The Chancellor of the Exchequer will deliver his Autumn Budget on Wednesday 27 October. Our tax specialists, economists and industry experts give their thoughts below on what may be in store.
Marissa Thomas, head of tax at PwC, said:
“With the dust barely settled on September’s announced increase to National Insurance Contributions and businesses readying themselves for the corporation tax hike set out in the Spring, it seems unlikely that further blockbuster tax changes will be on the cards come 27 October. Instead, the Comprehensive Spending Review and latest economic forecasts will take centre stage, giving the Chancellor and the country a clearer picture of the strength of the post-Covid economy.
“None-the-less we can still expect some tax developments in the Budget, most likely in response to the consultations on business rates and R&D incentives. With the Budget taking place just a few days out from COP26, there will undoubtedly be a very noticeable nod to the role the tax system can play in the UK’s net-zero pledge but the most significant announcements could be saved for the summit itself.
“This will be the second Budget presented by the Chancellor in 2021 but with the furlough scheme only just winding down, and supply chain and workforce issues posing problems the Chancellor will be driving with low headlights as he seeks to further navigate the road to recovery.”
Jonathan Gillham, chief economist at PwC, said:
“The Government is undertaking a massive reform programme at the heart of the big issues affecting society today - levelling up, net zero, build back better and the delivery of a successful Brexit. With such an ambitious plan and with COVID risks still looming, the Chancellor has already set out that mean core departmental spending will grow in real terms at nearly 4% per year on average over this Parliament. This means that by 2024-25 the Government will be spending around £140 billion extra each year than at the start of the Parliament.
“To balance the books, taxes will rise in tandem - increases in NICs, income and corporate taxes have already been announced. However, these plans are heavily linked to a strong economic recovery. GDP figures over the summer suggested that the recovery might be stalling. Inflation is also rising, but it is not yet clear whether this will be permanent or temporary. If the former, the Bank of England will be forced to raise interest rates - probably at the back end of 2022 - which will hit growth and make borrowing more costly, putting a significant dent in the Chancellor's plans to balance the books."
Jayne Harrold, environmental tax leader at PwC, said:
“With COP26 around the corner, the Government will be keen to outline not just its plans for a green recovery but also how it plans to use the tax system to align behaviour to the 2050 net zero pledge. Whether this is announced at the Budget or during COP itself is to be seen.
“To accelerate decarbonisation of the gas grid and the switch of domestic heating away from gas, the Government could amend the VAT rules to make it easier for the 5% reduced rate of VAT to apply to energy saving measures installed by householders. Using the VAT system to reduce the cost of investment would act as an added stimulus to upgrade the energy efficiency of the existing housing stock.
“While the Government could announce a carbon tax, a simpler route would be to expand the scope of the new UK emissions trading scheme which is already in place. Energy taxes on wholesale gas prices and profits or a reform of aviation tax, with a tax on fuels used by the shipping and aviation industries to encourage take up of low carbon fuels, could be among the ESG steps the Government announces.
“Importantly, to avoid trade friction and prevent the UK from becoming an illicit backdoor into Europe and other markets, our environmental taxes and levies will need to align to the latest developments internationally, and any policy holes will need to be plugged.”
Amal Larhlid, ESG tax leader at PwC, said:
"The Chancellor will have a tough decision on whether to freeze fuel duty for the 12th year in a row. A rise is difficult given fuel prices are already at all time highs and in light of other pressures on household finances. However, credibility is at stake with the COP26 climate conference only days away. It will also be interesting to see if the Chancellor considers what policy measures might be available to help avert the tax shortfall from drivers choosing Electric Vehicles such as a per-mile charge, any changes will need to be achieved without disincentivising consumers from making the switch."
Stella Amiss, head of tax for regions at PwC, said:
“The Government will be hoping to use this Budget to deliver on both the levelling up agenda and on its climate change ambitions and could look to address both with key policy measures. Incentives and grants to help businesses transform to achieve net zero goals could be targeted at those areas of the country that have been ‘left behind’ and so also help drive the focus on new skills, economic growth and opportunities across the whole of the UK.
“It would be a positive move to outline now the key actions the Government is going to take to lift the opportunities for growth across the whole of the UK and start to deliver on the levelling up agenda.
“Looking at the tax system could help make a positive difference to these ambitions. Whether it’s a turbo charging of the Freeports initiative, a refresh of incentives for innovation and R&D credits, an extension of the super deduction, or critically more support to employers with upskilling workers and increasing productivity could go a long way to helping to make a meaningful change to the levelling up agenda.”
Phil Vernon, head of business rates at PwC, said:
“The Government's response to the fundamental review of business rates is due this Autumn so we should expect to see some meaningful announcements on business rates at the Budget. The shift to revaluations every three years has already been confirmed but businesses may have to start preparing for a raft of new reporting requirements to submit to the Valuation Office Agency as the Government looks to get real time information to ensure rates reflect the realities of the rental market.
“Many retailers have received support from the Government with extended relief during the pandemic and they will be looking to the Government to provide meaningful reform and further support as the relief comes to an end next year. However, with local councils dependent on the income from business rates to fund local services the Government must balance the need for reform with sustainable funding for Local Government.”
Jon Richardson, head of tax policy at PwC, said:
“With the UK signed up for the Global OECD tax plan which prohibits any new digital taxes, questions arise on whether an online sales tax will be allowed to go ahead. The Government has linked this new measure to the domestic reform of business rates and not to the challenges of the international corporate tax system. This could leave some room for manoeuvre to the Treasury.”
