This month, on 22 November, Chancellor Jeremy Hunt will yet again stand at the despatch box in the House of Commons and deliver his Autumn Statement.
Hunt, head of the Treasury, stepped into the role last year following Kwasi Kwarteng’s controversial ‘mini-budget’, which panicked the markets.
So, what can we expect from his speech, and what policies could be on the horizon?
Hunt will no doubt begin his speech with a summary of the latest economic report from the Office for Budget Responsibility (OBR). This government body is obligated to publish two reports a year predicting the next five years, taking into account policies announced by the Chancellor in their speech.
GDP growth has been relatively weak so far, with GDP growing by 0.3% in the first quarter and 0.2% in the second. According to Jon Hickman, corporate tax partner at BDO, this is set to worsen in the near term, “with a recession currently forecasted across Q4 2023 and Q1 2024”.
The main drivers of the expected recession are falling household consumption and business investment, both exacerbated by high interest rates (although the Bank of England’s pause suggests that rates are at, or near, their peak).
However, inflation is expected to continue falling in this tighter borrowing environment, although not back to the Bank’s target of 2% until 2025.
The Chancellor has already made it clear that he will not cut taxes or increase public sector spending, describing such a move as “virtually impossible” in September.
Meanwhile, the Institute for Fiscal Studies (IFS) has warned that the state of public finances meant tax cuts risked stoking inflation, leading to higher interest rates and a lengthy recession.
A decision by the Chancellor to relax the purse strings “might give a short-term economic sugar rush, but could prove unsustainable and ultimately mean a protracted recession as interest rates rise even further to bring inflation back under control”, it said.
As bringing down inflation is such a high priority for the Government, tax cuts are unlikely.
Under Rishi Sunak’s tenure as Chancellor, tax revenues as a share of the British economy reached their highest levels since the Second World War, in part driven by a six-year freeze on income tax thresholds.
Known as ‘fiscal drag’ and expanded by Hunt last year, the IFS said the policy would raise £52 billion by 2027/28 as 6.5 million more people would pay tax on their income by 2020, while 4.5m would be dragged into higher income tax thresholds.
Maintaining high levels of business investment is central to boosting growth, so we can expect a lot of talk on this topic from the Chancellor.
First, we could see Hunt make his full-expensing regime (100% first-year deduction for capital expenses) permanent. At the Spring Budget, he could not do so because it would have breached his self-imposed fiscal rules that dictate national debt must fall in the medium term.
Second, it’s been rumoured that the Chancellor wants to use taxpayer’s savings in UK companies. Following Brexit, reforms to ISA rules that put investments exclusively into UK listed companies are possible, so we could see a consultation into this.
There are two reforms we may hear more about from Hunt, although it is unlikely he will go ahead with them right away. These are R&D tax relief and inheritance tax.
Last year, the Government announced that it planned to merge the UK’s two R&D tax relief schemes into a single one to simplify the rules and cut down on the cost of the SME scheme.
It published draft legislation in July, so hopefully there will be more news on this in the Autumn Statement – ideally a roadmap to ensure the transition is not too disruptive.
With inheritance tax, there has been much press speculation and many calls for the tax to be reformed or removed altogether. While removing it will be unlikely, the Chancellor could open a consultation on reform – something the Government could return to during the Spring Budget or campaign on in the upcoming general election.
Whatever the Chancellor announces, we’ll be summarising the key measures of the day in our Autumn Statement report on 22 November.
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