Chancellor Jeremy Hunt will deliver his Autumn Statement to Parliament on 22 November, against a backdrop of conflict in the Middle East and Ukraine, a cost-of-living crisis continuing to squeeze household budgets, rebellious backbenchers, and a requirement for a General Election to be held no later than 28 January 2025, writes Lorraine Nelson – BDO NI Tax Partner
That inflation has dropped to 4.6% – below the Prime Minister’s own target and earlier than anticipated – is welcome news, however, this appears to have been eclipsed by other political developments that may impact what the Chancellor announces.
Fiscal events such as these tend to be as much about the politics as they are about the economics, and never more so than towards the end of a Parliament. For that reason, there is continued speculation the Chancellor could abolish inheritance tax, increase the 40p income tax threshold, or reduce income tax rates.
It is widely accepted that higher than expected tax receipts has increased government revenues by some £15 billion this year, giving the Chancellor around £13 billion of ‘fiscal headroom’ – double the £6.5 billion he predicted when presenting the March budget.
Whilst acknowledging the additional headroom, Treasury officials continue to suggest that the Chancellor will adopt a cautious approach this month. This is in sharp contrast to the calls from the ‘Growth Commission’ think tank established by former Prime Minister Liz Truss and some of the Government’s more vocal backbench MPs.
Given the issues the Government has been facing in recent days the politics of this statement will be to the fore in all commentary, however, we must look beyond this to understand the policy and the practical implications of what is being announced, and how this will impact businesses and households across Northern Ireland.
Help for businesses:
It is expected that business taxes will be reduced, with “full expensing” — a tax relief allowing businesses to offset their investments against corporate tax — extended given that the policy is less inflationary, and expensive, than had previously been estimated. There is also speculation that the threshold at which businesses pay VAT could be increased from £85,000 to £90,000, with further supports expected for smaller enterprises.
Under pressure from some of his backbenchers to lower taxes, which are at their highest since the Second World War, the Chancellor could be tempted to increase the 40% income tax threshold, which would amount to a tax cut for five million people.
Fiscal conservatives in the United States coined the term ‘death tax’ in their campaign against inheritance tax, and there are calls from within the Conservative Party for the Chancellor to reduce the 40% rate of inheritance tax now with a longer term aim of abolishing it altogether.
If Jeremy Hunt were to scrap the £175,000 “residence nil-rate band” or “family home allowance”, which protects homes passed to diect descendants, and increased the main £325,000 allowance to £500,000 instead, he would in effect allow milies to pass on £1 million tax free.
National Minimum Wage increase
The Chancellor committed to an increase in the National Minimum Wage at this year’s Conservative Party Conference in October, and to e raising the National Living Wage to over £11 an hour from April 2024. This announcement may be made formally during the Autumn Statement.
Jeremy Hunt told his party conference that it was not fair that “someone who refuses to look seriously for a job gets the same as someone trying their best”. Whilst any further changes to access to Universal Credit may prove unpopular with many voluntary sector and charity organisations, this is a policy that may appeal to many core voters and would be unlikely to happen until after the next election.
Individual Saving Account’s (ISA) currently allow savers to put away up to £20,000 each year without having to pay tax on interest or returns.
Treasury officials have been exploring options aimed at simplifying the ISA regime by creating an ISA that can hold stocks and shares as well as cash. The Chancellor is also said to be considering giving savers who invest in British companies an extra £5,000 tax-free allowance.
Green Stamp Duty
Whilst the narrative around net zero and green policies has shifted in recent months, it has been reported that the Chancellor is considering giving new homeowners a stamp duty rebate if they improve the energy performance rating (EPC) of their home within the first two years of buying it.
This proposal has the twin benefit of reducing household energy bills as well as the overall amount of energy consumed across the country.
Help for first-time buyers:
Jeremy Hunt is also reportedly planning new policies to help people to buy their first home, possibly in the form of increasing stamp duty thresholds or reforming support schemes for first time buyers.
The Chancellor could also look to cut Stamp Duty, which in Northern Ireland is now 5% for a main residence bought for between £250,001 and £925,000, rising to 10% between £925,001 and £1.5m.
On Fuel Duty, Jeremy Hunt is reportedly considering raising Fuel Duty for the first time in more than a decade, although this would be out of keeping with the motorist friend narrative cultivated by the Prime Minister in recent months. Treasury officials would argue, however, that such a move would mean the duty, at 55 pence a litre for petrol and diesel, will still be lower than when it was last raised in 2011.
Pension Triple Lock
Over recent months many senior Conservative figures have argued for an overhaul on how the pensions triple lock is calculated in a move that could save the Treasury £900m a year.
The Chancellor is expected to announce that the state pension will rise in line with regular wages at 7.8%, rather than the 8.5% surge in total pay when bonuses are considered. The triple lock increases the state pension each year by the highest of average wage rises – 2.5% or inflation.
Inflation in September held steady at 6.7%, which is less than the 8.5% growth in average pay in the three months to August. The Government is under pressure over the triple lock because high inflation and wage growth in recent years has resulted in the policy being too expensive.
Will there be any surprises?
Whilst the fiscal environment remains challenging, the Chancellor could use the reduction in inflation and the increased fiscal headroom to consider a ‘giveaway’ that may not have been possible a few months ago.
One thing we have seen from the Government in recent days is that they are able to provide surprises, so it is more possible we could have some further announcements with the election in mind.
We will be watching to see what the Chancellor pulls out of his red box with anticipation.