UK Economy Growing Faster Than Expected

Chancellor Jeremy Hunt last week unveiled the government’s tax and spending plans in the Autumn Statement. He began his speech by saying that there were 110 measures to “Help grow the British economy”.

Growth is better than expected this year according to the Office for Budget Responsibility (OBR), although they said the impact of the Autumn Statement on output growth will be “modest”.

They added that the economy recovered more fully from the pandemic and weathered the energy shock better than expected, but they expect inflation to remain higher for longer, taking until the second quarter of 2025 to return to the two percent target, more than a year later than forecast in March. More persistent inflation means markets expect interest rates to be more than a full percentage point higher than assumed in March.

The 2% cut in employee National Insurance Contributions (NIC) will be welcomed by most employees but it is worth pointing out that in October the Institute for Fiscal Studies (IFS) stated that this has been the biggest tax-raising parliament since records began, pushing UK tax revenues to historically high levels.

The OBR added: “At the time of the last general election, UK tax revenues amounted to around 33% of national income. By the time of the next election in 2024, on current forecasts, taxes will amount to around 37% of national income – a level not sustained in the post-war period.

Compared with a world in which taxes had stayed at 33% of national income, the UK government will be raising upwards of £100 billion more in tax revenues next year. This is equivalent to around £3,500 more per household, though of course the tax rise will not be shared equally. The government argues the pandemic and the energy shock need to be repaid and hence the higher level of tax.

On the high level of public spending, the Chancellor said that the country needs “a more productive state, not a bigger state” and he set out a new target for the public sector to increase productivity by at least 5% per year. These measures should ensure growth in the public sector is always lower than growth in the economy. He also stated that the government would meet its fiscal rule on borrowing below 3% of growth domestic product within 5 years of the latest OBR forecast.

The key business and taxation points made by the chancellor include:

A cut in employees National Insurance contributions from 12% to 10% from 6 January 2024.
Measures to support corporate capital expenditure – the capital expenditure tax break for businesses that allows them to save on corporation tax by investing, has been made permanent.
A new simplified research and development (R&D) tax relief, combining the existing R&D expenditure credit (RDEC) and SME schemes.
Business rate relief extended – a freeze on the small business multiplier for a further year.
The 75% business rates relief for retail, hospitality, and leisure to be extended to 2025.
A 9.8% increase to the minimum wage to £11.44 per hour from April, which will be expanded to 21 and 22-year olds.
A consultation on giving pension savers a “legal right to require a new employer to pay pension contributions into their existing pension”.
Class 2 National Insurance contributions (NIC) for the self-employed will not be required from 6 April 2024.
A cut in the rate of Class 4 NIC from 9% to 8% on self-employment/partnership profits between £12,570 and £50,270.
Targeted investments for advanced manufacturing and green energy.
Further funding of £50M to increase apprenticeships in engineering and other key sectors.
Additional levelling up and Artificial intelligence funding.
Extending the financial incentives for Investment Zones and tax reliefs for Freeports from five to 10 years.
Some of the other key statements made include:
Welfare recipients will be made to undertake a mandatory work placement if they are still looking for a job after 18 months.
Universal Credit and disability benefits will increase next year by 6.7%.
State pensions will increase by 8.5% in April 2024, honouring the “Triple lock” in full.
Tobacco duty will rise by 10% above the tobacco escalator and alcohol duty is frozen until 1 August 2024.
The UK will continue to meet its NATO defence spending target of 2% of GDP.
The local housing allowance will increase with an average increase of £800 for 1.6 million households.
Plans to speed up planning applications.

You can read the Autumn Statement in full here: Autumn Statement 2023 (publishing.service.gov.uk)

So, are there any tax planning opportunities ahead of the new tax year?

The new tax year starts 6 April 2024, so you have four months to consider your planning options. Once we pass this date, the majority of the tax planning options for Income Tax and Capital Gains Tax purposes will cease unless actioned.

Do you fall into any of these categories?

You have or are thinking about a change in your personal status (single, married, separating, joining, or dissolving a civil partnership);
You are thinking about selling a capital asset, such as shares or a property;
You or your child’s other parent claims Child Benefit and the income of either parent is likely to exceed £50,000 for the first time during tax year 2023-24;
Your annual income is approaching or above £100,000;
You have not yet topped up your pension contributions for tax year 2023-24;
You are self-employed with a 31 March 2024 year-end;
You are thinking about the purchase of equipment or vehicles; or
You are the director and/or shareholder of a limited company and have not yet considered voting dividends or bonuses for 2023-24.

If you do, we can help you discuss your options ahead of the April 2024 deadline.

The above list is not comprehensive, and we specialise in helping clients with all taxes, including PAYE so please contact us and find out how we at Barter Durgan can help 🙂