Autumn Budget 2024 preview

Claire Blackburn, Head of Tax, PwC UK

“The Chancellor Rachel Reeves will want to use one of the most highly anticipated budgets in recent history to signal the direction of travel for the Labour Government. 

“Without breaking a manifesto promise not to increase taxes on working people, the government has to find ways to increase Treasury income without increasing personal taxes, which is why during the Investment Summit this week it has been hinted this will come in the form of introducing National Insurance Contributions (NICs) on employer pension contributions. Additionally, policy changes under consideration include carried interest and the treatment of non-doms, and likely moves on pensions, capital gains tax and inheritance tax. Executing policy change in one or all of these areas will need to be done in a way that acknowledges the risks of undermining stability. 

“Despite the fiscal challenges it faces, the new government should double down on the key principles of simplicity and certainty in the tax system to foster confidence for business decision making.” 

A pathway forward for tax 

“The business tax roadmap is expected to make some commitments to predictability and stability - including a promise not to raise the main corporation tax rate above 25% for the next five years. Compared with many territories, the UK’s system of advance rulings is rather limited. Businesses would value the extra certainty which an improved framework for clearances/ advance pricing arrangements would bring. It is a welcome first step that HMRC plans to recruit 5,000 more staff and increase investment in technology, but these measures will take time. 

“Confidence, a key factor in stimulating investment, will be won through a clear roadmap and a Budget that provides for more stability, a commitment to simplification, and greater certainty for businesses to invest. Ultimately, progress may be found through more subtle, but important tweaks and interventions to smooth the existing clunky system.”

Colin Graham, Head of Tax Policy, PwC UK

“As an investment destination the UK would benefit from a simplified tax system to stand out from other markets. Since 2010 the tax code has doubled to over 20,000 pages. We have a complicated tax system, in part reflecting the complexity of our economy and measures to bring fairness across the board, but the business tax roadmap should have tax simplification at the heart of its strategy.

“The UK tax system will not be changed overnight, but it can play a key role in making the UK a more attractive place to do business. Consistent small improvements in clarity, certainty and process could add up to large gains in the future.”

First steps towards streamlining tax processes

“Welcome initial steps would be for a focus on digitalisation, ensuring new legislation is delivered with simplification in mind, pushes to improve tax guidance, and sunset clauses, requiring a review of new measures periodically to ensure they only stay on the statute book if they are achieving their goals.

“We would also welcome reinstatement of the functions of the Office of Tax Simplification (OTS), closed in March 2023, with an enhanced remit to drive both legislative and operational simplification and I agree with the CBI’s idea to introduce a ‘quick fix’ team within HMRC to address inconsistencies between courts, taxpayers, and the tax authority, allowing for quicker outcomes.

“We need to avoid another decade of constant churn, of tweaks, changes and adjustments being made with the unintended consequence of hampering long-term business planning. Overall, the best tax innovation will be long-term consistency of tax policy, avoiding choppiness, aligning UK tax law with international guidelines.”

Income Tax - Christine Cairns, Tax Partner, PwC UK

“’No tax rises for working people’ was an effective election promise to people struggling under an increasing tax burden following several years of high inflation and tightening incomes. Tax receipts totalled £1.1 trillion in 2023/24, which is equivalent to around 40% of the UK economy, the highest proportional level since the early 1980s. 

“The elephant in the room is the continued effect of ‘fiscal drag’. The freeze on personal tax thresholds until April 2028, rather than indexed to follow inflation, naturally means many working people are paying more tax, sooner than they otherwise would. This will raise an estimated £42.9 billion by 2027-28. By comparison, the reduction in the employee rate of NICs in last year’s Autumn Statement only reduced the tax burden by around £180 million.”

Considerations for revenue generation

“If generating tax revenue will be the main focus of this Budget, depending on how the government defines 'working people’, one large revenue raising initiative could be to reduce the threshold for the highest tax band. Lowering the 45% additional rate threshold from its  current level of £125,140 could have a bigger impact than increasing inheritance tax, which only generates about 5% of income tax revenue.

“Despite the wording of the manifesto, there could still be scope for the Chancellor to collect more income tax and NIC. For example, increasing the rate of tax on investment income, restricting certain reliefs, lowering tax thresholds or extending the scope of NIC arguably all fall outside a narrow definition.”

