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13 Dec 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

UK GDP falls again in October

  • UK GDP saw a -0.1% contraction in October, a second consecutive monthly fall. The decline was fairly broad, with consumer-facing services, manufacturing and construction all retreating. However, the Office for National Statistics (ONS) acknowledges that the timing of the Autumn Budget may have introduced some additional noise into this month's data.
  • The EY ITEM Club expects GDP growth to be decent but fairly limited in 2025. Further real income growth and less consumer caution are likely to support household spending. However, the lagged impact of interest rate rises and restrictive fiscal policy will likely weigh on growth.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “GDP fell by -0.1% month-on-month in October, below the consensus forecast of +0.1% growth.  For the second consecutive month, the dominant services sector was flat, masking a particularly weak reading in consumer-facing services, which fell by 0.6%. The manufacturing and construction sectors both contracted on the month, falling by 0.6% and 0.4%, respectively.

“A slow start to the final quarter of 2024 suggests that growth in Q4 will likely remain muted. Growth in Q3 slowed to 0.1%. However, the EY ITEM Club thinks the recent loss of growth momentum may be exaggerated by some noise in the data. Indeed, the ONS noted that survey respondents had provided mixed feedback on the impact of the October Budget, but its notable that businesses had seen some demand delayed until after the Budget.

“Looking to the new year, the EY ITEM Club expects solid but fairly limited growth. Higher real incomes and less consumer caution should support household spending, and there are good reasons to believe global growth will continue at a decent pace. But set against that, past interest rate rises will weigh on disposable incomes as some households continue to refinance mortgages at higher interest rates. The recent Budget loosened the purse strings. Nonetheless, fiscal policy is still set to tighten substantially, and further tax rises may be needed for the government to meet its fiscal targets.”

12 Dec 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Bank of England expected to maintain gradual pace of cuts

  • The EY ITEM Club expects the Bank of England to keep Bank Rate on hold at 4.75% at December’s Monetary Policy Committee (MPC) meeting by a vote of 8-1 in favour.
  • This is likely to just be a skip in the cutting cycle, and while it will stop short of committing to a February cut, the EY ITEM Club expects the Bank of England will return to lowering Bank Rate in the new year.
  • With MPC members pointing to the upcoming change in National Insurance Contributions (NICs) as a key source of uncertainty, the EY ITEM Club doesn’t expect any update on where interest rates may head through next year at the December meeting.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “The message from the majority of the MPC at its November meeting was loud and clear: it intends to reduce Bank Rate ‘gradually’. With incoming data so far giving them no reason to chart a new course, the EY ITEM Club expects the Bank of England to stick to its ‘cut hold’ tempo and keep Bank Rate unchanged at 4.75% when it meets next week by a vote of 8-1 in favour.

“Since November’s decision to reduce Bank Rate to 4.75%, pay and inflation data have evolved as the MPC excepted. While activity has been a little weaker than the MPC anticipated, the EY ITEM Club doesn’t think it has been soft enough to sway a majority of members to vote for a consecutive cut in Bank Rate. Indeed, most MPC members’ remarks since the November meeting have emphasised the consensus on the Committee that some economic slack will be required to bring inflation sustainably back to target.”

Following the September playbook

“Without updated projections or a press conference, next week’s focus will be on the MPC’s written guidance. Barring large upside data surprises between now and the December meeting, it seems likely that the majority of the MPC will indicate that they’ve seen welcome progress on inflation persistence. Nonetheless, the EY ITEM Club expects the Committee to emphasise that it remains vigilant of inflation risks and so interest rates will continue to be adjusted “gradually”. 

“Given MPC members’ recent comments that they expect multiple interest rate cuts in 2025, December’s written guidance will likely take a page out of the September playbook and indicate a full assessment of the economic outlook in February. While this clearly stops short of a commitment to cut Bank Rate in February, the EY ITEM Club would view a February cut as likely provided the economic data develops as the MPC expects. The EY ITEM Club will also be keeping an eye out for any update of the Bank of England’s Agents’ survey of pay settlements for 2025, as this will be an important input into the Committee’s thinking over the coming months.

