Market View

The Autumn Budget: what did we learn?

Simon Allister, Partner and Head of Wealth Planning

The Chancellor Rishi Sunak’s Autumn Budget passed us by on Wednesday with few meaningful additional tax changes for individuals.

The Chancellor’s strategy over the past "extraordinary 18 months" has been to provide significant financial support to businesses and employees impacted by the pandemic, to then help engineer a rapid post-pandemic economic recovery, and then to rely on future tax rises to pay for the pandemic financial support once the recovery is in full swing.

This latter "announce now, pay later" strategy seems to have worked perfectly in managing the public mood. The government has quietly implemented significant tax rises without hampering the recovery (generally because the ‘big hits’ are yet to come) whilst also largely managing to retain the positive mood music.

The tax announcements have, however, been broad-based and significant:

  • the freezing from April 2022 of income tax and capital gains tax thresholds and allowances.
  • the 6% increase from April 2023 in the rate of corporation tax.
  • We have the 1.25% increase from April 2022 in the rates of employees’ National Insurance Contributions (NICs), employers’ NICs and dividend income tax.

Through preannouncing the latter - and linking it directly to the last 18 months in the form of a "health and social care levy" - the Chancellor quite astutely paved the way for the Budget to focus on his positive spending plans.

Taken together, these tax rises will amount to over £49 billion per year by 2025/26, which the Chancellor admits will mean that taxes will be at "the highest level as a percentage of GDP since the (early) 1950s". Most people accepted that tax rises were inevitable to help "balance the books". Indeed, there has been speculation going back well over a year that the Government’s huge fiscal outlay would invariably result in wide-ranging tax changes for individuals.

As with the Chancellor’s Budget in March, various proposals had been muted in advance of this Budget, from increases to Capital Gains Tax (CGT), to potential overhauls of Inheritance Tax (IHT) and pensions taxation. Again, however, this Budget held no major announcements on income tax, national insurance, CGT, or IHT. The pensions industry also received another rest having been the tool of choice to play with in successive budgets for years.

Few accurately predicted the actions the Chancellor has chosen to take. The lack of movement in relation to Capital taxes will come as a welcome relief for entrepreneurs and many investors. Some will see the Chancellor’s unwillingness to enact the recommendations from the Office for Tax Simplification (and various other think tanks) for both CGT and IHT as a potential missed opportunity.

There remains a reasonable chance that Sunak will look to revisit these areas in future budgets. That said, the Chancellor has looked at the ‘bigger ticket’ areas to get the bigger revenues. The consensus opinion that capital taxes will invariably rise to balance the books is no longer looking quite so convincing.

The argument lessened further by the Government’s general message in the run-up to the Autumn Budget that it wants tax rates to decrease by the end of the current Parliament. Again, a positive message for the Budget. With the announced tax rises yet to come into force, there is no doubting, however, that we will be feeling the financial after-effects of the COVID-19 pandemic for some time to come.

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