Tax benefits depend on the individual circumstances of each investor and may be subject to change in the future.

by Matthew Moynes, Director at Calculus

22 November 2023

Cast your mind back to the previous Autumn Statement, Jeremy Hunt was just over a month into his tenure as Chancellor and was faced with the challenge of rebuilding confidence after huge economic instability and a truly testing couple of years. Hunt’s reaction was to map out a measured plan for stability with the primary goal of absorbing the fiscal deficit through a balance of tax increases and spending cuts. However, today provided an opportunity to present a more optimistic vision. Previous tax threshold freezes, coupled with pay rises to offset the erosion effects of inflation have provided greater fiscal wriggle room for this budget, and the chance to deliver popular tax cuts ahead of a looming election. It was also the chance for the Chancellor to deliver an inspired message that the economy is at a turning point, that the tussle for economic stability is being won, that inflation is now under control and moving in the right direction. Hunt highlighted the progress made in these areas, but acknowledged there was still ‘work to be done’.

A timely statement from the Bank of England Governor Andrew Bailey warned that it was ‘far too early’ to discuss rate cuts and served as reminder that despite recent progress, inflation levels remain well above the 2% target. Monetary and fiscal policy coordination is key to achieving target inflation levels, a fact Hunt will have been very aware of when deciding how and where to deliver tax cuts. As is typical before any budget, speculation was rife, and rumors circulated around which areas of tax would be targeted. Inheritance tax had its time in the spotlight before being pushed aside for speculation on income tax and National Insurance rate reductions. The latter turned out to be accurate.

Hunt confirmed the main rate of Employee National Insurance will be cut from 12% to 10% with effect from the 6th of January 2024. Despite the initial reaction to believe tax cuts of this nature are putting more money back into the pockets of working people, it may not be entirely accurate to jump to this conclusion. Fiscal drag will become a popular topic after this Autumn Statement. This is when inflation and earnings rise, but tax thresholds and bands do not increase at the same rate. The result is taxpayers being pushed into higher tax brackets. The additional revenue generated for the government can continue to improve the UKs debt to GDP ratio, a metric favoured by Hunt when measuring the health and general momentum of the UK economy.

An extension of the ‘full expensing’ break was expected, however Hunt went a step further and made this business tax relief permanent. ‘Full expensing’ is a form of capital investment relief providing businesses with a 25% in year tax reduction for capital expenditure on significant proportions of IT, machinery and equipment. The aim here is to drive overall productivity, wage gains and economic output by encouraging company’s to invest in these areas. Hunt believes this level of tax relief is only possible due to the tougher fiscal measure previously enforced and labelled this as the ‘largest business tax cut in modern British history’, a phrase he elected to repeat several times.

Various pledges were made to support small business owners and once again Hunt reminded us of his credentials as an entrepreneur. Although not specifically mentioned in his speech, the written statement included an extension of the ‘Sunset’ clause which originally saw the availability of EIS and VCT tax reliefs expire on the 6th April, 2025. This has now been extended out to 2035. This is a vote of confidence and recognition of the crucial role EIS and VCT plays in stimulating the flow of capital to early-stage, high growth UK companies and driving greater overall economic expansion. Offering tax free capital growth, 30% income tax relief on the value of the investment, and in the case of the VCT, tax free dividend income, the EIS and VCT remain credible and dependable tax efficient investment products, helping to offset some of the increased demand on higher rate taxpayers. (Please note, don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Tax benefits depend on the individual circumstances of each investor and may be subject to change in the future.)

The level of changes introduced in this Autumn Statement felt in line and appropriate for a UK government balancing inflationary pressures, gloomier longer term economic forecasts and political positioning for an upcoming election. The Chancellor claimed these changes amounted to ‘the biggest package of tax cuts since the 1980s’, but it would be prudent to remember this was off the back of recent substantial hikes.