Autumn Budget Statement
Autumn Budget Statement 2023: Live Reaction
Initial reaction from our team of experts following today’s Autumn Budget announcement
Nimesh Shah, CEO
When a ‘cut’ isn’t actually a ‘cut’. A 1% National Insurance Contribution (NIC) cut for someone earning £20k is worth £74. If the personal allowance were simply increased in line with inflation (at current 4.6%), it would be worth £185. This shows someone’s net income at a salary of £20k, £50k and £60k – clearly demonstrates the dramatic effect of fiscal drag where tax rates/allowances have hardly moved since the Coalition Government in 2010/11. A 1% NIC cut will barely scratch the surface…
The self-employed kept our country going during the Pandemic, but it was a major stretch for the Government at the time to introduce any meaningful support – we finally got the Self-Employed Income Support Scheme (SEISS) but it was limited and nowhere near as generous. Abolishing class 2 NIC is a positive simplification; a 1% cut to class 4 NIC only takes us back to the start of the Coalition Government when it was 8%.
The extension to the business rates discount for retail/hospitality/leisure businesses is welcomed but pubs are closing at record rates and labour shortages and high wage inflation remain the biggest concerns for businesses in these sectors.
Reductions to class 2/4 NIC are positive moves but I would have liked to have seen reform to IR35 rules which continue to cause immense frustration for self-employed persons operating through limited companies. The 2% NIC cut is not as generous as it may appear – for someone earning £20k, this is worth £149. But simply increase the personal allowance in line with inflation (at current 4.6%) it would be worth £185.
Fiona Fernie, Partner
Will be interesting to see if Jeremy Hunt does anything on allowances to reduce fiscal drag – particularly in view of the increase in state pension and minimum wage which will bring many more people into the tax net currently. HMRC need more staff, better training, fewer half baked ‘campaigns’ and more active investigations of those where there is suspicion of fraud rather than putting all the onus onto the taxpayer and pursuing the easy targets who owe tiny amounts.
Simon Rothenberg, Director
Pubs will be pleased by the freezing of duty – but their costs of employing staff have been increased by 10% when they are already struggling significantly – there will be more pubs closing as a result of the increase in the National Living Wage – the same applies to restaurants too. Hopefully there will be some support for the hospitality industry to come as it is desperately needed. Once again – HMRC will collect more taxes that “people owe” – another £5bn apparently. Have any of their historical measures actually increased that?
More admin for employers on the pension changes I suspect – how will they access the original pot, how many pots will they have to pay in to? The concept might be right, but will the admin fall on employers to resolve? To add to this, most employers don’t understand their own pension offering, how can they work out other peoples, make payments into them, will they still get the advantage of reduced fees from their previous employer? So many questions. Continued freezing of small business multiplier for business rates will help many small businesses but the continued reduction in rates for the hospitality and retail is hugely welcome. Pubs, shops, and restaurants are struggling, they have been hit by a 10% increase in their costs of employing, but at least they have something back. Permanent full expensing is good, but surely it is just timing differences and, importantly, what on earth does ‘permanent’ mean in terms of the two ‘Budgets’ a year we are currently experiencing.
They have just spent 45 minutes talking about the importance of small business for growth and boosting them, and then he does not mention the impact on those businesses of the increase in National Living Wage. Many will actually have to make a decision to either cut numbers of people or increase prices (and further fuel inflation) – a very sensible and noble aim to increase minimum wage, but will it actually hurt in the long run?
Will employers temper December/2024 pay rises (limiting inflation) as most employees will get a 2% pay rise through NI reduction?
How do any of the things announced actually help with his aim of increasing business investment? Loads of measures but do they really amount to another £20bn of new investment?
Joe Neal, Manager
Keeping the Triple Lock means that the state pension is closer to the personal allowance. With a 4% annual increase, the state pension will exceed the personal allowance by April 2027, pushing ordinary pensioners with no other income into the basis rate tax band. As the state pension is paid without tax being deducted at source, they would potentially be required to report this income on an annual Self-Assessment tax return. This is making more admin for one of society’s most vulnerable groups. Was expecting some changes to help investment into UK business – the great British ISA? Changes to the EIS/SEIS schemes. Nothing featured. He could’ve gone much further to increase growth.
Simon Sutcliffe, Customs and Excise Duty Partner
Freezing Alcohol Duties: Having radically changed how alcohol duties were calculated in the summer, leading to increases in excise duty for many, it is not unexpected that duties have been frozen to avoid further burdens on producers and customers in quick succession.
Stefanie Tremain, Partner
‘A prompt service or your money back’ would be a great policy for HMRC!
Heather Powell, Partner, Head of Property & Construction
Many developers will be pleased to know that they can pay for a guaranteed timeline for getting a decision from a planning team, bringing certainty to their business plans, and in particular allowing them to enter into agreements with landowners with certainty about when the planning status will be known, and thus purchases can be completed.
