"I believe we should all pay our tax bills with a smile…I tried but they wanted cash"
Did You Know...?
My Little Red Bag
Before we start - here are some things that don't normally get talked of in the regular budget coverage.
The word budget is usually thought to derive from ‘bougette’, old French for ‘little bag’. In the mid 18th century, the Chancellor of the Exchequer, in presenting his annual statement, was said ‘to open the budget’, meaning to open the bag in which he kept his notes. In the late 19th century the use of the term was extended from governmental to other finances.
The Dog Ate My Homework
Chancellor George Ward Hunt arrived at the Commons in 1869 and opened the budget box only to find he had left his speech at home.
Lloyd George lost his voice after the first three-and-a-half hours of his 1909 budget speech and he was given 30 minutes to get his voice back.
Nigel Lawson once stopped as he got his pages in the wrong order and had to stop the budget to sort out the speech.
Mine's a Whisky
There is an odd tradition, that the Chancellor is allowed some booze while they deliver their speech. Since it's one of the most important moments of the year in Parliament, it's odd that this is the time they choose to allow the person delivering the details to have alcohol, but there it is. As for what they drink - here's your Chancellor's Bar Menu:
Chancellor's Choice:
Benjamin Disraeli had brandy and water
Gladstone had the distinctly odd sherry and beaten egg
Hugh Dalton had milk and rum
Selwyn Lloyd chose whisky and water
Hugh Gaitskell had orange juice and rum
Winston Churchill sipped brandy
Kenneth Clarke had whisky
Geoffrey Howe chose gin and tonic
Gordon Brown chose Scottish mineral water and since then Chancellors have stuck with water
Timing Is Everything
Benjamin Disraeli gave the shortest budget speech. It was in 1867 and lasted just 45 minutes. But he was a sprinter and the only recent one that came close in terms of speed was Gordon Brown who managed one speech at 51 minutes. The longest was delivered by William Gladstone in 1853, it lasted 4 hours and 45 minutes.
And so to the Autumn Statement
What Is It?
It started as a kind of mid-term spending report but has transformed into a mini-budget.
Budgets have been traditionally in March and occasionally in April but for a few years in the 1990s the Budget joined up with the Autumn statement and was done in November – the argument being that gave more time to prepare things before the next tax year.
When Gordon Brown became Chancellor he reverted to the Spring budget but uprated the Autumn statement into what was termed a ‘Green Budget’ and was officially called the Pre-Budget Report. The first was delivered on 25th November 1997. It made a lot of sense in that it gave clear indications of where the government was going with their policies and so the actual budget announcements were less of a shock. This made for less excitement in the newsroom, as we tended to have a good idea of what the budget was going to do - but pleasing journalists wasn't the main pre-occupation of the Chancellor. The advantage is that businesses had more certainty about the tax and spending regime and could better plan around it - which seemed sensible.
Chancellor George Osborne reverted to the Autumn Statement.
Do Policies Get Announced in the Autumn Statement?
The answer is yes...sometimes
The Budget remains the main money event of the year, where the most significant tax and spending changes are usually included. However, the Chancellor can announce changes to taxes and spending during the Autumn Statement.
In the last Autumn Statement in 2022, the Chancellor Jeremy Hunt, did give an update on where the economy was going but he also took the opportunity to announce some big policies, including:
A range of tax threshold freezes extensions, including those for income tax and inheritance tax.
A cut in the annual capital gains tax exemption allowance and dividend allowance.
A lowering of the threshold for paying the additional rate of tax.
Announcing that electric vehicles will no longer be exempt from vehicle excise duty from 2025.
So we can expect some big announcements this time around.
What is Generally Expected in the Autumn Statement 2023
The Chancellor will present his Autumn Statement to the House of Commons on 22nd November.
The Office for Budget Responsibility (OBR) will publish revised forecasts for the economy and public finances on the same day as the statement. The OBR is the independent public finances watchdog, which produces the official forecasts for the economy and public finances used by the Chancellor. So along with any policies, we also get an independent official view of the health of the economy.
If the Autumn Statement does not include changes that are to come into force before the next Budget, then the proceedings end as the statement ends.
If the Chancellor announces changes to taxes, then legislation may have to follow, as with the budget itself. The Autumn Statement in 2022 was followed by legislation.
The OBR’s forecasts for the wider economy are really important because the Chancellor uses them to determine or justify his policies. and to show whether or not they are responsible and affordable.
One of the biggest issues for the Chancellor will be seeking to meet his target for borrowing and debt. The good news is that the OBR thinks the prospect of hitting the debt target are a little more comfortable than in March 2023. People talk about this meaning that there is more ‘headroom’ for the Chancellor to be generous in his policies. To whom he will be generous, will be the big question of the day.
What Specific Announcements are Expected
There is a clear desire to be seen to cut tax rates.
Jeremy Hunt gave a big hint that he will unveil tax cuts, when he gave an interview to The Daily Telegraph, saying the country had “turned the corner in a big way”. He added: “The big message on tax cuts is there is a path to reducing the tax burden and a Conservative government will take that path.”
Are We Paying A Lot Of Tax?
Why people will argue different things and both will be right:
The government is able to say that the tax burden in the UK is not especially high compared with other countries. But it is also true to say that the tax burden in the UK has risen very substantially, even under the Conservatives, who see themselves as a party of low taxation.
