PwC previews the Autumn Statement 2023

Colin Graham, head of tax policy at PwC, says:

“The Chancellor has been at pains to manage expectations ahead of the Autumn Statement, stressing that there’s no room to deliver tax cuts until the economy improves. While any immediate blockbuster tax changes are seemingly off the table, recent lower than expected public borrowing figures and higher than anticipated tax receipts alongside signs that inflation is being brought under control may provide a little wiggle room.

“Since October 2022, the Government has sought to focus on stability. The most regular feedback business is the need for consistency and a stable platform to facilitate investment. In that context, a tax roadmap to stimulate growth and long term investment would be welcome, particularly in light of the increase in the Corporation Tax headline rate to 25% from April this year and the concurrent end to the ‘super-deduction’ relief. The prospect of an extension of the full expensing window which replaced it will be welcomed by many given the popularity and simplicity of the scheme. Clarity on the merger of R&D schemes is also anticipated.

“It’s possible that we may see some form of relief for the smaller businesses set to be hit by next year’s business rates revaluation. Announcements that go towards encouraging long term growth could be achieved through support for high street retailers and hospitality, alongside encouragement for emerging markets, such as green investment incentives. 

“We may also see the groundwork laid for what’s likely to be a pre-election Spring Budget, which the Government will see as an opportune time to set out its vision for how it will incentivise investment and move towards net zero. In March, the Chancellor committed to returning in this Autumn Statement to finalise the Government’s response to the challenges created by the US Inflation Reduction Act. While we’re unlikely to see any intervention on the scale of the US IRA, PwC research has shown that the UK public is broadly supportive of subsidies that could incentivise green investment.

“On personal taxes, there has been much speculation on inheritance tax reform or even abolition. The combined impact of inflation and the freezing of personal income tax allowances has also started to attract significant focus with research* showing that we could see record numbers paying income tax or moving into higher rate bands. At this stage though, it would be a surprise to see any eye-catching announcements on 22 November in these areas.”

*IFS Green Budget 2023

Rachel Moore R&D credits Partner, PwC:

“The Government’s move to simplify the tax relief system by proposing a single programme to replace the two existing R&D tax relief schemes - the Research and Development Expenditure Credit (RDEC) and the SME scheme – has been met with strong views from both SME and large company claimants. There is a general sense that claimants require better clarity on the design and implementation of the single scheme, and this is likely to come from the Autumn Statement or soon after. Certainty is crucial for these incentives to have the impact of influencing decision making on investments in R&D.

“R&D intensive industries, such as life sciences and digital technologies, are a crucial driver of UK economic growth. Ensuring SMEs are supported will be an important area if the Chancellor seeks to focus the statement on fostering the UK’s business ambitions. This is particularly important in light of a slowing global economy and inflationary pressures, where R&D incentives could be a mechanism that will assist the Chancellor to showcase a pro-business agenda.”

Gareth Henty, pensions partner at PwC, says: 

“We know, from the Chancellor’s Mansion House speech, that consolidation in the defined benefit (DB) and defined contribution (DC) spheres is high on the Government's agenda with ambitious plans for incentivising schemes to invest in UK growth through innovative consolidation solutions.

“In fact, our analysis of the £1.4trn of assets invested in defined-benefit (DB) pension plans, shows that almost £200bn could benefit from some form of consolidation, £90bn may be eligible for entering a new ‘DB superfund’ and around £1trn will have the difficult decision of whether to run-on or seek insurance. To incentivise more DB pension schemes to run-on, the Government could look to make it easier for scheme surpluses to be accessed, whether this is to be shared with members or employers. This could allow more of the £1trn to be invested in the UK economy and so called ‘productive assets’. However, the complexity of navigating the interests of different stakeholders and providers with any reform can’t be underestimated and its essential member security remains fundamental to any pension reform.”

Zoe Watters, public sector infrastructure partner at PwC, says:

“Investment in infrastructure fuels economic growth and regional prosperity, however it is clear investment is likely to be flat. There are different routes open to the Chancellor and options such as private capital and Tax Incremental Financing (TIF) models for large regeneration schemes could be on the table for consideration but there will be a question mark over to what extent they want to be reliant on these options and how viable they are in the current environment. 

“For major schemes like hospitals and prisons, where private capital isn’t currently an option, we may see redesigning of schemes to make them fit a slimmed budget. We might also see some cherry-picking of schemes to accelerate forward ahead of the election, particularly around the new hospital programme and schools.”

Caroline Brooks, Environmental Taxes Director at PwC, says:

"While a legislative intervention to the scale of the EU’s Green Deal or the USA’s Inflation Reduction Act is unlikely, the Autumn Statement presents an opportunity to outline a broad vision for how the Government will, if not now but in the future, incentivise both green investment and environmentally friendly behaviour.