Uncertainty to persist

“The EY ITEM Club does not expect the MPC to give a detailed update on where interest rates will head through 2025. Indeed, in recent weeks, some MPC members have cited the upcoming increase in employers’ NICs as a key source of uncertainty around the outlook. The Bank of England thinks this uncertainty will likely persist until at least the Spring, so unless there is a sharp weakening in demand in the first couple of months of next year, the EY ITEM Club doesn’t think the MPC will feel the need to deviate from the current “cut hold” tempo over the next few meetings.”

06 Dec 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Housing market continued to strengthen in November, says Halifax

  • House prices in November rose at the quickest pace seen this year. But month-to-month moves in house prices can be volatile. Looking back over the last twelve months, house prices have risen by 4.8%.
  • The upcoming change in Stamp Duty thresholds will likely provide some near-term support to the housing market. After that, the EY ITEM Club expects a modest recovery in the housing market as the Bank of England gradually lowers Bank Rate, but interest rates remain high by pre-pandemic standards.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “House prices increased by 1.3% month-on-month in November according to Halifax, the largest rise seen so far this year. However, house price data can be volatile from month-to-month. Year-on-year house price growth increased to 4.8% in November, up from 4.0% last month and the strongest reading since November 2022.

“The housing market has been resilient over the summer and into the autumn. Borrowing costs fell, supporting activity, as the Bank of England indicated and then delivered interest rate cuts. However, over the last couple of months financial market expectations of interest rate cuts have been volatile, partly reflecting the implications of the UK Autumn Budget and the US presidential election. Markets now expect fewer interest rate cuts than in late summer and this will likely feed into slightly higher mortgage rates over the coming weeks.

“Nonetheless, the EY ITEM Club expects the temporary increase in Stamp Duty thresholds, which is set to expire in March, to support the housing market recovery in the short term. Although, with housing demand sensitive to mortgage rates, higher interest rates could dampen activity a little. Looking further ahead, the EY ITEM Club expects a modest recovery in the housing market. The Bank of England looks set to lower interest rates gradually through 2025, with interest rates remaining above those seen pre-pandemic. Given that the Halifax house price measure is already at a record high of £298,083, this will likely lead to only a modest improvement in the housing market.”

05 Dec 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Construction sector continues to expand at a decent pace

  • November’s construction Purchasing Managers’ Index (PMI) continued the sector’s decent performance across the year-to-date, bucking the slowdown seen in other sectors of the PMI survey.
  • With strong readings across October and November, the PMI suggests that the construction sector supported growth in the final quarter of the year. Looking more widely, despite the slowing seen in the broader PMIs, the EY ITEM Club thinks a good chance remains that quarterly GDP growth is slightly stronger in Q4 than in Q3.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “November’s S&P Global construction PMI came in at 55.2, a step up from the 54.3 recorded in October. The uptick pointed to continued healthy growth in the sector overall, with the sector now having recorded an expansionary, above-50 reading in each of the last nine months. However, the picture looks a little less balanced in November than it has in recent months, given the strong reading was driven by commercial and civil engineering work. Residential work retreated at its fastest rate since June, with survey respondents reporting that high interest rates and fragile consumer confidence continued to weigh on demand. 

“While the EY ITEM Club expects the Bank of England to keep Bank Rate unchanged at 4.75% at its December meeting, further interest rate reductions into 2025 continue to appear likely, so conditions look to be in place for continued growth in the construction sector. Indeed, the outlook for new work seems solid, with respondents saying they’ve seen an increase in new business for the 10th consecutive month. 

“Having made a strong start to Q4, the construction sector looks set to support growth into the final quarter of the year. Despite yesterday’s final S&P Global survey of the dominant service sector signalling a weaker pace of activity growth than in October, the EY ITEM Clubs thinks a good chance remains that quarterly GDP growth is slightly stronger in Q4 than in Q3.”

