The Chancellor’s Autumn Statement

No-one knows whether the Nation’s finances are better or worse-off than they were before the Summer, or whether the measures announced by Jeremy Hunt are good or bad for the economy. Liz Truss may just have done us a favour in her period of chaos, inasmuch as everyone wants to believe that the state of affairs has been steadied and that matters are in safe hands. As it is always sentiment that rules the market, that alone may make the difference to the way that things play out over the next few years.

Confused, or what?

The Health and Social Care Levy and the associated stop-gap increases in NI rates, announced on 7 September 2021, were reversed by Kwasi Kwarteng, and have not been re-instated. The corresponding increases in dividend tax rates do however stand.

Corporation tax rises, up from 19% to 25% from next April, with a sliding scale for companies with profits between £50,000-£250,000, announced in Rishi Sunak’s March 2021 Budget, were reversed by Kwasi Kwarteng, and then reinstated on 14 October by Liz Truss.

For the first time in some while, it is possible to be confident that the main rates and thresholds set out in a table, will remain current:

Impacts

The reduction in the dividend free allowance will lead to an increase in the number of people preparing Tax Returns especially from 2024/25.

The combined effect of the increase in the rate of tax on dividends and the increase in the rate of corporation tax for companies with profits over £50,000 is to make using companies as a means to save tax instead of being self-employed, more or less obsolete. As a by-product, IR35 issues may increasingly become redundant.

There is talk of stealth tax: Jeremy Hunt’s provisions are however transparent. Most of us will end up paying more tax on solely inflationary increases in income, and will consequently suffer a reduction in real terms in living standards as the country slowly rebuilds its public finances – that is the whole point. Gordon Brown on the other hand dressed up mean-spirited tax measures as mere technical ones, which then escaped full public scrutiny. That was stealth tax.

The Chancellor’s references to the second lesson of Nigel Lawson’s Big Bang – that the most important driver of global success is not tax subsidies but competition – and to bringing forward the Digital Markets, Competition and Consumer Bill suggest that he may be minded to take a leaf out of the book of the European Commissioner for Competition, Margrethe Vestager, who has been challenging with some success marketing abuses by internet monopolies.

His decision for adoption of Pillar 2 rules implementing minimum effective tax rates of 15% for multinationals from 1 January 2024 are forecast to add significantly to tax revenues – over £2.0bn per year, and may be a factor in the government’s decision not to introduce an Online Sales Tax (OST).

Growth Who knows? With some stability at the heart of government; less flamboyance; more hard work, higher productivity may result with consequential growth evenly spread, allowing some of the tax burden to be eased a little bit sooner.

Please contact Nicholas Ridge CTA, for further information on any of the points set out in this Commentary