Press release

17 Nov 2023 London, GB

'A table-setting Statement' EY's Autumn Statement 2023 Predictions

Chris Sanger, EY’s Head of Tax Policy, comments on the possible direction the Chancellor might take at the 2023 Autumn Statement.

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Chris Sanger, EY’s Head of Tax Policy, comments on the possible direction the Chancellor might take at the 2023 Autumn Statement:

“Following a somewhat unorthodox series of substantive fiscal announcements over the last 12 months, it’s likely we’ll see the Chancellor return to the more traditional ‘economic statement’, answering few questions around existing policy ahead of major announcements to be made in the final pre-election Budget next year. Greater than predicted tax receipts are likely to provide the Chancellor with a modest increase in fiscal headroom and October’s inflation figures mean that the Government can say that it has met its pledge to halve inflation by the end of the year, but he may well choose to stress the merit of sticking to his prudent approach. We can expect an Autumn Statement that sets the table, ahead of what may be a small dinner of cuts and incentives in Spring.

“The Chancellor has previously resisted calls for cuts and emphasised that managing inflation is the priority. If that strategy continues, we should expect a traditional economic statement, emphasising the need for Government to stick to its five-year fiscal rule on net expenditure by avoiding the introduction of tax measures that significantly impose on the public finances. If end-of-year Treasury figures reveal that the UK remains on the right track with inflation, then the Chancellor may feel he has more room to manoeuvre in Spring, but, until then, opportunities for permanent tax cuts or short-term incentives may remain limited.

“In seeking to promote a more positive mood beyond what he does include in the Autumn Statement, the Chancellor may highlight potential areas for incentives that could be introduced next year, while noting that this would only be possible in the event that his current course results in a better year-end position for the UK. 

“The Chancellor has previously vowed to prioritise the four Es of Enterprise, Education, Employment and Everywhere. EY’s UK Attractiveness Survey, published earlier this year, showed that reducing UK corporate tax levels had risen from eighth to second place in the list of domestic policies that global investors would like to see prioritised, ahead of improving skill levels and addressing regulatory burdens, with little time left to make these changes before a likely General Election. With the recent Corporation Tax increase, and notwithstanding the remaining two years of full expensing, the UK is considered a high tax environment. Incentives serve to partly counteract a high tax rate, and have the potential to allow the Chancellor to stimulate investment in chosen sectors and areas.  With a Corporation Tax rate significantly higher than the global minimum tax, due to come into force next year, the UK has plenty of room to sweeten the pill of the rate rise, but we may need to wait until the Spring Budget.”

Pillar Two

“The Chancellor has committed to providing a Global Minimum Tax (‘Pillar Two’) update by the end of this year and we should expect to hear about the progress that other Inclusive Framework member countries are making in implementing plans. Beyond the minimum tax, the Organisation for Economic Co-operation and Development (OECD) has said that it expects member states to sign a Pillar One agreement on reallocating the profits of the largest multinationals by the end of this year and the Chancellor may take the opportunity to reiterate that timeline, but we shouldn’t expect much in the way of fresh detail or change here.”

Full Expensing

“Businesses will be eager for the Chancellor to determine the future of full expensing, a relief that provides a significant cash flow benefit for large scale investment, bringing forward relief into the year of investment rather than spreading it over the investment’s lifetime. The current proposals run for only two more years, and the Chancellor could extend this for a further twelve months in a way that is unlikely to impact his five year fiscal target. Many businesses would like to see the relief made permanent, as it would allow more time to plan and covering longer term, staged investment. However, this would mean a larger cost to the Exchequer and require the Chancellor to dip into the additional reserves created by the higher-than-expected recent tax receipts. 

“Following a prolonged period of economic turmoil, the delivery of permanent full expensing would provide businesses with the confidence to make long term UK investments beyond 2026. Moreover, providing certainty and visibility over long term investment policy would send a clear signal that the UK is ‘open for business’.”