04 Dec 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

PMI fell in November, but sentiment was likely a driving force

  • November's final UK composite Purchasing Managers’ Index (PMI) signalled a much slower pace of activity growth. However, swings in sentiment can often cloud genuine trends in activity, and the EY ITEM Club thinks dissatisfaction with the Budget is likely to have played an outsized role in driving today's survey outturn. There remains a good chance that quarterly GDP growth is slightly stronger in Q4 than in Q3.
  • The services survey pointed to further rises in the balances for costs and prices. Lingering inflationary pressures are one of the key reasons why the EY ITEM Club thinks the Monetary Policy Committee (MPC) will stick to its 'cut-hold' pattern of rate cuts in the near-term and keep Bank Rate on hold in December.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “November's final S&P Global survey signalled a much weaker pace of services activity growth than in October, with the PMI falling to 50.8, down from 52.0. Still, the final outturn was well above the flash result. Alongside the lower PMI, survey respondents also noted a softer rise in new orders and reduced headcount amid reports of delayed investment decisions and cutbacks to projects in response to worsening business conditions. With November's manufacturing survey having reported lower output, the composite PMI fell to 50.5, down from 51.8 in October.

“The survey data can be volatile and has been a relatively questionable leading indicator of GDP growth. Moreover, the results can be heavily affected by swings in business sentiment, and don't always show genuine trends in activity. With November's survey the first since the Autumn Budget and the announced increase in employers' National Insurance Contributions from April 2025, the EY ITEM Club thinks sentiment is likely to have played an outsized role in driving today's results. Indeed, there is still a good chance that quarterly GDP growth is a bit stronger in Q4 than Q3.

“The services survey reported further increases in costs and prices growth. Though the read-across from survey results to official data for services inflation is relatively poor, these results are consistent with the EY ITEM Club’s view that inflation is likely to remain well above the Bank of England's 2% target in 2025. Given the persistence of underlying inflationary pressures, the MPC is unlikely to deviate from its 'cut-hold' pattern in the near-term, so the EY ITEM Club expects no changes to Bank Rate in December.”

02 Dec 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Manufacturing PMI slumped further in November

  • The UK manufacturing Purchasing Managers’ Index (PMI) fell in November, with the survey indicating a slight reduction in output. However, the survey has a poor record of tracking official estimates of manufacturing activity lately, and the EY ITEM Club still thinks the outlook for the sector is relatively positive, albeit fairly weak.
  • Manufacturers reported a slight uptick in cost pressures as supply chain strains re-emerged. This will only reinforce the Monetary Policy Committee's (MPC) view that Bank Rate should be cut gradually. The EY ITEM Club thinks Bank Rate will be kept at 4.75% in December, before further cuts in 2025.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “November's final S&P Global manufacturing survey confirmed a marginal retreat in activity, with the PMI falling to 48.0 in November, down from 49.9 in October. November's second consecutive sub-50 reading reflected a weakening in both domestic and external demand. Survey respondents reported that uncertainty following the UK Budget and US Presidential election, as well wider geopolitical tensions, weighed on investment decisions.

“Taking a firm read from the data is problematic given the month-to-month volatility in the S&P Global PMI estimates and the weak read across to the Office for National Statistics' (ONS) official estimates of manufacturing activity in recent years. While the recent data points to a soft patch in the manufacturing sector, there appears to be scope for some improvement. There are good reasons to believe global growth will continue at a decent pace into 2025. Closer to home, healthy real incomes, alongside a reduced level of caution among consumers and lower interest rates, may support producers of consumer goods.

