Business news 18 November 2022
James Salmon, Operations Director.
The Autumn Statement – Budget news – Chancellor reveals £25bn in tax increases. Hunt: Budget will ensure a ‘shallower’ recession. Disposable incomes set for record fall. And more business news.
The Autumn Statement – Budget news – Chancellor reveals £25bn in tax increases
Jeremy Hunt has set out plans for almost £25bn in tax increases and more than £30bn in spending cuts as he looks to balance the nation’s books.
The Chancellor announced that the threshold at which the 45p top rate of income tax is paid will be reduced from £150,000 to £125,140. This will see 232,000 more people paying the top rate of tax from April 2023.
A freeze on income tax thresholds mean an extra 92,000 people will be paying income tax and 130,000 will be paying the higher rate in 2027/28. Meanwhile, the tax-free allowance for capital gains will reduce from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25.
The Office for Budget Responsibility said the tax burden – the ratio of taxes as a share of GDP – will peak at 37.5%, with this its highest level since the end of the Second World War.
Laura Morris, a tax partner at PwC, notes that people will pay an effective tax rate of 60% on income between £100,000 and £125,140, and 45% on income above this, while Chris Etherington of RSM said that by changing thresholds and the personal allowance, the Chancellor has “effectively introduced a new 67.5% tax band.”
Moore Kingston Smith calculates that 246,000 more workers will be dragged into the top rate of tax as soon as the threshold is reduced. Nimesh Shah, chief executive of Blick Rothenberg, notes that a worker earning £200,000 will still be better-off by over £200 in 2023/24 because of the savings generated through the reversal of the 1.25% National Insurance increase.
Neela Chauhan of UHY Hacker Young said Mr Hunt’s changes on tax are “going to bring in people into the upper rate who feel that they are far from being rich.” Experts at HW Fisher suggest that Mr Hunt is “crushing entrepreneurial spirit” with the tax hikes.
Hunt: Budget will ensure a ‘shallower’ recession
With the Office for Budget Responsibility (OBR) saying the country is in recession, Chancellor Jeremy Hunt has said £24bn in tax rises and £30bn of spending cuts set out in his Autumn Statement mean the downturn will be less severe. The OBR forecasts that the UK economy will shrink by 1.4% next year. It also expects inflation to be 9.1% this year and 7.4% next year.
Detailing the OBR analysis, Mr Hunt said the economy is forecast to grow by 4.2% this year, with GDP then slipping by 1.3% in 2023 before rising by 1.3%, 2.6%, and 2.7% in the following three years. Mr Hunt told MPs that he has had to make difficult decisions to ensure a “shallower downturn.” He said that with just under half of the £55bn consolidation coming from tax and just over half from spending, “this is a balanced plan for stability.”
Disposable incomes set for record fall
The Office for Budget Responsibility (OBR) calculates that household disposable incomes are heading for their biggest fall on record. It said that when adjusted for inflation, incomes will fall by 7.1% between 2021/22 and 2022/23, taking incomes back to the rate seen in 2013. The OBR noted that current levels will not be recovered for another six years. The Government’s independent fiscal watchdog said that real household disposable incomes per person would drop by 4.3% in 2022/23, with this the largest dip since official records began in 1956/57. That is set to be followed by the second largest fall, with a decline of 2.8% expected in 2023/24. The OBR also expects unemployment to rise from 3.5% to peak at 4.9% in Q3 2024. RSM economist Thomas Pugh said: “The OBR’s forecasts paint a dire picture of the economic outlook over the next two years.”
Budget response
Shadow Chancellor Rachel Reeves says Chancellor Jeremy Hunt has “picked the pockets” of the entire country with “stealth taxes” in his Autumn Statement. She added that a “double whammy that sees frozen tax thresholds and double-digit inflation erode the real value of people’s wages.” The Liberal Democrats described the Autumn Statement as a “cost-of-chaos budget”, saying people are “being forced to pay the price for this Conservative government’s incompetence.”