Alex Henderson, Tax Partner, PwC UK

“No doubt conscious of the effect on investment, the ‘feelgood factor’ and the simple economics of capital taxes, the Chancellor recently downplayed Budget speculation, giving assurance that any tax changes would be implemented responsibly and she would seek to avoid any mechanisms that would reduce investment in the UK. 

“Inheritance and capital gains have a disproportionate profile in the public mind: they are  relatively low in tax generation - £8bn and £15bn respectively compared to £303bn for income tax, according to the OBR’s 2024/25 forecast. However, they impact the aspirational part of the public’s psyche and, while the majority may never be greatly impacted by these taxes, those with lofty aspirations do not want to be taxed heavily on their success, as invariably large gains give rise to large bills while losses are not similarly compensated. 

“Realising a gain is to some extent discretionary and investors will look at their after-tax return meaning that an increase in the tax can be counter productive in terms of revenues. Capital taxes are generally much more costly to calculate and collect so they disproportionately consume limited HMRC resources. 

“If the goal is purely to raise revenue, capital and wealth tax rises are unlikely to make a significant impact. Yet it is rare for any Chancellor at each Budget not to look at the various taxes on wealth and seek to maximise yield and target reliefs.” 

Options beyond wealth tax rate rises

“Even without major reform or a change to the headline rate there is plenty of scope to raise revenue by such measures as targetting or limiting reliefs, introducing or extending different rates for different types of assets or looking at the interaction with other taxes. Some gains are already treated as if they were income so reform could come not by changing the capital taxes but extending the reach of the higher rates of income tax.

“On a more uplifting note such a complicated regime means there is plenty of scope for simplification and incentivisation. Reduced rates of tax for employees holding shares in their employer can give the perfect answer for the Chancellor as it enhances reward and aligns interests with their employer, so both succeed together and the economy grows and when the employee ultimately realises a gain the Exchequer receives tax that wouldn’t otherwise have arisen. Reliefs for employees could dovetail with the government’s wider agenda for employees and at the beginning of this Parliament the Chancellor has scope to look to the future making changes now that will both engender and pay off with growth.”

Gareth Henty, Head of Pensions, PwC UK

“Rachel Reeves has hinted at the Investment Summit this week the government may seek to increase Treasury income, in part, through the introducing National Insurance Contributions (NICs) on employer pension contributions. 

“While such a policy is unlikely to incur the wrath of voters, it would not be without consequence and will ultimately have a material knock-on impact for workers. One possibility is a flat NICs on pension contributions, the cost for which would be met by employers, at least directly. In another scenario, the 13.8% NICs that employers pay on employees’ income above a certain threshold could be extended to employer pension contributions.

“However, in addition to the direct cost to businesses, any such policy would render current salary sacrifice arrangements less efficient (or potentially even redundant from an employer’s perspective). Additionally, care would have to be taken if the move could deter some employers from making contributions towards deficit funding for defined benefit (DB) schemes, as this could disproportionately impact sponsors attempting to address DB scheme shortfalls.  This will clearly impact more industries and sectors more than others.

“Such a strategy also raises a fundamental question about the rationale of taxing workers' pensions to fund the retired population's pensions. Furthermore, this could complicate efforts to raise auto-enrollment minimum contributions in the future.”

On tax relief…

“While the Chancellor has ruled out reducing the higher rates of tax relief on pension contributions, we could see a £100,000 limit imposed on tax free cash, from the current 25% of the pot’s total value, up to £268,275. Such a policy would alter the way people plan for their retirement. There could also be a move to charge inheritance tax on unused pension pots, a move that seems unlikely to be politically damaging but also unlikely to generate billions of pounds of tax revenue in the short term.

On UK investment…

“The Pension Investment Review Call for Evidence, which concentrated on LGPS and DC schemes, concluded on 25th September after being open for a notably brief period of three weeks, so we could potentially see a policy consultation announcement by 30th October? 

“One aspect of this review is the role pensions schemes could have in funding UK businesses. The primary mechanism to encourage this might involve some form of tax incentive or making overseas assets less tax-efficient. 