“Manufacturing firms reported a rise in input costs on the back of some supply chain price pressures. While this uptick pales in comparison to some of the supply chain strain seen in recent years, it will reinforce the view amongst the majority of the MPC that a gradual approach to lowering Bank Rate is appropriate. The EY ITEM Club continues to expect the MPC to stick to its ‘cut hold’ tempo, keeping Bank Rate on hold at 4.75% this month, before cutting interest rates further in 2025.”

02 Dec 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Housing market recovery continues into November as Nationwide price gauge picks up

  • House price growth picked up into November. Month-to-month moves in house prices can be volatile, but house prices have risen by 3.7% over the last year.
  • The looming change in Stamp Duty thresholds will provide a short-term boost to the housing market over the next few months. Looking beyond that, the EY ITEM Club continues to expect a gradual recovery in the market as Bank Rate is slowly lowered but interest rates remain high by pre-pandemic standards. 

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “Today's Nationwide house price index showed house prices increased by 1.2% month-on-month in November, a substantial rise compared to the 0.1% uptick recorded in October. While house price data can be volatile from month-to-month, year-on-year house price growth picked up to 3.7% in November – the fastest rate recorded since November 2022.

“The housing market has bounced back in recent months as the Bank of England promised and then kicked off its rate cutting cycle. Over the summer and into autumn, mortgage rates fell, spurring an increase in mortgage activity. However, financial market expectations of interest rate cuts have been volatile over the past couple of months, partly reflecting the implications of the UK Autumn Budget and the US presidential election. Markets now expect fewer interest cuts than in late summer, and this will likely feed into slightly higher mortgage rates over the coming weeks.

“With forward-looking house buyers keen to move before the temporary increase in Stamp Duty thresholds expires in March, the housing market recovery still looks set to continue in the short term. However, the sensitivity of demand to mortgage rates means that higher interest rates could dampen activity slightly. Looking beyond the next few months, the EY ITEM Club expects the Bank of England to lower interest rates relatively slowly through 2025, settling above pre-pandemic levels. With housing valuations remaining quite high, this will likely lead to only a gradual improvement in the housing market.”

29 Nov 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP

Mortgage approvals reached a 26-month high in October

  • UK mortgage approvals rose in October, boosted by the recent fall in mortgage rates and buyers looking to beat March's stamp duty deadline. The latter will continue to support demand in the next few months, though the scale of the pickup could be dampened by mortgage rates edging up.
  • Net unsecured lending fell modestly following a decline in gross lending. Still, the EY ITEM Club remains cautiously optimistic that rising real incomes and confidence should support stronger demand for credit and a pickup in consumer spending in 2025.

Matt Swannell, Chief Economic Advisor to the EY ITEM Club, said: “The upturn in mortgage demand continued in October, with approvals for new house purchases rising to 68,303, up from 66,115 in September. The fourth consecutive monthly rise in activity likely reflects two key factors. First, quoted mortgage rates fell markedly between May and October. Second, forward-looking buyers will have been keen to set purchases in train before the temporary increase in stamp duty thresholds expires at the end of March. Net secured lending ticked up to £3.4bn in October, from £2.6bn in the previous month, following a rise in gross lending.

“Market pricing has been volatile over the past couple of months, partly reflecting the implications of the UK Autumn Budget and the US presidential election. However, swap rates are higher than they were in late summer, and this will likely feed into slightly higher mortgage rates over the coming weeks. The boost from buyers looking to beat the stamp duty deadline will likely keep approvals rising in the short-term, but higher interest rates could slightly dampen the increase.

“Net unsecured lending fell modestly to £1.1bn in October, from £1.2bn a month earlier. The decrease was driven by a fall in gross lending, which echoed October's weaker retail sales outturn. However, the EY ITEM Club remains cautiously optimistic about the consumer outlook. As real incomes and consumer confidence continue to improve, households are more likely to adopt a less cautious attitude to saving and take on more credit.”