“Tax policy will have a significant role to play in the UK’s efforts to reach Net Zero by 2050 and the Government has committed to developing and using environmental taxes to encourage positive behavioural change and discourage pollution. The Chancellor may consider this not the right time for new incentives, but we may see tweaks to existing policies, such as greater encouragement for businesses to register for the Plastic Packaging Tax (PPT), and updates on consultations like potential introduction of a similar measure to the EU's Carbon Border Adjustment Mechanism on carbon intensive products.”

Phil Vernon, Head of Business Rates at PwC, says:

“With the Rating Act now receiving royal assent, the Government’s first phase of its roadmap to reform business rates by 2026 is underway. Other measures, concentrating on rate avoidance, are still under consideration and we may see some developments on 22 November. With rates bills due to rise by CPI inflation next year, businesses are facing a rise of 6.7% in April 2024 and so a freeze in the level of the multiplier is being cited as one possible avenue for the Autumn Statement, to ensure the tax rate doesn’t increase beyond the current multiplier of 51.2%. This may assist struggling retailers as the high streets across the UK continue to be depleted.

“Furthermore, an extension to the 75% business rates relief for eligible retail, hospitality and leisure businesses, beyond April 2024, would provide greater medium to long term security, and avoid a cliff-edge for many businesses.”

Alex Henderson, tax partner at PwC, says:

“The Chancellor will see the Autumn Statement and next year’s Spring Budget as an opportunity to embody a narrative of aspiration. Reforming capital taxes such as capital gains tax and inheritance tax may be a way to demonstrate that aspiration, however, while much smaller than the main taxes of income tax, VAT and NIC they still raise handy amounts of revenue for a Chancellor looking to balance the books.

“The Chancellor may want instead to focus on the interaction between the two and the demarcation from income tax. Looking at these taxes together could provide scope for targeting taxes and reliefs while potentially simplifying the whole regime. 

“Any move to change capital taxes, where the gains typically accrue over a longer period, has been complicated by the higher inflationary environment, which could see taxpayers pay more. This could be another negative impact of inflation, partially undermining the Chancellor’s likely call for further long-term investment in the UK.

“It’s a feature of efficient design in capital taxes to capture longer term accrual of value and to marry the liability to tax to having the funds to pay. So with careful targeting this is an area where there is scope for a ‘win/win’ for the Chancellor: if he incentivises growth, both the taxpayer and the Treasury will share in the proceeds.”

Christine Cairns, tax partner at PwC, says:

“Despite pressure to reduce headline tax rates and increase allowances, we’re unlikely to see any movement in this regard at the Autumn Statement with the Chancellor committed to increasing tax revenue through the fiscal drag effect of freezing bands and allowances.  

“The Chancellor has a difficult balancing act; fiscal drag is doing a lot of heavy lifting and is costly to relax, but the real terms burden across millions of people is only increasing, weighing down the 'feel good’ effect that might stimulate the growth needed to support a less painful route to raising taxes. 

“We may see some changes to the ISA system where savers have seen the best rates in a decade, but this has been undercut by those rates falling behind inflationary levels. Encouraging savings may need to go beyond a focus on returns and the Chancellor has spoken of wanting to simplify the system to encourage pick-up from the public.

“This could come in the form of reducing Lifetime ISA early-withdrawal penalty to provide better flexibility or the ability to have a catch-all Cash/Stocks & Shares/Lifetime ISA product that makes money management easier. An ISA that allows for investment specifically in British infrastructure could be another possible avenue.

“The ISA allowance limit of £20,000 has not moved since 2017, so feels overdue, especially in a higher inflation environment. While this will prove popular, its impact is less assured, as only 15% of ISA users reached the £20k in 2020-21.

“The Chancellor may also focus on employee share ownership schemes. The Government recently investigated how the current Save As You Earn (SAYE) and the Share Incentive Plan (SIP) schemes could be expanded and simplified. This is seen as a way to boost businesses by increasing workforce motivation and giving employees a bigger stake in the companies they work for.”

Gareth Henty, pensions partner at PwC says: 

“An 8.5% increase in average earnings growth has called into question whether the Government will keep its promise to adhere to the triple lock. In the face of a rapidly rising bill, the Government could instead use average wage rises excluding bonuses, which remains at 7.8%, delivering a saving on the state pensions bill while also delivering an inflation-beating increase for savers. While there is a case to review the triple lock, it must ensure older people are at the heart of the decision, and their incomes continue to rise by enough to meet living costs.

“While it’s important to consider the ongoing debate around the triple lock, we can’t overlook the wider issue of the overall level of the state pension and how the Government manages overall costs. The unpredictability around rising costs could put more pressure on the Government to potentially increase the state pension age. Yet, reduced life expectancy, combined with the state pension forming a large portion of most people’s retirement income, may make it more challenging.”