Sense & Stability – what business leaders are hoping to see in the Autumn Statement
Following the fallout from the Liz Truss and Kwasi Kwarteng mini-budget in September, the north west business community will be looking to the new inhabitants of 10 and 11 Downing Street for much-needed leadership when the Autumn Statement is unveiled next week.
Rishi Sunak and Jeremy Hunt, successors to Truss and Kwarteng, face an uphill task rebuilding trust with business leaders and voters following the most tempestuous few months in a generation.
I think there are several issues that businesses and employees will be looking to see addressed in the Autumn Statement.
Starting with business, the increase in the corporation tax rate from 19 to 25 per cent has already been confirmed. It’s expected to raise somewhere around £18 billion additional tax annually. The actual rate payable is tapered, meaning only those companies with taxable profits of £250,000 or more will pay the full 25 per cent.
This will provide some relief for smaller businesses, but questions remain about the overall effectiveness of this measure. Given that privately-owned businesses are a key engine of economic growth and wealth creation, there’s little doubt that an increased tax burden will impinge on their ability to invest and create employment.
Business leaders will therefore be looking for measures to counteract this, including perhaps additional reliefs for capital expenditure, and greater clarity on the tax regimes for innovation such as R&D tax credits.
Secondly, and now that Rishi Sunak finally has the keys to No 10, concerns have been raised about potential increases in employment taxes, specifically national insurance contributions. Whereas Kwasi Kwarteng cancelled the widely disliked Health & Social Care Levy, few will have failed to notice that its chief architect, Sunak, is now back in a position to reinstate a flagship policy he designed while chancellor under Boris Johnson.
And let’s not forget that Sunak pushed the original measure through in the face of stiff opposition from all sides of the Conservative Party, not to mention business leaders and employees. Hopefully he will have taken on board some of the original concerns, but it’s difficult to predict where this will go, given the hole in the public finances which needs filling. However, business leaders and employees will be hoping he looks elsewhere, rather than further taxing employment.
Thirdly, people are starting to notice the impact of ‘fiscal drag’. This describes the situation where incomes increase but tax allowances – such as the annual personal allowance that all taxpayers have – do not keep track. This is particularly the case in the high inflation world we are in, where upwards pressure on wages does not necessarily translate into more money in people’s pockets, because more of their income is subject to tax at higher rates. So, anything that Sunak and chancellor Jeremy Hunt can do to increase such allowances will be very welcome.
However, the reality is that we should not be holding our breath for any tax giveaways, for a number of reasons. To begin with, the markets reacted very badly to Kwarteng’s rash mini-budget, and Sunak and Hunt will be keen to avoid a similar debacle.
Perhaps of equal relevance is the fact that, whereas Hunt is an unknown quantity in fiscal terms, his new boss in No 10 has placed himself firmly on the tax-and-spend fringe of the Conservative movement. To hope that he will change his position now that he has the keys to power is wishful thinking.
That said, whatever the detail behind the policy statements on November 17, and whatever Sunak’s fiscal instincts, business leaders will hope he and Hunt can bring the stability and sensible leadership, which is now needed, especially given the economic headwinds we face.