Lisa Hooker, consumer markets leader at PwC, added:
“There is a growing concern in the industry over labour shortages; whether HGV drivers, warehouse labour or shop and restaurant staff in the all important run up to Christmas. Retailers are preparing as best they can through early recruitment, pay rises and operational changes such as reducing delivery options or product substitutions. This is causing a level of inflation which is likely to lead to price increases for the consumer. The positive for the industry is that consumer confidence is still relatively high and over a third of consumers say they expect to spend more this Christmas.
“The industry is looking to the Government to help the availability of staff particularly for seasonal workers and in upskilling given the skills shortages. There are headwinds coming in 2022 as rates and VAT are reinstated, the landlord moratorium ends and the consumer is facing inflation and tax increases making the response to the review of business rates and efforts to control inflation more crucial than ever.”
John Harding, employment tax lead at PwC, said:
“With the market experiencing labour shortages and worker pay increasing there have been calls for a tax on hiring overseas workers to make it a more revenue raising, and therefore a more enticing solution for the Government. However, this Government has now repeatedly said its focus is on building a domestic market and fixing any structural issues in the economy to reach a new equilibrium between labour demand and supply.
“With the increase in NIC and tax on dividends it is difficult to see another large announcement around employment taxes of this type being made. Instead, to show jobs are a priority, the Budget could include tax incentives for businesses to hire domestic workers, as well as for those creating green jobs and training. The Chancellor has already announced the £500 million Plan for Jobs Expansion, including the extension of the cash grant of £3,000 for businesses taking on an apprentice until 31 January 2022. In addition, the Government’s “Kickstart” scheme which funds employers that create new jobs for those aged 16 to 24, and who were in receipt of Universal Credit, is to be extended to March 2022. We also expect more to be said on plans to close a skills gap.
“The Chancellor may also use the Budget to set out the timetable for the creation of the new State Enforcement Body that the Government announced inJune. The creation of this “powerful new body” is to safeguard workers’ rights and pay. As well as covering areas such as National Minimum Wage and Statutory Sick Pay this new body will also extend its remit into areas that previously haven’t been enforced including holiday pay.
“Finally, we may hear more details on last month’s announcement of new measures to ensure tips, gratuities and service charges are fairly and accurately paid to workers in the hospitality industry. It is anticipated that these will require employers to pass tips on to workers in full without making any deductions and in a fair and transparent manner. The legislation will be supported by a statutory Code of Practice on Tipping and it is estimated will impact some two million workers.”
Alex Henderson, tax partner at PwC, said:
“The Prime Minister’s announcement in his conference speech that ‘Pareto improvements’ are central to his thinking on levelling up suggests that new wealth taxes are unlikely to be on the cards. That is not to say that we won’t still see changes to Capital Gains Tax or Inheritance Tax. The Office of Tax Simplification has looked at both Capital Gains Tax and Inheritance Tax in recent years and both are complex taxes with plenty of scope for the Chancellor to refine their impact, raising funds and getting better value for money in reliefs.
“In spite of pressure on HMRC resources throughout the pandemic, we expect to see continued high levels of enquiry activity. We may also see HMRC increasingly trying to bring long-running disputes to a close where possible using all routes open to them including an emphasis on Alternative Dispute Resolution processes; this is both efficient for the parties to resolve their differences and positive for the Treasury in bringing in funds.”
Christine Cairns, tax partner at PwC, said:
“The increases in corporation tax and NIC, together with the freezing of the income tax bands announced in the previous Budget, could mean the Government may not announce any further significant increases in personal tax rates for now. Any changes are more likely to be focused on tightening reliefs or tax free allowances.
“Modernisation of the tax administration framework will remain a priority, and we may see measures introduced to accelerate the timing of tax collection. That said, the delay to the introduction of basis period reform and Making Tax Digital for income tax may indicate that the latest boost to the Treasury will allow the Government to delay any complex structural changes to the tax system as individuals and businesses emerge from what has been a difficult time for many.”
Raj Mody, global head of pensions at PwC, said:
“Pensions policy should not be forgotten when looking to achieve goals of levelling up, the green recovery and encouraging investment to priority areas.
“The Government may look to loosen the tight regulations around how pension schemes need to be funded to allow more flexibility on how pension scheme assets can be invested, drawing investments into infrastructure, green energy and other ESG innovations as well as longer-term business investments aimed at encouraging entrepreneurism and growth.
“One ongoing concern is how the self-employed are left out of the auto-enrolment pensions savings system, which allows employed workers to benefit from company top-up contributions to their pensions. Something to look out for in the upcoming Budget is a pensions grant system where the Government could incentivise the self-employed to save for the long term.
“The Government has already announced the suspension of the triple lock guarantee on state pensions. We might see similar action again next year if current wage patterns carry on. The programme to push back the state pension age, which could reach 69 by 2050, has a worse impact on those with lower life expectancies, who are more affected by missing out on earlier payments. A possible alternative to announce at the Budget, instead of a one-size-fits-all delay to the retirement age, could be a flexible “state pension window” which retains the option for people to access some level of state pension from 65 or 67, with incentives for others to take it later.
“While the Government needs to cover spending and repay debt, it would be wise to avoid any further changes to the pensions tax regime, whether that be the Lifetime and Annual Allowances, or the tax-free cash lump sum at retirement. The pensions industry is already under strain from having to keep up with a raft of new developments, such as the Pension Schemes Act 2021, GMP equalisation and the Pensions Dashboard.”
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