31 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on Real Estate sector: Autumn Budget 2024 

Russell Gardner, EY UK Head of Real Estate, comments on the Real Estate announcements in the Chancellor’s Autumn Budget:

“The housebuilding industry will welcome the Chancellor’s pledge to hire more planning officers to help ‘get Britian building again’. However, question marks remain over where those recruits are coming from. The industry may also wonder why assistance will be restricted to support ‘small housebuilders’ given the volume of houses that need to be built.

“The real estate industry thrives on stability and clarity on tax policy, so is likely to welcome details of the new corporate tax road map. This will hopefully provide the reassurance and confidence they need to plan for the future accordingly.

“The increased rate of the Stamp Duty Land Tax surcharge on second homes is a continuation of the policies of the last few years to tax those, mainly overseas buyers, owning but only occasionally using UK houses and apartments. This, in combination with today's changes to non-domicile rules, is likely to impact the London residential market more than other parts of the UK.” 

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on UK tax-to-GDP ratio: Autumn Budget 2024 

Chris Sanger, EY’s UK Tax Policy Leader, comments on the UK tax-to-GDP ratio following the Chancellor’s Autumn Budget:

“The OBR's latest forecast paints a striking picture, with the UK's tax-to-GDP ratio set to hit an all-time high of 38.2% by 2029-30, largely due to the tax increases announced in the Autumn Budget. Whilst increases in this measure, without any commensurate increase in spending, heralds a more inefficient system, it’s one that could represent good value or “an investment” if it actually delivers better services. Whether this increased tax-to-GDP ratio will be good value or inefficient will only really be known by the end of this Parliament.”

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on the lack of pension related tax announcements: Budget 2024 

Paul Kitson, EY UK Pensions Consulting leader, comments on the lack of pension related tax announcements in the Chancellor’s Autumn Budget: 

“Despite speculation, National Insurance on employer pension contributions wasn’t introduced in today’s Budget, which will be very welcome news for the pensions sector. However, the introduction of inheritance tax on unspent pensions pots which the Chancellor did announce, will temper the good news, as it risks dampening the appeal of pensions as a savings vehicle – especially for higher earners. 

“While drastic change to pensions didn’t materialise in today’s Budget, all eyes will now be on the Mansion House Speech.” 

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on e-invoicing: Budget 2024 

Chris Taylor, EY Indirect Tax Partner and E-invoicing Lead, EY, said:

“The introduction of e-invoicing in the UK is a crucial step towards a digital VAT system fit for the future, and so the consultation on e-invoicing, due to be published in early 2025, will be eagerly awaited. From a VAT digitalisation perspective, the UK is running to catch up, and e-invoicing has the prospect of reinforcing the other measures that the Government announced today targeted on closing the tax gap.

“The benefit of coming late to e-invoicing is that the UK can learn from the experience of other countries, tailoring the approaches that have been successful elsewhere to the UK’s bespoke environment. The publication of the consultation should provide enough opportunities for businesses to share the good, the bad and the ugly of e-invoicing implementation experience elsewhere with the Government.”

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on non-dom changes: Autumn Budget 2024

Sarah Farrow, EY UK Private Client Services Partner, comments on changes to the non-domicile rules announced in the Chancellor’s Autumn Budget:

“The replacement of the non-domicile regime with a four-year foreign income and gains (FIG) regime has been widely discussed since it was first announced in the previous Government’s Spring Budget. There will be relief in the non-domicile community that the Chancellor has softened the Government’s position on some of the key points that were of most concern.

“Some aspects of the new regime will appeal to existing non-domiciled individuals, but for many the FIG regime will significantly increase their UK tax liability. For expats looking to return to the UK and individuals considering a short visit, the new regime will make the UK more attractive as they will be able to use their foreign income and gains here without being taxed on it for the first four years.

“However, those intending to visit for shorter periods to benefit from the four-year regime may be less likely to invest in the UK than the existing non-domicile population. Some high net worth individuals, with an eye on investments that typically require a longer period to mature, may decide to channel their substantial financial commitments to other countries, particularly those where nom-domicile regimes can extend up to ten years.

