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Autumn Budget — what should we expect?

By Andrew Harding, FCMA, CGMA, Chief Executive – MA, Association of International Certified Professional Accountants

The Chancellor of the Exchequer, Rishi Sunak, has confirmed that this year’s Autumn Budget and Spending Review will take place 27 October 2021. For the U.K. Government, this comes at an increasingly difficult time as inflation, skills shortages, supply chain disruptions and failing energy companies continue to dominate the headlines.

At the same time, the Government is also setting a broad and ambitious policy agenda to pay back the costs of fighting the pandemic, restore economic growth and achieve its “levelling up” ambitions. The key question is: what could the next Budget and Spending Review mean for U.K. businesses?

Changes we already know about

This year, the U.K. Government has introduced large tax increases with the tax take at its highest as a share of GDP since 1950. Employer and employee national insurance contributions (NICs) in the U.K. will both rise by 1.25% from April 2022. The money raised will go towards increasing funding for our health and social care system. For employees, the 1.25% will appear as a separate item on payslips from April 2023 as a health and social care levy. Personal tax allowances are also set to be frozen from 2022 and the main corporation tax will increase from 19 to 25% from April 2023.

In addition, pandemic employee support schemes are coming to an end, but new jobs support packages are being put in place. Announced earlier this month is the Chancellor’s £500m Plan for Jobs extension, which will provide extra support to help people back into the workforce following the end of the furlough scheme in September. The Kickstart Scheme, which provides funding to create new jobs for 16- to 24-year-olds on Universal Credit, has also been extended as part of this plan. More details on specific funding for each measure will be provided in the Autumn Budget and Spending Review.

Finally, we can also expect the Chancellor to announce new public sector spending cuts across many departments except for the NHS. The Government has rejected a return to austerity. So, while this move will change the shape of public spending in the U.K. overall, the level of public spending will remain high. It’s also worth noting that this will signal a further increase in the national minimum wage, but the scale of the increase is not yet known.

What could be announced on 27 October?

At the recent Conservative Party Conference, the Chancellor signalled that further tax increases may be needed to balance the U.K. Budget, saying ‘recovery comes with a cost’ and that ‘we need to fix our public finances’. But, with much of the headline tax increases already announced, we are more likely to see a technical budget with changes that raise extra revenue via stealth increases.

Changes could include:

  • Extra sin taxes on fossil fuels, pollution and alcohol — A green gas levy could be considered as part of the Government’s ‘net zero’ drive. The freeze on alcohol duty ends this month and in the 2020 Spring Budget, the Treasury announced a review seeking views on overhauling the taxes on beer, cider, wine and spirits. Possible changes could include standardising the different tax rates across alcohol types, raising alcohol duty in line with inflation, and introducing different rates depending on where drinks are sold, with lower rates for pubs than supermarkets.

  • Changes to tax collection for the self-employed — The Government consulted on proposals to change the basis period rules for the self-employed from a ‘current year basis’ to a ‘tax year basis’. This means that a business’s profits or losses for a tax year would be those occurring in the actual tax year itself, regardless of its accounting date. This would help businesses make the move to Making Tax Digital quarterly reporting and bring forward revenue for HMRC for the next few years, helping to reduce the national deficit in the short-term.

  • Increasing the wealth tax — Taxes on wealth are becoming increasingly popular with politicians, especially as capital gains tax rates are lower than the income tax rate and only a wealthy minority pay the inheritance tax. Office of Tax Simplification reviews in recent years on how to simplify inheritance tax and capital gains tax rules could inform changes in this area. They will be presented as a simplification but would, in practice, help raise additional funds.
  • Higher student loans repayments — Changes to the threshold at which student loans begin to be paid back could be brought from £27,000 down to £23,000, which could help save around £2 billion. Such a move could prove widely unpopular with the youngest generations of workers in light of the planned NICs increases next year.
  • Business rates and VAT — The Chancellor promised to publish the final findings of the Government’s Business Rates Review this autumn, but this has been delayed due to the pandemic. With a number of businesses calling for a reform, he could provide an update on the Budget as part of the Autumn Budget and Spending Review. It’s also worth noting that the temporary cut in VAT to 5% for the hospitality and tourism sectors ends this month and there’s no indication of whether it will be extended.

How is the Association supporting U.K. businesses?

In the past 18 months, we have focused our advocacy efforts on supporting U.K. businesses, small and medium-sized enterprises in particular (SMEs) the coronavirus pandemic affected.

In consultation with our members, we made several calls and policy changes throughout the pandemic. We notably produced and released our Budgeting for Recovery and a Long-Term Economic Future report. It contained 40 measures and proposals the U.K. Government should implement to help support businesses in the short-, medium-, and long-term.

We also sent this report to the U.K. Government and secured a meeting with the then Exchequer Secretary, Kemi Badenoch MP, to discuss the report and our ideas ahead of the Spring Budget in March 2021. As a result of our efforts, the Government adopted, in part or in full, 16 of our proposals laid out in our report in its Spring Budget.

Since then, the Government adopted two additional recommendations from our report, including a voucher scheme to support digital technology adoption among SMEs as part of the Government’s Help to Grow: Digital Programme.

Ahead of this year’s Autumn Budget and Spending Review, we will continue to advocate on behalf of our members and their organisations by submitting further ideas to the U.K. Government and support policies for long-term growth and prosperity.

Find out more about our activities here.