VAT-free shopping for international visitors

“Despite calls by some across the retail and tourism sector for the Chancellor to reinstate VAT-free shopping, this remains an area of uncertainty. There are questions over whether the policy could be reintroduced without now including visitors from the EU, and whether there may be other areas of the measure that Government may be interested in changing, such as the type or value of goods included in the provision. VAT-free shopping was the subject of a debate in the Commons in September, so we may see a consultation announced into how to support the UK retail sector.”

Mark Feldman, EY UK&I Sustainability Tax Leader, comments on a potential UK Carbon Border Adjustment Mechanism (CBAM):

“The Government’s consultation on a Carbon Border Adjustment Mechanism (CBAM) closed earlier this year and the Chancellor may announce his plans to introduce a UK version of the EU regime at the Autumn Statement or at the later Spring Budget. This would likely resemble the EU’s mechanism, which charges a levy on carbon-intensive imports, such as steel, that are manufactured with a higher carbon footprint than those produced inside the EU. There’s significant support for a UK version among UK manufacturers, which are eager to avoid their UK sales being undercut by products manufactured overseas by competitors that don’t face the same carbon costs in those jurisdictions. A UK CBAM could also support national decarbonisation ambitions by incentivising the purchase of products with a lower carbon footprint, while providing the Exchequer with additional revenue.

“While a UK regime would likely take several years to come into full effect, UK importers and global manufacturers will be paying close attention to the detail of any announcement. While the Government would likely look to minimise the compliance burden of a UK CBAM and align it to existing trade and sustainability processes where possible, the reporting required would likely still be significant and companies would want to begin preparations as soon as possible.” 

Axe Ali, EY EMEIA Financial Services Private Equity & Venture Capital Leader, comments on potential vehicles to boost investment in new and innovative UK businesses:

“The Chancellor has previously indicated that government should play a greater role in establishing investment vehicles to support the growth of new and innovative businesses within the UK. Following the recent launches of the Mansion House Compact and the Venture Capital Investment Compact, we expect the Autumn Statement may provide greater clarity around how the government will support DC pension scheme investment in unlisted equities, and how the British Business Bank will build on the skills to face into institutional capital and DC pension funds.

“We may also hear which proposals have been selected for the Long-term Investment for Technology and Science (LIFTS) initiative, which will indicate the types of investment vehicles that may become more prevalent in the future.”

Paul Kitson, UK Pensions Consulting Leader at EY, comments on changes to defined benefit (DB) pension rules:

“If pension reform does feature in the Autumn Statement, we expect it will focus on moving DB investment away from predominantly low risk assets and making it easier for corporate sponsors of DB pensions funds to extract surplus. We may also see proposals of taxation changes to DB pensions; for example to the tax on surplus return.

“The Mansion House Compact is driving momentum to facilitate defined contribution (DC) pension fund investment in UK unlisted equities to generate better outcomes for savers, so we expect the Chancellor may monitor for progress before announcing further reform to DC pension schemes. If reforms to DC pensions are announced, this may involve the FCA being asked to look at how the Value for Money (VFM) framework applies to employers when selecting a DC provider, and to review the Long Term Asset Fund (LTAF) rules and authorisation process to address any issues preventing wider adoption.”

Tom Evennett, EY UK&I Private Client Services Leader, comments on Personal Tax options available to the Chancellor: 

“We’re unlikely to see substantive changes to personal taxes at the Autumn Statement. One year after he extended the threshold freezes on income tax, the Chancellor is now starting to see higher tax receipts as inflation pushes many taxpayers into higher rate bands, so it’s unlikely he’ll change an approach which is set to generate even more revenues for the Exchequer in the coming year. Instead, we should expect to see a Statement on UK finances with a hint that the tax burden on household may ease in Spring, if end-of-year finances show the country on the right track. 