“Extending the Overseas Workday Relief from three to four years improves on the previous regime's taxation of employment income. This offers additional stability and strengthens the UK’s competitiveness as a place to locate business headquarters and other operations, although it does not match the five years offered by markets such as the Netherlands, France, Denmark, Spain and Italy.”

Nicholas Yassukovich, EY UK Financial Services Partner, adds:

“The non-domicile tax regime has been a key driver in attracting senior international financial services talent to the UK, especially in the banking and asset management sectors.

"Although it is softer than many expected, the new four-year foreign income and gains (FIG) regime will increase the tax burden on non-domiciled individuals and could act as a disincentive to financial services workers relocating to the UK.

"The extension of relief on employment income from three to four years will be welcomed, but is not yet in line with the five years offered by key financial hubs such as Amsterdam, Paris, Luxembourg, Madrid and Milan.”

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on measures to boost the UK visual effects sector: Budget 2024 

Anna Fry, Partner and UK TMT Tax Market Leader, EY, comments on measures to boost the UK visual effects sector announced at the Chancellor’s Autumn Budget: 

“Today’s announcement confirms that UK visual effects costs in film and high-end programmes will receive a 5% increase in Audio-Visual Expenditure Credit and can be outside of the 80% cap on qualifying expenditure. This broadly aligns with the previous government’s proposals announced in the Spring Budget and will be well-received by the sector.

“Although there are some caveats, such as the additional tax credit generally being available only after productions are completed, this measure highlights the strong political support for the UK film industry, which has grown significantly since production incentives were introduced.

“This Government has been keen to show its support for the UK creative industries with it recognised as one of the eight key growth sectors identified in the Industrial Strategy Green Paper published earlier this month.”

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on the corporate tax road map: Budget 2024 

Chris Sanger, EY’s UK Tax Policy Leader, comments on the corporate tax road map announced at the Chancellor’s Autumn Budget:

“The publication of the corporate tax road map was an opportunity for the Government to set out clearly the direction of its policy for business – and on the face of it, it has. The document talks about enhancing predictability, stability and certainty, which it seeks to do by providing confirmation that certain elements won’t change. It also addresses some of the calls for reform, announcing six areas of consultation. Overall, the intent is to improve the operation, accessibility, and targeting of the system and improve the ‘customer experience.’

“The road map is positioned alongside the Industrial Strategy and the upcoming Spending Review, implying that this could be a living document that can be built upon as Labour policy develops. Overall, it does provide some clear paths to the future and will offer some additional certainty to investors, but it would be good if it could be seen as the first stage of the discussion. There is an opportunity - perhaps as part of the future consultations - for the Government to commit to further areas of principle. This could then bring even greater predictability and, with it, greater investment into the UK, by both domestic and international companies.”

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on VAT on private school fees: Budget 2024 

Carolyn Norfolk, EY Indirect Tax Partner and Education Lead, comments on VAT on private school fees:

“While the Budget included further details around the introduction of VAT on private school fees, it is likely that many providers will still find it challenging to fully get to grips with the new rules by the effective date of 1 January 2025. The new regime involves a variety of complexities and, perhaps equally challenging, will come into force part way through the school year.

“Many providers faced with delivering the change may have hoped that the Chancellor would have announced a delay to the implementation date to allow more time to review the final legislation and obtain clarity from HMRC over areas of uncertainty.”  

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on personal tax and CGT: Autumn Budget 2024

Sarah Farrow, EY Private Client Services Partner, comments on the personal tax measures announced in the Chancellor’s Autumn Budget:

“For UK workers whose earnings stem solely from wages or salaries, the Budget held few immediate surprises for their personal finances. The Chancellor had committed to not increase current income tax and employee national insurance rates and, while the decision to not extend the freezes on personal allowance and higher rate tax bands will be welcomed by many taxpayers, they’ll need to wait until 2028 to see the difference in their take-home pay.”