“One potential incentive could be a direct tax subsidy to enhance returns, such as a reimagination of the ‘dividend tax credit’ abolished by Gordon Brown in 1997, which was generating £5 billion annually at the time. However, this approach would necessitate government funding, which may be seen as unattractive.”

Phil Vernon, Head of Business Rates, PwC UK

“It’s likely too early for major changes to business rates. It was not mentioned in the King’s speech as part of the legislative agenda and existing changes in the pipeline for 2026 from the last government haven’t come fully into force. Reform will be coming so we may see a consultation announcement as the government starts to explore a full re-evaluation after the 2026 changes fully embed, and a possible consultation announcement on how a reformed local business property tax could take form.

“After being frozen for many years, the former Conservative government made the decision to increase the main business rates multiplier by CPI inflation in 2024-25. The small multiplier will follow suit in 2025-26, so both are expected to rise by about 2.2% next year. This could be an area the Chancellor could change in this Budget to relieve some of the burden of business rates. 

“Other options would be more targeted, by reviewing sectors that receive relief. The government has already consulted on removal of the 80% business rate relief for private schools and a formal announcement of this change is expected. There is also uncertainty over the future of the retail, leisure and hospitality relief that currently gives 75% off business rates for up to £110,000 per business per year. This could also be ended or reduced to save money, although these sectors are still struggling post-COVID.”

Aidan Coleman, Partner, PwC UK

“As with much of the Budget, there will need to be a balance between the significant amount of revenue (£14.9bn in 2023-2024) raised on stamp taxes and using potential stamp duty levers to support the government’s objective to boost housing market activity.”

“The one change we do expect to see is an increase in the stamp duty surcharge payable on the purchase of residential property in England and Northern Ireland by non-UK residents; a planned rise of 1% was included in Labour’s election manifesto. Currently, the surcharge adds 2% to the rate of each band - which, depending on the value and circumstances of the transaction, can result in a maximum rate of 17%.” 

Increasing housing activity 

“In 2022, the first time buyers threshold was temporarily increased so that new buyers only pay stamp duty once the property’s value exceeds £425,000. This is due to expire on 31 March 2025, after which it will revert back to £300,000. The indication from Labour during the election campaign was that they would not extend or make the temporary threshold permanent, so we wait to see the Chancellor’s approach.

“There continues to be calls from industry bodies about wider stamp duty reform, including the potential introduction of a ‘downsizing relief’. Ideas for reform have not got off the ground previously, in part because of the associated practical complexities and challenges, but it may be an area that the Chancellor does explore further now given the government’s goal to release housing stock.”

Rachel Moore, Innovation Incentives Partner, PwC UK

“R&D intensive industries, such as life sciences and digital technologies, are a crucial driver of UK economic growth and will be an important area for the Chancellor to showcase the new government’s pro-business agenda. 

“Businesses will want a clear runway for their future decisions. There is a demand for consistent policy on tax incentives like the patent box and R&D tax credits so businesses have confidence for long term investment. When changes need to be made, engaging in genuine dialogue with industry leaders will prevent bumps in the road and help avoid unintended consequences so transitions can run smoothly. If there are some incentives to work with, expanding the eligibility criteria for the new R&D intensive regime for SMEs would be welcome.

“We may also see some movement to tighten the rules around future claims. HMRC recently estimated error and fraud of around £1.05 billion in total across the SME and RDEC schemes. To reduce these problems going forward, they could introduce a minimum threshold for claims, to decrease the volume of low value claims, where it can be more difficult for HMRC to detect any error or fraud.”

Grant Klein, Transport Leader, PwC UK

“As the Chancellor faces challenging spending decisions, motoring costs - and Treasury’s revenue from motoring - will need to be looked at in the round as part of the Budget. That means considering fuel duty alongside vehicle excise duty (VED) and the insurance premium tax as well as other motoring taxes. That’s before getting to any consideration of a distance charge.

“There’s a circle that’s hard to square as we move as a nation to electric vehicles (EVs). On the one hand, net zero objectives point to needing to incentivise purchase of EVs; and on the other, there’s an impending ‘boiling frog’ black hole from a reduction in the fuel duty generated from the purchase of petrol and diesel as more people switch to EVs.

