the Net Zero agenda, and most importantly why are we not investing in more R&D - this is a great opportunity for the government to lead in Net Zero technologies.
Corporation Tax – get a pro-growth strategy back on track
Chris Denning – Head of Corporate & international Tax
Empirical research has shown an inverse relationship between Corporation Tax rates and wages. As the Corporation Tax rate rises, average wages fall, mainly because of lower business investment. Of course, the government need to pay attention to the markets, but it is still crucial they put in places measures to put the UK in a better position to secure investment.
For example, the current system of deferring capital allowances means that, due to the impact of inflation, an investor will never get tax relief on 100% of the cost of an investment. This is a disincentive to invest. Ideally, we should have a permanent 100% deduction for all new investment in qualifying plant and machinery.
Hopefully the proposal to increase the Annual Investment Allowance (AIA) to £1m permanently, which goes some way towards this, will remain post any U-turn.
Support for Hospitality – VAT cut is needed
Jonathan Main, VAT and Indirect Taxes Partner
The Government has previously recognised the devastation caused to the hospitality industry by the Covid pandemic. The cost of living and energy crises may be the final straw for many businesses that have barely recovered from the forced closures of their businesses. The Treasury needs to inject much needed support through a reintroduction of the 5% reduced rate of VAT.
Business Tax – AIA would be a welcome boost
David Bennett, Tax Partner
The Annual Investment Allowance of £1 million should be made permanent, so that businesses can plan capital expenditure in the medium term with confidence as to the tax relief available. This was one of Mr Kwarteng’s better announcements and seemed to be supported by Mr Hunt. Confirmation would be welcomed.
Virtual Currencies – stablecoins could promote investment in the UK
Muhammad Desai, Tax Advisory Client Manager
Stablecoins to be used as a form of payment in the UK. This will result in more stablecoin issuers launching stable token pegged to the British pound. This could be a first step in the UK becoming an international hub for cryptocurrency and may also promote investment in stablecoins, by both UK companies and individuals.
Construction & Real Estate – 3 key areas to focus on
Brendan Sharkey – Head of Construction & Real Estate, Partner
To help solve the housing crisis -
- Annual tax on 2nd home
- Tax relief on mortgage interest for first time buys – 5 years life span
- Stamp Duty exemption for downsizers reducing their property value by 1/3 or more
To improve demand -
- VAT exemption on home improvements that reduce energy consumption and reduce carbon emissions
- Undertake an awareness campaign to highlight the benefit of insulation and value of moving away from fossil fuels
- Maintain commitment to proposed infrastructure expenditure
- Appoint a minister specifically for Infrastructure
To improve financial viability -
- Reinstate proposed change to IR35
Real Estate – extend the 9-month tax grace period when selling a house
Rachel Marsdin, Tax Partner
Currently if you sell your home, as long as it is sold within 9 months of you moving out there should be no tax to pay. This period of grace should be increased to at least 18 months so that homeowners are not hit with a tax charge if they find it hard to sell their home quickly.
Financial Planning & Investments - markets need stability
Dominic Thackray, Financial Adviser
There needs to be more incentives for encouraging investment in UK Business. Stabilising markets likely means austerity measures in the short term. At time where many households have made efforts to reduce expenditure, the Government also needs to show it is balancing its spending to calm the markets. In his first speech as new Prime Minister, Rishi Sunak has already made references to the UK still being in a post-Covid recovery, and with the objective of levelling up our economy and a limited budget to offer incentives, we can only wait to see what is announced.
Philip Brook, Financial Planning Client Manager
There should be minimal change from the policies that were previously introduced by Rishi Sunak during his tenure as Chancellor. The markets will be expecting more of the same and continuing with his previous rhetoric should provide further clarity. Having gone through a period of U-turns and instability, the last thing markets need right now is a curveball.
For further guidance on any of the tax measures discussed in this article, please contact your usual MHA advisor or Contact Us.
Read the latest tax commentary – visit our dedicated hub where we will be providing resources, advice and practical guidance on what these tax measures mean for you and your business, to help you prepare and manage their impact.