Changes to Capital Gains Tax

“Following the speculation in the run up to the Budget, today’s announced increase to the main Capital Gains Tax rate may feel relatively light in comparison. The Chancellor may hope that this achieves the best of both worlds, generating an initial pre-Budget boost to Exchequer receipts with some selling assets in anticipation of a steeper hike, while the eventual, more modest, four percentage point rise is tolerable enough to avoid many holding onto assets in the future as they wait for a drop in the rate. 

“In contrast to the Treasury’s own data forecast, that a ten percentage point increase in Capital Gains Tax rates would cost an estimated £1.4bn by the end of 2027, the increases introduced today are estimated to raise £2.5bn per annum by the end of the Parliament. It appears the Chancellor agreed that a smaller adjustment would offer better revenue-raising opportunities.”

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on the retail sector: Autumn Budget 2024 

Andy Jones, Partner, Retail Indirect Tax Leader at EY UK, comments on the retail measures announced in the Chancellor’s Autumn Budget:

“For retailers, the bottom line is that today’s Budget will likely result in increased cost pressures amid what is already a challenging backdrop. A particularly significant headline, as expected, is the proposed increase in the national minimum wage and National Insurance Contributions (NICs) for employers. Whilst good news for workers, this will impact retailers during a time of already-intense cost pressures.

“Moreover, whilst the announcement to ease the removal of the business rate discount will be welcome news for some businesses, it will still be an increase on the amounts paid today. That said, many may be hopeful that it is a first indication of the new Government’s approach to taxation and an indication that further reliefs that may come in the future. Therefore, overall, whilst the freeze on fuel duty and the reduction in Alcohol Duty rates for draught products will be welcomed, the Budget will likely lead to increased inflationary pressures for retailers and likely price rises for consumers.”

Chris Sanger, EY’s tax policy leader, added:

“Business Rates is an area that governments have struggled with for at least the last decade. This is a tax that is paid regardless of whether a business is in the red or the black - whether there are profits to fund this tax or not. We have seen the tax rate increase from the low 40s to the high 50s, marking a big increase in the costs for those firms using real estate. 

“Today’s announcement of a permanently lower sector multiplier for retail, hospitality and leisure will be recognising the fact that such businesses pay a far higher proportion of the business rates bill than their share of the economy. The fact that this will be paid for by those with larger properties is likely to be less welcome, building even greater bias into the tax system. The future consultation will provide the opportunity for this and other distortions of the business rates system to be debated and hopefully addressed.”

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on GGT on carried interest: Budget 2024 

Sonia Rai, EY Partner, comments on carried interest:

“Today’s announcement reinforces the Chancellor’s commitment to focusing on growth and ensuring the UK remains a competitive place to do business. Sustaining the carried interest regime will be intended to stabilise an industry which is heavily dependent on talent and entrepreneurship brought to the UK by internationally mobile fund executives.

“The 32% rate of capital gains tax (CGT) from April 2025 on carried interest preserves the UK as a hub for private capital investment and should prevent the immediate departure of fund managers from the UK.

“The industry wider reforms, due to come into force from April 2026, aim to keep the effective rate on carried interest at around 34%, despite it being under the income tax regime.

“The impact of the carried interest reforms on the UK's long-term competitiveness - along with the abolition of the non-dom tax status and the inheritance tax announcement - is yet to be seen, but the worst fears arising from what was originally touted have clearly been lessened.”

 

30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY Comments: A challenging Autumn Budget for many UK businesses

Laura Mair, EY UK&I Managing Partner for Tax and Law, comments on the business-focused measures announced in the Autumn Budget:

"From a business perspective, this was a typical post-election Budget, focused more on tightening belts than loosening purse strings and, while investment was a key theme in the Chancellor's speech, some of these measures will represent a challenge for many UK companies.

