Policy in practice: Autumn Statement 2023 - tax

24 November 2023

In our first policy in practice Autumn Statement 2023 podcast episode, David Gauke and Rhiannon Kinghall Were discuss the tax headlines and implications for our clients.

Together they review:

  1. the state of the public finances and what that means for policy decisions going forward;
  2. full expensing being made permanent;
  3. updates to the Pillar 2 rules to introduce a minimum tax;
  4. NICs cuts; and
  5. some light-hearted speculation on when we might see a general election!


David Gauke: Hello, this is David Gauke, Head of Public Policy at Macfarlanes and welcome to the latest in our Policy in practice podcasts where we have got a series on Wednesday’s Autumn Statement, hopefully bitesize chunks, where we discuss various aspects of what Jeremy Hunt was talking about in his Autumn Statement and in our first session I am delighted to be joined by Rhiannon Kinghall Were who is Head of Tax Policy at Macfarlanes. Hello Rhiannon.

Rhiannon Kinghall Were: Hello.

David Gauke: So we are going to be talking about business taxes and what was announced and perhaps taxes more generally, indeed the state of the public finances and the state of the economy and where this leaves the political parties, so Rhiannon an interesting set of measures, what do you make of them?

Rhiannon Kinghall Were: Thank you, well I wouldn’t have said it’s really a fiscal statement for the tax enthusiasts, it was certainly a political statement, why don’t before I go into the details on the tax, David why don’t you tell us your thoughts on the state of the economy and where this leaves the public finances.

David Gauke: Well yes, I think it is to be honest quite a gloomy assessment all round, because yes the Chancellor announced some tax cuts and we’ll talk about those in a moment, but if you look at the prospects for the economy on economic growth, in truth, the economy is going to be larger according to these forecasts that was predicted in March but that’s partly because the economy has already been revised up and the last year has been better than the OBR expected, but for the next three years growth is downgraded. Inflation is also higher than had previously been predicted and there are plenty of headwinds for the economy and living standards aren’t going to be improving at all for the foreseeable future, but that inflation actually does have some advantages for the economy in that what is happening is that we have frozen thresholds and allowances in the personal tax system the tax revenue is rolling in, so this has given the Chancellor a bit of headroom.

Truth be told its headroom because it’s bringing more money in on tax but if you ignore increase spending pressures you get extra money and there is about essentially £20bn taken off public spending in real terms as a consequence of this inflation and essentially what the Chancellor has done has used that up in various tax cuts.  We’ll talk about those in a moment, but it does mean that not so much now but when we get into the next parliament pressure on public spending is going to be pretty intense and the OBR (the Office of Budget  Responsibility) has flagged one of the fiscal risks, is that the chances are that whoever is in government is going to be addressing those risks, and  is going to end up spending more money than is currently planned, so there is a lot of politics in what Jeremy Hunt did on Wednesday and that’s pretty clear and it has meant that there are significant pressures on the public finances for some time to come.

It may be the economy will perform on the upside and there will be a bit more money but I am not sure there is going to be scope for further tax cuts in the Spring, although there is plenty of speculation that that was the case but before we sort of start talking about what could happen in the future maybe we should focus on what’s already happened, and Rhiannon from a business perspective in terms of what the Chancellor has set out, what stood out for you?

Rhiannon Kinghall Were: So as I said it wasn’t really a fiscal statement for the tax enthusiast, a lot was trailed in advance, so unlike other years there wasn’t as much to look under the bonnet and once the book was published with all of the detailed policy announcements. Obviously the headlines from a business perspective is that full expensing has now been made permanent, I think this will obviously be a very a welcome measure for businesses and it’s just a shame that the score card didn’t allow it to be made permanent at the outset, it was obviously introduced at the last fiscal event on a temporary basis, but in terms of what this means for companies, especially in light of the higher rate of corporation tax that has gone up to 25%, companies can get immediate relief on the investments that they make in certain plant and machinery and there is also a 50% allowance that is being made permanent for integral features in buildings and long life assets that had ordinarily before these announcements that they had only qualified for 6% writing down allowances, so I think overall obviously positive and especially in light of that much higher rate of corporation tax, something was needed to reduce the base of which profits were taxed. We can also expect I think further changes or certainly some simplification of capital allowances, there is a hint of a technical consultation and also a working group focused on leased assets, so there is a little bit more work that will also be underway around capital allowances. 

David Gauke: I suppose what you could say though is, we will talk about NICs in a moment, but this is helping businesses but it’s in the context of corporation tax rates having gone up a lot and businesses are still going to be paying more in corporation tax than they were before those changes happen.

Rhiannon Kinghall Were: Yes, certainly the projections are that there will be quite a bounty from corporation tax receipts and it obviously reverses a strategy that was close to your heart that focused on obviously reducing the rate of corporation tax and broadening the base – we now have a much higher rate in corporation tax and despite the move on capital allowances we still have a much broader base so corporation tax receipts will be doing quite a lot of heavy lifting for the public finances.

David Gauke: Yes, as you say close to my heart and yes, I for one was not hugely thrilled to hear the announcement of the increase in corporation tax rates done a couple of years or so ago. One area where we have been doing a lot of work and you have been doing a lot of work has been on the international co-operation on corporate taxes and Pillar Two so have we got an update on that as well?