Real funds for reenergising the house building industry – All of the national housebuilders have cut back significantly on the number of new homes they plan to deliver in 2023/24 – funds for the remediation of nutrient rich land, clearing the planning backlog in Cambridge, London and Leeds, and funds for new local authorities to build new homes are all welcomed, but is it enough? What about the other areas? And how many homes will that produce?
Local housebuilders will welcome the opportunity to convert houses into two flats under permitted development rights, but will this generate the homes we need for families? These conversions to two flats will also benefit from the existing 5% reduced rate of VAT. Business Rates reform has been ducked again. This thistle is going to have to be grasped one day but the tenants and landlords of properties used in the leisure, hospitality and retail industries will be pleased that they will benefit from another year of 75% relief from rates.
Simon Gleeson, Partner, International Outsourcing
With very little detail if at all provided by the Chancellor, it is difficult to gauge what value or impact the proposed Concierge Service will have on Foreign Direct Investment (FDI) in the UK, above and beyond the services and support provided by Department for Business & Trade and agencies like London & Partners who have teams in-country, in region internationally doing exactly that. There are many practical areas such as banking which continue to cause considerable frustration to overseas companies looking to expand in the UK and would be an immediate area for any government sponsored concierge service.
Winnie Cao, Partner, Global Mobility
It is important for the Government to design the FDI Concierge service in a way that really helps the respective key regions, rather than coming up with something that does not address the real and practical pain points experienced by foreign businesses, e.g., navigating through the complex compliance procedure and setting up a bank account.
For Chinese inward investing businesses, the reduction of 2% primary NIC from 6 January will be welcome. Currently, expatriates seconded from China can only be exempt from UK NIC for the first 52 weeks of their assignments, whereas expatriates from other non-EU regions such as USA, Canada, Japan, South Korea, Israel, Turkey, etc. are mostly exempt based on reciprocal agreements. Given the warming relationship between China and the West following the recent Biden-Xi meeting, perhaps it is time to consider having social security reciprocal agreements with the world’s second largest economy to encourage further business links and people to people exchanges.
Ele Theochari, R&D Tax Partner
As expected, the Chancellor has confirmed that the Small to Medium sized Enterprise (SME) and RDEC (Research and Development (R&D) expenditure credit) schemes will be merging into one simplified scheme, with a few changes around the edges.
The devil will be in the detail, however it is concerning that there is still talk of a separate rate of relief for SME intensive businesses that will only potentially affect 5,000 businesses – is this simply a prediction for the first year it is in place, or is this predicted year-on-year?
HMRC also need to take care that the arbitrary 30% threshold that has been set (although reduced from 40%) is not manipulated in order to garner a greater relief. The words ‘relief’, ‘support’, and ‘funding’ have been used throughout, and it is encouraging to see the Government supporting innovation. I wonder, however, if this is window-dressing; the relationship between HMRC and R&D tax claimants has been dramatically eroded over the past two years (and isn’t looking to improve any time soon), and innovative businesses are leaving the UK in droves.
Nick Winters, Head of Technology
£500m over two years to continue to build brand Great Britain as an AI powerhouse is positive, but unlikely to move the dial. Not surprising when 110 measures are being announced – it spreads the benefit very thinly. I have been waiting for the grand unveiling of something that will have a significant impact. Perhaps I have missed it, perhaps not. The markets are very unmoved by any of this. GBP/USD and FTSE indexes both barely moved.
Neil Insull, Corporate Tax Partner
New investment zones in far flung corners of the UK demonstrates a commitment to levelling up, but will this radically improve the country’s productivity levels and allow us to compete effectively on the international stage?
At least 80% of businesses get full expensing through the Annual Investment Allowance. This announcement is for big business and not for the majority of UK businesses.
Genevieve Morris, Head of Corporate Tax
Full expensing is just a timing difference, so hardly a ‘real’ annual cost or a tax cut!! Besides it only benefits the very largest of businesses with the most money to invest. I’d far rather have seen a real tax cut in the form of a cut to the rate of Corporation Tax.
The Chancellor has been quite clever to delay the cut in NIC until 6 January – when the Health & Social Care Levy was cancelled, many businesses were in a position to delay their October payroll, paying instead after 6 November when the new rules took effect. However, not many people are going to be happy to have their Christmas pay delayed, so there’s unlikely to be any unusual behavioural impact as a result of the reduction, other than perhaps smaller owner managed businesses.
The cut to NIC for employees is welcome news, I’m trying to remember when it was last 10%? However, the employer’s rate is still 13.8% and a huge barrier to employers growing their workforce.
George Parker, Manager
The abolishment of Class 2 NIC is a welcome change. However, the Government was due to abolish it back in 2018. My gut feeling is the abolishment was to reduce HMRC’s cost of administering it, which was in excess of the revenue it generated – rather than for the benefit of the self-employed.
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