“Policy options for the government include a step towards a fuel duty alternative for EVs, similar to that seen in Iceland and New Zealand, which could see users required to self-report mileage and pay digitally. To match Iceland’s introduction of a fuel duty alternative when EV uptake reached 17%, the UK would need to act by 2028-29.”

Caroline Bevan, ESG Tax Leader, PwC UK

“Fuel Duty will one day be a dead tax. The increasingly transition to EV cars, an estimated one in two UK cars will be EVs by 2035, will gradually rid the UK of its dependence on oil and gas. While hugely beneficial to our environment, this will cause headaches for tax revenues as it generates £25bn a year in public funds. 

“Recent PwC research found that the UK Government will face a potential £9bn loss through tax revenues by 2030 and a possible £27bn loss by 2040, the equivalent to halving the defence budget. The Chancellor may want to think about long-term sustainability of tax revenues, and how increasingly dated taxation mechanisms can be replaced. This can’t be done overnight as it would be a major undertaking both operationally and technologically, but the Budget may be a good place to establish this goal. Above-all, success will be created through analysis and evidence-based changes, with a clear business case and impact assessment.”

Susie Holmes, Insurance Tax Leader, PwC UK

“The tax contribution from the insurance and long-term savings industry hit a record high this year, with a recent PwC survey showing The Association of British Insurers members contributed a record £18.5 billion to the UK’s public finances in the 12 months up to 31 March 2024. This has more than doubled since the financial crisis.

“The insurance and long-term savings industry is a significant employer in the UK, with over 300,000 people working in the sector. Due to its size, any significant changes by the government on employment related taxes – such as the introduction of National Insurance on employer pension contributions - would represent a significant cost to the industry and a sizeable increase for the Exchequer in taxes collected and borne.”

“The life insurance industry plays a significant role in the administration of pension taxes by offering compliant products, ensuring proper tax withholding and providing necessary documentation. Any significant changes made to pensions would have a material impact on insurers, who will be keen to avoid any overly complicated changes and to ensure sufficient time is allowed for necessary system changes.”

Nick Lane, Public Sector Infrastructure Director, PwC UK

“The flagship National Hospitals Programme (NHP) has been slowed by funding challenges, changes in leadership, updated priorities in RAAC and then a general election and review.  Commitment of a budget for the coming year to support all trusts in the cohorts in maturing their plans would be welcomed. Clarity over the first to market for the priority RAAC and most mature trusts would bring confidence that the programme is moving forward and that the contractor market can plan for a delivery phase. 

“The Chancellor also needs to clearly commit to capital needs beyond the NHP with elective recovery, diagnostics and primary care priorities all needing investment alongside support to business as usual maintenance to prevent further growth of the backlog. Despite promising signals that investment will come, the list of needs will likely continue to outpace public capital commitments. 

“Providers will be looking for clarity on solutions that don’t require capital. There is a wave of investment in solar energy assets and diagnostic services that is being held back by a lack of clarity on ‘approved models’; a greener NHS with growth in diagnostic capacity could be enabled if capital departmental expenditure limit rules in these spaces are defined. There should also be serious discussion of an evolution of the PFI model, perhaps learning from the success of the Welsh mutual investment model (MIM) structure which is delivering the Velindre Cancer Centre.”

Grant Klein, Transport Leader, PwC UK

“With economic growth at the top of the new government’s priorities, there’s a strong and compelling case for new transport infrastructure - both through job creation and increasing connectivity to drive employment and connectivity across the UK’s regions and cities. 

“The challenge for the government is the existing queue of major infrastructure projects seeking funding approval. Given stated government aims, there may be more of a leaning to rail for environmental reasons, and to local and urban schemes to align with increased devolution. 

“Making decisions will be challenging whilst trying to fill a funding gap, which brings the option of private finance back on the agenda. As well as increasing the financial capacity to deliver some of these schemes, there’s an important additional benefit of introducing private finance into the equation. It has the potential to tighten the governance and gives greater certainty and consistency as these long term projects progress.

“There is also a need to explore how public sector transport bodies work with the private sector, for example as we see more cities taking up the opportunity to franchise bus services; this is a material difference from the status quo for most cities. This comes at a time when the Transport Secretary has highlighted her priority for improving intermodal connectivity; this will inevitably require greater collaboration between city authorities and private sector micro mobility service providers.”