In 2021, the most recent year for which there are internationally comparable data, the UK’s tax-to-GDP ratio was 33.5% of GDP on the OECD’s measure. That is 2.2 per cent of GDP below the average of other advanced economies. 2
Tax levels in the UK are at their highest since records began 70 years ago - and are unlikely to come down. According to the Institute for Fiscal Studies (IFS) forecasts, taxes will amount to about 37% of national income by the next general election, due in 2024.
In recent years, the government has announced a series of tax-raising measures, including an increase in corporation tax from 19% to 25%, and the levy on profits made by energy companies.3
In 1993 the tax burden was 31% of GDP, by 2021 it was 37.9%. To set it into context - after World War 2 the tax to GDP ratio had risen to 40% 3b
Inheritance tax.
Here is the biggy. There is talk of raising the threshold at which inheritance tax (IHT) is paid.
However they may delay any firm plans until the Spring budget, after accusations that halving the 40 per cent rate would constitute a handout to the rich during a cost-of-living crisis.
Very few people actually pay IHT, less than 4% of estates pay Inheritance Tax. It's also not a very significant earner for the government. The government makes about £7 billion from the tax. Overall it takes £788 billion in taxes each year. So inheritance tax is worth around just 0.8% of the government's tax intake 1a
It maybe useful to know that its origins, as far as the UK is concerned, is Estate Duty, which was introduced in 1894 by the then Liberal Government. It used to be a really big earner for the government, particularly in the 1920s. Part of the then Chancellor's justification for introducing this tax was that 'man is given no control over his assets after he has passed away' - only the state can give man control (ie by allowing wills and inheritance rather than a free for all on the departed’s assets). So the state can in effect take a fee for allowing wills etc to operate…hence Estate Duty.
It's also worth mentioning that Inheritance Tax isn’t an inheritance tax – in other words it doesn’t tax inheritances. It taxes estates – ie what you and I have and gift/leave rather than what our kids might inherit. It sounds as if there is not much of a difference here, but there is. For example - a person leaving £1 million to their one child is taxed the same as a person leaving £1 million to 5 children - although the children benefit in very different ways.
There is maybe something to be said in favour of a true Inheritance Tax – ie taxing how much an individual receives so the more you get, the more you get taxed. So a wealthy individual passing their wealth to all the kids would in effect have a lower tax burden than someone who gives everything to the first born.
Benefits
There has been much talk that the inflationary rise in benefit levels will be adjusted so that a different inflation rate is used
Normally, benefit values are uprated each April with the inflation rate of the previous September. It has been rumoured however that, for the April 2024 uprating, the government is considering using the October rather than September inflation rate. This implies uprating by 4.6% rather than 6.7%. So benefits would have a much lower increase and this would give the Chancellor more room to cut taxes.
Tax Thresholds
Another option under consideration is to raise the tax thresholds.
Raising the higher-rate threshold, above which people pay the 40 per cent rate, has been rumoured. It currently stands at £50,271
It has been frozen for six years, along with the personal allowance and national insurance primary threshold, which are both set at £12,570.
Due to rising inflation rates and wage growth, millions of taxpayers are being pushed into higher tax bands through what is called “fiscal drag”, which is when a worker’s wages rise to keep pace with inflation but the threshold at which higher tax is charged does not rise in line with inflation. The real value of their salary remains the same - but they get put in a higher tax bracket.
HM Revenue & Customs figures show 4.2 million more workers now pay the 20 per cent rate of income tax compared with three years ago, while 1.6 million have been dragged into the 40 per cent rate.1
Pylon Pay Out
One rumoured policy announcement could be £1,000 off the energy bills of anyone living near an electricity pylon. This would help reduce opposition to the roll out of a better and bigger electricity grid which could help our transfer to greener power consumption.
Business Taxes
Changes to Corporation Tax (CT) here may also be on the horizon. The easy/simple thing is to reduce the rate, of course, although some argue that stability in taxes is also important so that companies can plan for the future.
One policy change in this area which may have been a mistake was the introduction of a zero rate of CT for the first bit of taxable profits. Gordon Brown introduced a nil rate band to help small businesses. Ministers were then non-plussed to find that businesses were turning themselves from sole traders into companies which made…you’ve guessed it... just under the amount at which tax was charged. Companies House were initially non-plussed to find why there were so many more company registrations than usual.
Tax Simplification
This may get a mention. I've been speaking to John Whiting, who set up and ran the Office of Tax Simplification (OTS) for some years. It was abolished in the Kwarteng Budget with HMRC & HMT to be given a brief/mandate to simplify. It's thought there might be some announcements to make tax simpler and make the civil service more streamlined.
He told me that one thing that the OTS proved when he was there was the greatest cause of complexity was change – so if every Chancellor took a vow not to change more than X things each year (where X is small) that would automatically simplify the tax system just by giving everyone (including especially HMRC) more time to get to grips with things.
It's All Politics
The Chancellor will be very focussed on helping the Conservatives stand a chance at the coming election. So he will be keen to give away as much as possible or perhaps delay a giveaway until closer to the election, without raising inflation or damaging the economy. So although this is a big financial announcement, it is as much about politics as anything else.
The next General Election must take place by 17th December 2024. So there could be a budget and another Autumn Statement before the country goes to the polls.