“The Chancellor has previously emphasised the need for fiscal prudence and insisted that any personal tax cuts would have to wait until Spring. However, if he is considering adjustments to rates, or personal allowances and thresholds, he’ll be mindful of the timing. Introducing personal tax cuts now would mean that employee payrolls could be calibrated and changes could be in effect from the start of the UK tax year in April 2024, providing time for taxpayers to experience the benefit ahead of a prospective General Election.” 

Tom Evennett, EY UK&I Private Client Services Leader, comments on simplifying cliff edges

“The Chancellor has emphasised the need to balance books, so a personal tax giveaway at this stage is unlikely. One area that would align with his previous commitment to simplify the tax system would be to address the longstanding cliff edges at various income threshold boundaries. Addressing these areas would still cost the Exchequer, so it’s unlikely that we would see any movement here ahead of Spring, if at all, but they could be framed as simplifying the tax system for households.

“This could involve removing the 62 per cent effective rate that applies on earnings between £100,000 and £125,140, as a result of the gradual removal of the benefit of the personal allowance. This would streamline a long-running complication in the tax system that could otherwise affect an increasing number of people as inflation pushes salaries higher. 

“Another option would be to raise or remove the child benefit cliff edge, which sees the benefit taper off for families where the highest earner has an income of over £50,000. As inflation continues to drive up income, and income tax receipts, the Chancellor may look to address this threshold. This would put money in the pockets of middle-income families and also remove, or at least reduce, a thorny practical issue penalising many households that find themselves entering higher income tax brackets.”

Tom Evennett, EY UK&I Private Client Services Leader, comments on Inheritance Tax (IHT)

“Inheritance tax (IHT) thresholds are frozen until 2028 and, while there have been calls to dilute the measure or scrap it altogether, it would be surprising to see this happen at the Autumn Statement.  At most we may see the nil rate band increased from £325,000, but even this is unlikely. IHT is a proven revenue-raiser for the Exchequer which affects a relatively small number of people across the UK, and this is set to continue even as inflation pushes many estates beyond the nil rate band. 

“The Chancellor has previously emphasised the need to balance the books while promising that tax cuts would come ‘when the time is right’. While this year’s unexpectedly high tax receipts may have provided him with some additional fiscal headroom, it may be challenging to justify abolishing IHT at a time when it is contributing to the UK’s recovering public finances.”

“With a General Election approaching, the Government may be considering changes that can be legislated and implemented ahead of polling day, rather than measures that would require long-term consultation. Abolishing IHT would be relatively straightforward to implement and not easily reversable, as a potential future Government could likely find it difficult to recreate the tax many months or perhaps years after abolition. Reintroducing a tax in full would be more complex than simply reversing a reduction in rates or an increase in the nil-rate band, and if IHT is abolished and its reinstatement then considered in future, we may see that Government explore different ways to charge and collect inheritance or wealth taxation. However, abolishing IHT would remain a bold step to take at this Autumn Statement and would be seen by many as an unlikely prospect.” 

Tom Evennett, EY UK&I Private Client Services Leader, comments on Stamp Duty Land Tax (SDLT):

“We may not see any bold move on Stamp Duty Land Tax until Spring for a variety of reasons. First, the increase to duty thresholds introduced last year will remain in place until 2025, so there is no urgent need to make further changes. Moreover, the post-pandemic stamp duty cut received criticism for contributing to a temporary housing market price bubble that accounted for the duty cut ahead of the deadline, and the Chancellor may not wish to repeat this at a time when households are already seeing a rise in mortgage repayments.

“One possibility could be to tailor SDLT incentives for particular behaviour. Offering buyers a stamp duty rebate if they make energy efficiency improvements within two years of buying a property would incentivise behaviour that helps the Government hit its national Net Zero targets, for example.” 

“If the Chancellor was minded to take a particularly bold step with SDLT, he may consider ways to encourage movement in the slowing housing market. An incentive for downsizers, perhaps providing a Stamp Duty cut if they had sold a higher value property within the last two years, could motivate older owners to relinquish more family-sized homes back to the market. However, again this would be the sort of measure you may expect at a more active Budget, rather than a traditional economic statement.”