Autumn Statement 2023 preview: ‘Tax changes possible, but fiscal fireworks most likely to come in spring’
Our tax partner, Tony Medcalf sets the scene ahead of the Autumn Statement on November 22 and gives his opinion on what tax changes may be announced.
With a UK general election likely to happen at some stage in 2024, people have been asking me if the government will use this autumn statement to unveil some potentially vote-winning tax cuts.
However, my personal view is that the chancellor will save any major tax changes for the spring budget in March.
That’s because anything that’s announced now, just weeks before Christmas, is going to have less impact than if the government waits until a few months before the voters go to the polls, and also because its short-term priority has to be bringing down inflation.
Creating a point of difference
In my opinion, there is not currently a great deal separating the two largest political parties, the Conservatives and Labour, in terms of their tax policies.
Therefore, if the government does decide to use the autumn statement to engage in some early election positioning, any proposed changes are going to need to be big and bold to create that point of differentiation.
For example, would cutting 1p off the rate of income tax rate, a policy mooted previously by the Conservative Party, be enough to make an impact on the electorate?
And will the chancellor be keen on tweaking other major taxes that have already seen recent change, such as corporation tax which was only raised in April 2023?
The one area where I could foresee possible change is to inheritance tax. It is one of the few areas where the Conservatives would be able to create an ideological difference between themselves and the other parties on tax policy.
However, would any changes to IHT need to more drastic than just raising thresholds? Could the government abolish inheritance tax altogether? It would be radical, but it wouldn’t surprise me entirely, even if IHT does raise around £7bn per year for the public finances.
Controlling inflation still seen as the priority
Cabinet member Robert Jenrick said recently that tax cuts will only be considered if the government meets its target of halving inflation by the end of the year. The mantra from Downing Street continues to be that cutting inflation is the best tax cut.
Essentially, the government needs people to start feeling like they are better off and, while there are signs that may be starting to happen with the recent figures on wage growth outstripping inflation for the first time in two years, we’re still some way off this.
I don’t think the chancellor will want to risk spooking the markets with any major policy shifts when inflation is starting just starting to come back down.
This is why I suspect the autumn statement will be more about the macro-economics, an update on how income and expenditure is doing against forecasts, than unveiling tax cuts.
Office for Budget Responsibility (OBR) figures are expected to show that state borrowing is some £20bn less than what the OBR forecasted back in March. And while there is a school of thought that this gives the government leeway to increase spending, my own theory is they will resist that temptation for now.
The abolition of inheritance tax will probably be seen as a step too far at this stage, but definitely ‘watch this space’. In summary, don’t rule anything out, but expect the fiscal fireworks to come in March’s budget announcement when an election will be looming much larger on the horizon.
Expert insights on Autumn Statement 2023
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