Expect the unexpected?

Autumn Statement 2023 is less than a week away and what the last few days have shown is that in the words of former Labour Prime Minister Howard Wilson “a week is a long time in politics”. Does that mean that the next week will be equally as exciting? I doubt it but recent events have told us to expect the unexpected so watch this space!

The Chancellor has repeatedly ruled out a cut in income tax rates in the short term due to its inflationary impact so even if there appears to be enough economic headroom, a 1p cut in income tax rates seems unlikely or is that perhaps unexpected? There is an argument that cutting the basic rate of income tax from 20p to 19p would be merely giving back the increased tax take that the frozen tax bands have generated. It would undoubtedly be a popular move; however, it would only benefit anyone who pays basic rate income tax, including those on high and middle incomes (i.e paying 40% and 45%) rather than focusing on the lower earners. It would be expensive too. When this measure was announced in the Growth Plan 2022 but never implemented, the budgeted cost was ￡5bn?so the fiscal headroom would need to be significant for this to happen. If the government wanted to target the lower earners, the most sensible approach would be to increase the tax-free personal allowance which is currently ￡12,570. But this is even more expensive with the Treasury estimating that a 10% increase in tax-free personal allowance which would only bring it up to ￡13,827 would cost almost ￡9bn in 2024/25?alone.

Typically in advance of an Autumn Statement, there is media speculation that there will be an increase in the rates of capital gains tax but this year seems to be different with no such speculation yet. Capital gains tax rarely raises significant revenue. The Treasury estimated that if the main rate were increased by 1%, that is likely to only raise an additional ￡165m which may not make it worth the unpopularity that it could create with certain voters. There is still the chance of a pre-announced increase to the rates of capital gains tax. Many will recall Alistair Darling’s 2007 Autumn Statement where he gave 6 months notice of an increase to capital gains tax rates and the boost that generated in capital gains tax revenues. This is always a possibility.

Inheritance tax (“IHT”) remains a hot topic with various media outlets reporting that Jeremy Hunt is considering abolishing or cutting either IHT or stamp duty land tax (“SDLT”) both of which are pretty unpopular as far as taxes go. IHT is not a significant revenue raiser – almost ￡7bn expected for the 2022/23 tax year but it is expected to increase to ￡15bn over the next 10 years according to the IFS. SDLT however is more significant raising almost ￡14.1bn in 2021/22 ?which may increase in an inflationary environment if property prices grow. Is it likely for either to be abolished? An Ipsos Mori poll for the Daily Telegraph reported recently that 43% of respondents believe that IHT is unfair. However less than 5% of UK deaths actually result in an IHT liability which evidences the view that IHT is unpopular even with those that do not actually pay it. Perhaps then a reason for something unexpected?

Rachel Reeves’s confirmation during her party conference Shadow Chancellor speech that the Labour Party would look to abolish the ‘non-dom’ tax regime has already been felt throughout the non-dom community. Jeremy Hunt may wish to address this in the Autumn Statement by, for example, opening a consultation on the taxation of non-doms. As stated by the Financial Secretary to the Treasury in Parliament earlier this week “non-dom taxpayers make a significant contribution to UK tax, worth ￡8.5 billion in 2021-22, with ￡7 billion more invested. The City, for example, pays half the cost of the NHS.” This would indicate that the government have already considered the net contribution by non-doms. The key question is whether this will lead the Conservatives to reform the regime perhaps through consultation or simply to re-confirm their commitment to it.

So what can we expect for personal taxation? With the general election looming on the horizon and limited fiscal headroom, the Chancellor still needs to make difficult decisions. Although I expect that the economy has fared better than expected, it is unlikely to be significant enough to be able to fund the super expensive tax cuts that will benefit those that need it the most. Perhaps this does lead to those personal tax changes that cost less but are also considered more popular such as cutting IHT. Having said this, it could be something entirely unanticipated. Expect the unexpected is my Autumn Statement prediction.