A ‘do nothing’ Spring Statement means Autumn Budget will be a bloodbath
The Chancellor has shied away from tackling the big challenges our economy faces, meaning pressure for tax rises in the Autumn will only increase, says Robert Salter
The autumn budget might be a bloodbath in terms of tax as the government runs out of money and the triple lock could be broken.
As promised, the Chancellor of the Exchequer, Rachel Reeves made no effort to introduce new taxes in the Spring Statement. Sadly – given the rapidly changing world which the UK economy – and therefore UK taxpayers are now facing, this ‘do nothing’ position from Ms Reeves has left individuals and British business in limbo while they wait for the Autumn Budget.
Although she has talked about introducing various cuts – including the previously announced steps to increase productivity in the Civil Service, it is often very difficult to achieve these improved efficiencies. Ms Reeves may need to increase the government’s borrowing at a time when the cost of debt has become ever more expensive.
While Ms Reeves states that she is taking the difficult decisions to help the UK economy grow and is on the side of working people, the steps she announced in the October Budget achieve the opposite. In particular, the increase in employers’ NICs, which comes into effect from April, will actually undermine economic growth, increase unemployment and push down future wage rises. This is an unwelcome ‘triple tax whammy’ on working people.
Her ideas for tackling tax fraud, which she believes will bring in extra revenue, are the type of thing that every Chancellor in the last 30 years has said they would do. However, it is very difficult to do in a valid way that yields useful returns without significant investment in HMRC staff. HMRC have previously said that a third of their staff are on the National Minimum Wage, so it is no surprise that the performance of HMRC continues to disappoint.
Does Reeves understand the tax system?
Reeves conflated tax avoidance and tax evasion in her speech, using these very different terms interchangeably, which does not instil confidence in her understanding of the UK tax system. This will reinforce concerns that some have raised about her stated plan to ‘force’ HMRC to increase the number of criminal tax fraud enquiries they raise each year by a specific percentage. This raises the risk that taxpayers who make innocent or careless errors could end up in criminal enquiries in the future.
Despite Ms Reeves’s claims that ‘growth, growth, growth’ is at the top of her agenda, it is disappointing that she has done nothing about the restriction on the interest deduction that a corporate group can claim when calculating their Corporation Tax liability. The cap of £2,000,000, introduced under pressure from the EU when UK base rates were 0.25 per cent, is now out of line with interest rates. It is a real barrier to investment in new and major improvements on the buildings on which our economy depends.
Offices, factories and warehouses all need to be fit for the working world of 2025, and reflect not only the way we now work, but also the need to improve energy efficiency. This needs investment, and debt is a major source of investments. If the cost of that debt cannot be claimed, many of these projects are not financially viable, and works will not be started. The net result is a huge drag on the ability of our economy to grow.
Overall, there are real problems with the Chancellor’s plans and she has missed the opportunity to fully prepare the UK economy for the challenges it continues to face.
Unfortunately, her ‘do little’ approach to some key issues will only increase pressure for tax rises in the Autumn budget.
Robert Salter is a director at leading audit, tax and business advisory firm