Rhiannon Kinghall Were: So there is no letter on the Pillar Two implementation of introducing a global minimum tax, I think anyone was going to be but very optimistic if they thought the Government might delay this agenda this close to it coming into effect, so for accounting periods starting on or after 31 December 2023, so the end of this year businesses will need to be ready for the top up tax, that said despite that pending deadline and despite the UK government’s issuance of legislation at a very early stage compared to other jurisdictions, there are still details unfolding and so there is a little more detail and some further updates to the Finance Bill and also indeed the Finance Act that introduces the new top up tax for the UK, And in addition to the top up tax the Government has also taken to implement the under tax payment rule which is seen as a backstop rule for Pillar Two and that has been confirmed to take effect for accounting periods beginning on or after 31 December 2024.

Draft legislation was already published actually in the summer so we had some indication that the Government was moving ahead with that but they have obviously confirmed the date and have now actually booked some revenue, which they are expecting by 2028/29 to bring in just shy of half a billion pounds, which that to my mind feels quite high, especially given that this rule is seen as a backup rule and should only really come into play when say the top up tax isn’t being collected by parent jurisdiction because they haven’t implemented the minimum tax and so actually over time you would expect more countries to have implemented and that would actually diminish the role that the under tax payment rule has to play, but the Government does actually think that it will get some revenue from this and actually increasing towards the end of the score card, so it will be interesting to understand a little bit more about their projections in that regard. And I think linked to the Pillar Two work, one major win for simplification is that the Government has actually decided to repeal some legislation, so the offshore receipts in respect of intangible property(ORIP), that has been abolished and I think this is really positive that the Government, HMRC, Treasury is confident that the Pillar Two rules and some of the other base protection measures can actually sufficiently tackle some of the avoidance that these measures were introduced, but I think it is really unusual to actually see the repeal, we normally see quite a cautious approach, so I had expected a lot of these rules just to sit on the statute book indefinitely, so there might be more of this to come and I think it goes to the point we are obviously dealing with the announcement of the Office of Tax Simplification closing and Treasury and HMRC have said that they are going to be looking at tax simplification and I think that this is a good example and they might look to identify more obsolete rules in the future.

David Gauke: Very good, and on the subject of tax simplification I suppose one issue not directly related to the business but of course reforms of National Insurance contributions, so there is a simplification there, in terms of the abolition of Class 2 NICs which was something I can remember looking at when I was at the Treasury some years ago and they’ve actually finally done it. It’s in the context of cuts in employees and self-employed National Insurance contributions, I thought an interesting one, usually you would expect, so if you cut personal taxes it’s income because people are a lot more aware of income tax, more conscious of it, it’s more politically sensitive but they have cut NICs, that means they can do it early, which is interesting and also, when he was making his speech and I thought Jeremy Hunt was going to be cutting self-employed NICs by more than employees NICs when he announced the scrapping of Class 2 and then a reduction by 1% of Class 4, but in fact with the 2% cut in employee NICs, well it depends where you were on the income spectrum, but if anything they are sort of slightly narrowing the gap between the two which was something that the Treasury has been trying to do for a very long time, and reduce the preferential treatment of self-employed within the NICs system so I thought that was an interestingly policy announcement and interestingly political as well.

Rhiannon Kinghall Were: Yes, and as you say one that they could bring in early so people can feel it in their back pocket although just one point on the timing, the cut on the employee Class 1 NICs comes into effect from January but actually the reductions on the self-employed side don’t start until April, so there is a small delay for the self-employed before they see the benefits.

David Gauke: No, a very good point. NICs is done on a weekly basis but it gets more complicated I think for the self-employed as they do their tax returns and so on so that’s the reason for that, but I know that, I think certainly my initial reaction when he announced it was going to start from January was more keen to show some benefit sooner rather than later, does this mean a May general election? I don’t know what your thoughts on that were Rhiannon?

Rhiannon Kinghall Were: I guess it’s incredibly uncertain, there will be a lot of politics at play and certainly the state of the economy will be a factor in any decision, I guess yes, David you can probably share some thoughts on where this Autumn Statement leads us in terms of the politics and as you say that chance of an early election.

David Gauke: Well I think, it does seem to me that they are keeping their options open. I mean frankly if the Labour lead in the opinion polls is anything like what it is at the moment and we are in late March I don’t see there being any chance that, or much of a chance that, Rishi Sunak would go to the country in those circumstances, but if things got better politically for the Conservative party and that gap had been substantially closed, given that the NICs cuts for most people for the employed people would have already been in place, given that actually there are potential problems down the line for the country, the economy doesn’t look as if it’s going to be performing particularly well through 2024, I’m a bit sceptical that there’s going to be much fire power for a tax cut in the March budget, you just wonder whether they would go early as I say I still think it will be autumn because I don’t think the polls will close enough for Rishi Sunak’s liking and why bring your premiership to an end when something might turn up over next few months, but there is no doubt that in the Westminster world there is much more speculation about a May election than there was in advance of that Autumn Statement and as I say that moment when he announced that the employee’s NICs changes were going to take effect in January, I think a lot of eyebrows were raised and immediately the speculation went into overdrive that the election might be sooner rather than later.

Of course it sometimes helps a government to have that speculation running, it keeps backbenchers a bit more disciplined than they would otherwise be, and perhaps it puts a little bit more pressure on the opposition but as I say I think simple self-interest would suggest wait until the autumn.

Very good, well on all of that Rhiannon, thank you very much for your company, as I say this is the first of three podcasts we are doing on Wednesdays Autumn Statement, thank you for tuning in to the latest in our policy in practice podcasts, and do join us for our other sessions. Thank you very much.

Rhiannon Kinghall Were: Thank you.