Tax Cuts in the Autumn Statement?

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December 2nd 2023
Tax Week 35
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Tax Cuts in the Autumn Statement?

In under two weeks we'll see how the state of the economy shapes the Chancellor's tax and spending plans.

Wednesday November 22nd is pencilled in for a key financial event that many will be hoping can signal brighter days, the Autumn Statement 2023.

The OBR (Office for Budget Responsibility) provides the government will the latest financial forecasts and Jeremy Hunt's Treasury will be tasked with organising the country's finances based on the gloomy (or sunny?) outlook.

A month ago we had the first indications of what to expect at the Conservative Party Annual Conference. A conference that is now likely to be the last before the 2024 General Election, which has a strong bearing on the incumbent party's future plans for the electorate.

The party has covertly broken manifesto pledge's by using stealth tax increases via 'fiscal drag', pushing more and more taxpayers into higher tax bands. Tax allowances and band-widths are frozen continuing up to 2028 - and the effects of inflation on this are huge. We calculated that based on inflation, the personal allowance this year should be more like £14,000 instead of the current £12,570 for example.

Talking of inflation, the government has made it clear that is their main aim to lower the figure, currently three times what it should be - lower than the start of the year where it was ten percent (five times the target).

The reduction of inflation is the best we can expect in terms of a 'tax cut' to ease the cost-of-living crisis, said Hunt earlier this year. The reason being, there is no room in the budget at all for cuts. Other minister's have stated that if inflation was to be halved then some tax cuts may be possible, but is that a halving from the ten percent at the start of the year (in which case it has halved) or halved from the current 6 percent?.

His remarks are based on the rising Bank of England Base Rate of interest, which has seen consecutive rises in recent months and is now sitting at 5.25 percent. This has led to big increases in mortgage payments for many homeowners and rent increases for tenants.

Unfortunately, Hunt's comments contrast with the Bank of England. The BoE state zero growth for UK Plc for another 18 months at least and interest rates at best remaining high or at worst seeing more rises. This doesn't help the government's budgeting as borrowing costs will continue to soar.

Businesses are not expecting any handouts and are voicing concerns about the increased corporation tax and tough administrative changes to investment incentives such the R&D tax credit - things that could lead to businesses moving to more friendly regimes overseas. The most they can hope for are tax breaks for green investment, further extensions to the 100 percent capital allowance in the first year, and cuts to employer's national insurance contributions.

Inheritance taxes, which have been in contention within the party, could see a cut to either the current 40 percent rate or an increase to the tax-free limit of £325,000.

In terms of welfare spending plans, the pension triple-lock and even tougher administration of benefits could be on the horizon.

We'll see more news leak out as November 22nd approaches, as an usual will be covering the event to provide news, tools and calculators to help you plan your finances.

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