REACTION: AUTUMN STATEMENT 2023

Autumn Statement Rapid Reaction Piece

Major fiscal events, like today’s statement, are a sometimes uncomfortable mix of politics and economics. Last week’s extraordinary political events and the better than expected inflation figures, to say nothing of the fact that we are probably less than a year away from a general election, has meant that there were even more moving parts than usual for Jeremy Hunt to consider when finalising his plans over the last few days.

He made it clear a few days ago that the emphasis of the statement would be growth. That’s hardly a surprise: no Chancellor is going to stand up and say that his objective is to shrink the economy!  So, what in practical terms has the Chancellor done today to stimulate that growth? The most obvious measure is the decision to make permanent the ability of businesses to write off the cost of fixed assets investments in a single lump sum rather than over a period of years. Companies will now be able to plan their investment programmes without tax considerations affecting the timing of spending decisions: that must make sense. For many companies the effect of this announcement will be that their effective rate of tax will be significantly less than the headline rate of 25% - in effect a tax cut in substance if not in form.  In total the Chancellor told us of 110 growth measures, though as even he didn’t feel that the Commons wanted to hear about all of them it will be no surprise that I don’t cover them here!

Over the last few weeks we have seen much speculation about income tax cuts – indeed at times it has seemed as if the Chancellor and his team have been teasing us about what might be coming today.  In the end we only got announcements about possible tax cuts next year, but we did get confirmation that there would be a cut of headline rate from 12% to 10% of National Insurance paid by employees. There will also be a cut in the earnings-related Class IV NIC paid by the self-employed. In addition, the flat rate of Class II National Insurance also paid by the self-employed will be abolished completely – something which has a big political impact though the economic effect to many businesses will probably only be marginal - an NIC cut is more targeted than an income tax cut, and benefits those in work rather than those with other sources of income. Presumably any announcements about tax cuts will come in the Spring when we expect the Chancellor to concentrate on pre-election announcements – I would certainly expect him to say something then about the ever-increasing numbers of people being drawn into higher-rate tax as a result of freezing of allowances. Despite predictions we didn’t hear anything today about Inheritance Tax – perhaps the fear of being seen to favour only the rich made reductions or complete abolition too politically sensitive.  Again, perhaps there may be something about this next year.

Much of the rest of the speech, to say nothing of the whole host of documents published when the Chancellor sat down, was highly technical in nature and is unlikely to attract the headlines. But seasoned observers will know that it is only when these documents have been fully analysed that the true impact of a fiscal statement will be known. I can already see there is something of a reset for the troubled Making Tax Digital for Income Tax project, which eight years after its launch is still a long way off delivering any of its promised benefits.  In addition, the Chancellor is going ahead with the reform of Research and Development tax credits – an area which has been the subject of significant concern over whether support is being given to the right projects. As I write this our team of experts is already beavering away at the small print – look out for the detailed analysis tomorrow in all of our usual sources.

Andrew Hubbard 
Editor in Chief