Proactive Investors - Jeremy Hunt’s autumn statement has drawn increasing interest as the Wednesday announcement draws nearer, with rumours swirling around what the chancellor may, or may not, announce in Parliament.
Hunt is due to grace the House of Commons with the statement on Wednesday, November 22, with industrial groups and businesses alike getting their feelings known early ahead of the update.
Latest developments
A speech from prime minister Rishi Sunak on Monday offered a glimmer of what will likely be unveiled by Hunt on Wednesday, including one hot topic: Tax breaks.
"Now that inflation is halved and our growth is stronger, meaning revenues are higher, we can begin the next phase and turn our attention to cutting tax,” he said in a speech.
Though the government had previously been bound in what policies it could announce by high inflation, figures last week showing the consumer price index had subsided to 4.6% saw targets of halving inflation hit earlier than expected.
This now leaves the question of which taxes Hunt will look to tweak, rather than if any could be lowered at all.
Previous rumours had circulated around inheritance tax, however scrutiny that a change in the rate from 40% to 20% would disproportionately benefit the wealthy seem to have seen such a plan scrapped.
Sentiment now appears to be that national insurance or income tax itself could be lowered, with the move likely set to be made with the looming prospect of a general election in mind.
The extent of these cuts indeed remains to be seen though, with analysts warning of the likely boost to inflation that any drastic moves could cause.
“Any give-away is likely to be limited with last-year’s mini-budget fiasco still fresh in the memory,” Kingswood chief economist Rupert Thompson commented.
“The resulting near-term economic boost should be minimal, but the chancellor will be hoping the political gains will be rather larger.”
What’s been said?
One key development came last month as Zoom Video Communications Inc (NASDAQ:ZM) and eBay Inc (NASDAQ:EBAY) joined a suite of technology companies in calling for tax breaks to incentivise digital services spending.
Also signed by the likes of Shopify Inc (NYSE:SHOP) and HP Inc (NYSE:NYSE:HPQ), an open letter sent to the chancellor on Friday argued such tax rebates could boost technology spending among small and medium-sized enterprises.
Citing the government’s own commitments to make Britain a “technology superpower,” including through the adoption of artificial intelligence, the letter argued the UK risked falling behind without such incentives.
“Falling behind on digital adoption also means falling behind on the coming wave of AI deployment across the economy,” the letter cited by the Financial Times read.
“Unless we can correct this, economic growth, competitiveness, and the ability to become a science and technology superpower is at risk.”
Any budge from the government remains to be seen though, with a spokesperson responding saying that the UK has the lowest corporation tax in the G7.
Energy efficiency drive
On the subject of rebates, rumours from within the government suggest that tax could be returned in part for new homeowners who make home efficiency improvements.
Government ministers are reportedly mulling the move to begin offering partial stamp duty refunds if new homeowners improve insulation and windows within two years of moving in, sources cited by The Telegraph said last week.
This appears to be one of the policies which is indeed in contention to be unveiled in Hunt’s statement, the sources added.
Pressure has indeed been piled on the government to do something about the UK’s generally poorly insulated housing stock.
Not only would this help reduce bills as houses consume less energy, businesses have previously argued, but could play a part in the UK’s efforts to stem carbon emissions - of which 17% is estimated to come from the UK’s housing stock.
Given energy bills have soared over recent years, pushed by the outbreak of war in Ukraine last year, any other updates on energy policy could be keenly awaited.
That is, calls have come thick and fast for the government to introduce a social tariff to aid the most vulnerable with the higher energy bills in the absence of last year’s direct support, so any update as the UK hits the colder months could be fitting.
Inheritance tax
Tax breaks seem to be a key theme in the build-up to the statement, perhaps expectedly given the UK is poised for its next general election over the coming year or so.
However, given the still-high level of inflation and the government’s own steadfast commitment to tackling it by not risking any changes which could encourage further spending, Hunt’s hands seem largely tied.
Because of this, any personal tax cuts have been ruled out by Hunt himself, leaving him mulling so-called non-inflationary taxes.
This includes a potential reduction in the headline 40% inheritance tax rate, paid when the likes of property are passed on after the owner dies.
According to Telegraph-cited Treasury sources, this rate could be lowered, or the system even simplified to allow all families to pass on more between generations, though any changes are subject to prevailing economic conditions over the coming weeks.
In light of the continued low growth and high-interest environment, the Institute for Fiscal Studies warned Hunt ought to be wary of any tax breaks though.
“Fiscal and monetary policy must strike a delicate balance,” the independent researcher said earlier this month, “ill-timed fiscal loosening [...] might give a short-term economic sugar rush, but could prove unsustainable and ultimately mean a protracted recession”.
Charles Stanley (LSE:CAY) chief investment analyst Rob Morgan noted that inheritance tax tweaks were in fact a “traditional item on the pre-fiscal statement bingo card,” meanwhile.
Though reforms in some way are indeed on the cards, he acknowledged, any significant changes or abolishments are unlikely simply due to the costs to the government.
Other rumours
Aside from tax breaks and rebates, changes to the UK’s individual savings account scheme - which allows people to lock up some £20,000 free of charge - have been tipped.
Morgan referenced the last change to the scheme, which had come in 2016 when the tax-free limit was hiked to £20,000.
“An increase in line with inflation since then would take it to over £25,000,” he said, “so perhaps an extra £5,000 is being mulled over”.
Speculation has also built over inflation or average earnings growth-linked increases for state pensioners, who are set for an 8.5% hike in payments based on the latter next spring.
Given groans from those within the government that this triple-lock system includes “distorting” bonus figures, a change to the scheme could well be in the running.