“The 1.2 percentage point increase in Employer National Insurance Contributions, and the reduction in the threshold at which these are paid to £5,000, is estimated to raise an additional £23bn a year, making up more than half of the fresh tax take announced by the Chancellor. While an increase to NI allowances will offer some protection for small businesses, this remains a substantial increase in costs for larger firms. Much of this will be shouldered initially by labour-intensive industries where staffing is often the greatest expense, such as those in hospitality, rather than capital-intensive companies, which rely more on assets like machinery or intellectual property.

"Businesses typically respond to such tax increases by restricting pay rises and new hiring, delaying investment or raising prices to pass on the cost. Any of those actions, repeated at scale, risks having a dampening effect on UK growth. The challenge for the Chancellor will be how to balance the necessary task of revenue raising whilst also accelerating growth.

"The Business Tax Roadmap is intended to offer much-needed predictability over how corporation tax will develop across the lifespan of major investments, and the commitment to maintain Full Expensing, the Annual Investment Allowance and R&D reliefs will be welcome mark of policy stability for many. However, there is room to enhance the UK tax system's attractiveness to investors. EY's annual Attractiveness Survey has repeatedly shown* that, while the UK's regulatory environment, strong domestic market and availability of capital are highly appealing to global investors, its tax environment is regarded less favourably. There is work to be done here and both businesses and investors will hope the Chancellor continues to follow tradition in her future Budgets by unveiling incentives and tax cuts to promote further investment and growth.”

*UK Attractiveness Survey 2024 - 400 global investment decision-makers were asked which factors are the most important when choosing to invest in the UK:

  • 50% said legal and regulatory environment (e.g. laws for AI, sustainability, data protection etc)
  • 48% said liquidity of financial markets and availability of capital
  • 33% said strength of domestic market
  • 10% said tax environment
30 Oct 2024 | EY comments | Media contact: Justin Moll - Manager, Media Relations, Ernst & Young LLP

EY comments on the Autumn Budget 2024

Chris Sanger, UK Tax Policy Leader at EY, comments on the Chancellor’s Autumn Budget:

 “Today’s Budget, coming just one day before Halloween, was packed with both frights and treats. With 70 policy decisions, the 168-page red book delivered a whole plethora of announcements, many of which were only touched on in the 77 minute speech. The Budget was replete with tax rises, spending changes and some targeted giveaways. With so many changes, it seems that tax simplification is a policy that will have to wait its turn.

 “Some of the measures were indeed well trailed, if not pre-announced. A rise in employers’ national insurance by 1.2%, together with a reduction in the level at which such NICs is paid, will raise almost two-thirds of the total £40bn target revenue. This hit to the cost of employing workers will be felt first by employers, but is likely to flow into lower pay rises and more constrained recruitment in the future. Categorised by the Treasury as a cost of employment, the Chancellor will be hoping that how the money is used will outweigh the drag on the economy.

 “The other foreshadowed change on capital gains will raise a further £2.5bn, simplifying the rate bands and taking the 20% tax rate up to the 24% rate that applies to property. Somewhat smaller than had been feared, the speculation itself will already have brought money into the Exchequer. On carried interest, the Government is moving this from capital gains into income tax, but taxing it at a lower rate, broadly equivalent to 34%.

 “There were strong measures on inheritance tax, with the extension to include pensions as well as only partial relief for agricultural and other businesses, and shares listed on the Alternative Investment Market. The effect of these changes will take time to be seen.

 “The treats were few and far between. One treat was somewhat invisible – a further freeze in the fuel duty and retention of the 5p cut, costing over £3bn against what was in the forecast but not in the minds of many taxpayers. Other such invisible treats were discussions of taxes considered and then ruled out.

 “The Chancellor has also invested heavily into HMRC and tackling the tax gap, with 5,000 new staff and imposing new obligations on recruitment agents delivering an extra £6.5bn per annum - a huge part of the targeted £40bn.

 “Many will be hoping that, having had the shock from this Budget, the future years will be filled far more with far more treats.”

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