Jeremy Hunt’s first fiscal statement had been trailed as a dour affair with press leaks about the wide range of tax raising measures that the chancellor was considering. Having softened us all up to expect the worst, the final announcements were less immediately frightening than many feared.
Freezing tax bands and allowances so that ‘fiscal drag’ builds tax revenues when the economy and wages start to grow again is an old tactic: the chancellor knows that few people really notice the extra tax they pay when their salaries are going up. But based on his current plans, overall effective tax rates for all taxpayers should rise over the next six years. Although the reduction in dividend and capital gains exemptions will cost those who benefit from these reliefs, it is not as much of a concern as a hike in tax rates would have been. The VAT threshold freeze for another two years might push some businesses to the edge of becoming less attractive to their customers.
There was little good news for businesses either, especially on NICs and staff costs, but let’s try to look on the bright side. The changes to R&D relief for SMEs could have been worse given the government’s financial woes and, although they are calculated to be revenue raising overall, the increase in the RDEC rate should be helpful for OMBs that have breached the SME qualifying criteria through growth or taking on new investors.
Continuing business rate relief will also be a lifeline to many high street businesses although the path to a fully modernised business rate regime looks as long as ever. But it is clear that the government is opting for incremental reform rather than a radical approach – the Green book confirmed that it will not go ahead with the controversial alternative of a UK-based online sales tax.
One reason that the government is short of tax revenues is that the level of outstanding tax debt has increased dramatically from £19bn at the end of March 2020 to a record £46.9bn by 30 September this year. Yes, much of this arises from the Covid pandemic, but I can’t help feeling that there is more HMRC could do to collect it. At least the government has committed to increase HMRC’s funding by £79m to pay for additional staff to tackle serious tax fraud and wealthy taxpayers’ non-compliance.
Worryingly, hidden in the Green book was confirmation of the demise of the Office of Tax Simplification – one of the few proposals from September’s mini-Budget that has survived. Why is this a worry in the current context? Well, the chancellor has already taken the easy(ish) option of freezing tax thresholds and allowances to raise funds. So to raise money in future Budgets, we may see a return to the closing of tax 'loopholes' – often measures originally introduced as incentives. In my experience, this often leads to the sort of tax complexity that the OTS fought to remove in its 12 years of surveying UK tax law.
It would have been wrong to expect too much from a chancellor only parachuted into the job a few weeks before and under pressure from the rising cost of living and inflation rate crises. So, under the circumstances, it feels like Jeremy Hunt did just about ‘get away’ with his unpalatable message this time. The same message may prove to be a more difficult sell in the Budget next spring.
Jeremy Hunt’s first fiscal statement had been trailed as a dour affair with press leaks about the wide range of tax raising measures that the chancellor was considering. Having softened us all up to expect the worst, the final announcements were less immediately frightening than many feared.
Freezing tax bands and allowances so that ‘fiscal drag’ builds tax revenues when the economy and wages start to grow again is an old tactic: the chancellor knows that few people really notice the extra tax they pay when their salaries are going up. But based on his current plans, overall effective tax rates for all taxpayers should rise over the next six years. Although the reduction in dividend and capital gains exemptions will cost those who benefit from these reliefs, it is not as much of a concern as a hike in tax rates would have been. The VAT threshold freeze for another two years might push some businesses to the edge of becoming less attractive to their customers.
There was little good news for businesses either, especially on NICs and staff costs, but let’s try to look on the bright side. The changes to R&D relief for SMEs could have been worse given the government’s financial woes and, although they are calculated to be revenue raising overall, the increase in the RDEC rate should be helpful for OMBs that have breached the SME qualifying criteria through growth or taking on new investors.
Continuing business rate relief will also be a lifeline to many high street businesses although the path to a fully modernised business rate regime looks as long as ever. But it is clear that the government is opting for incremental reform rather than a radical approach – the Green book confirmed that it will not go ahead with the controversial alternative of a UK-based online sales tax.
One reason that the government is short of tax revenues is that the level of outstanding tax debt has increased dramatically from £19bn at the end of March 2020 to a record £46.9bn by 30 September this year. Yes, much of this arises from the Covid pandemic, but I can’t help feeling that there is more HMRC could do to collect it. At least the government has committed to increase HMRC’s funding by £79m to pay for additional staff to tackle serious tax fraud and wealthy taxpayers’ non-compliance.
Worryingly, hidden in the Green book was confirmation of the demise of the Office of Tax Simplification – one of the few proposals from September’s mini-Budget that has survived. Why is this a worry in the current context? Well, the chancellor has already taken the easy(ish) option of freezing tax thresholds and allowances to raise funds. So to raise money in future Budgets, we may see a return to the closing of tax 'loopholes' – often measures originally introduced as incentives. In my experience, this often leads to the sort of tax complexity that the OTS fought to remove in its 12 years of surveying UK tax law.
It would have been wrong to expect too much from a chancellor only parachuted into the job a few weeks before and under pressure from the rising cost of living and inflation rate crises. So, under the circumstances, it feels like Jeremy Hunt did just about ‘get away’ with his unpalatable message this time. The same message may prove to be a more difficult sell in the Budget next spring.
