What can we expect from the Autumn Statement?
Jeremy Hunt will deliver his Autumn Statement on the 22nd November. As always, the rumour mill is working away, so what is likely to form part of the Chancellor’s speech?
He will no doubt begin his speech with a summary of the latest economic report from the Office for Budget Responsibility (OBR).
GDP growth has been relatively weak so far, with GDP growing by 0.3% in the first quarter and 0.2% in the second. This is expected to worsen with a recession currently forecast for Q4 2023 and Q1 2024.
The Chancellor has already warned that he will have to make difficult decisions in the Autumn Statement, when he said that the fiscal position has worsened since the spring. He went on to say ‘The main reason things are more challenging is because interest rate projections for all economies have gone up. The UK is not immune to those changes. We are likely to see an increase in debt interest payments of £20 billion to £30 billion and that’s a huge challenge.’
At the time of the March Budget, the Office for Budget Responsibility (OBR) said the chancellor had only a £6.5 billion buffer to meet his fiscal rule of having debt as a share of national income falling at the end of five years. Higher borrowing in response to the Covid-19 pandemic has pushed the national debt above £2 trillion.
This lack of manoeuvring space was also laid out in a recent report by the Institute for Fiscal Studies (IFS).
The IFS has warned that there’s ‘no room’ for tax cuts or spending increases before an election, and went on to say that the UK is actually ‘in a horrible fiscal bind’ in their most recent annual health check around tax, spending and borrowing.
Any pre-election tax cuts could prove unsustainable and ‘ultimately mean a protracted recession’ which would push interest rates up further.
The Director of the IFS has said ‘With taxes at record levels and government revenues forecast to exceed non-interest spending for the first time in a generation, you might expect plenty of room for either tax cuts or spending increases. The price of our high levels of indebtedness, failure to stimulate growth and high borrowing costs is likely to be a protracted period of high taxes and tight spending.’
So, what might Jeremy Hunt announce?
1 Full Expensing
Hunt could use the Autumn Statement to make his full-expensing regime (100% first-year deduction for capital expenses) permanent. He couldn’t do this at the Spring Budget, because it would have breached his self-imposed fiscal rules that dictate national debt must fall in the medium term.
2 Go for Growth
It’s been rumoured that the Chancellor wants to use taxpayer’s savings to increase investment in UK companies.
Following Brexit, the Government is able to introduce ISA reforms that encourage taxpayers to invest exclusively in UK-listed companies, so we could see a consultation into this.
Last year, the Government announced that it planned to merge the UK’s two R&D tax relief schemes into one to simplify the rules and cut down on the cost of the SME scheme.
It published draft legislation for this reform in July, so hopefully there will be more news in the Autumn Statement, ideally a roadmap to ensure the transition is not too disruptive.
4 Inheritance Tax
There’s been a lot of press speculation around Inheritance Tax (IHT) and many calls for the tax to be reformed or removed altogether.
While its unlikely to be abolished, Jeremy Hunt could open a consultation on reform, which would be something the Government could return to during the Spring Budget or campaign on in the upcoming general election.
Whatever the Chancellor’s speech includes, we’ll be watching, listening and then studying the small print to ensure we’re aware of the nuances as soon as they’re available. As always, we’ll then send our summary to clients as soon as we can afterwards, so keep your eyes open for that in your inbox. As ever, if the media coverage, or our summary, prompts any questions, please get in touch.
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