Business rates relief worth £14bn
Chancellor Jeremy Hunt has unveiled new measures to help businesses and shops. The measures include freezing the business rates multiplier for another year, meaning that rates will no longer be increased in line with inflation from April. Mr Hunt said that a revaluation of business rates would go ahead as planned next year but that he would “soften the blow” with £13.6bn worth of tax cuts over the next five years. He said that nearly two-thirds of properties “will not pay a penny more next year and thousands of pubs, restaurants and small high street shops will benefit.” Analysis shows that the measures mean the total increase in business rates bills will be less than 1%, compared with more than 20% without intervention. Freezing of the business rates multiplier will save businesses £9.3bn over five years, while an extension of a rates discount for retail, leisure and hospitality businesses is worth £2.1bn. Helen Dickinson, chief executive of the British Retail Consortium, said the Chancellor’s measures were “the first step towards a more fundamental reform of the broken business rates system.”
Rethink for R&D tax relief
Research and development tax relief for SMEs is to be changed following evidence that the scheme was being abused. Chancellor Jeremy Hunt said that he had “heard concerning reports of abuse and fraud” involving the scheme that gives tax incentives for companies to invest in innovation. Mr Hunt has made the scheme less generous by halving the effective relief for loss-making innovative start-ups. Thomas Hayden of Moore Kingston Smith said the motive behind the cuts seems to be in order to reduce fraud, “however, given that fraud is always 100% profit to the fraudster, it is unclear how reducing the rates will reduce fraud.” Senga Prior of the Association of Taxation Technicians said that while it “strongly support efforts to crack down on such abuse of the tax system and improve compliance … we do not believe that restricting the level of relief available to all SMEs is a proportionate way to achieve this.” HMRC data shows that losses to fraudsters and erroneous claims reached £469m last year, although analysts believe that this is probably an underestimate.
Pay awards held at 4%
Pay awards by British employers held at a 30-year high of 4% in the three months to October, according to human resources company XpertHR, with this falling well below inflation, which is at more than 11%. XpertHR’s Sheila Attwood said: “It is likely that affordability will continue to be the driving factor in final pay decisions as economic uncertainty looms at the forefront of many businesses’ concerns.”
National Living Wage rising to £10.42 in April
The National Living Wage – the legal minimum wage for workers aged 23 or over – will increase from £9.50 to £10.42 an hour in April, a rise of 9.7%. Chancellor Jeremy Hunt has also revealed that the National Minimum Wage for those aged 21-22 will increase from £9.18 to £10.18 in April; the rate for 18 to 20-year-olds climbs from £6.83 to £7.49; those under 18 will see minimum hourly pay increase from £4.81 to £5.28; and the Apprentice rate will be lifted from £4.81 to £5.28.
Typical energy bills to rise to £3,000 a year
While the Government has extended measures to help households with energy costs, the support will be less generous, with the typical annual bill to rise from £2,500 to £3,000 in April. Consultancy Cornwall Insight calculates that without the measures announced by Chancellor Jeremy Hunt, average bills would have gone up to about £3,740. While typical bills will be about £3,000 a year, there is no cap on charges. Instead, the prices that energy firms charge per unit of energy will be limited. Mr Hunt, who said Russia’s “weaponisation of international gas prices” has helped drive up energy costs, also revealed that the Government will put an extra £6.6bn into energy efficiency and committed to building a new nuclear plant at Sizewell C.
Unpaid tax hits £38bn
Unpaid tax has increased by 10% to almost £38bn in the last three months, figures from law firm Pinsent Masons show. While the level of unpaid debt has risen from £34.3bn to £37.8bn, there is a further £9.1bn owed through agreements like Time to Pay. Abigail McGregor, legal director at Pinsent Masons, said HMRC opened 72,000 civil compliance checks in Q2, with this marking a 22% increase on Q1. She said that with HMRC flagging its concerns about rising debt, it “will need to find ways to recover these funds.” Andrew Robertson, a partner at Pinsent Masons, added that HMRC “is in a difficult position,” pointing to the risk of “triggering a huge wave of business insolvencies.” He added that the tax office is being forced to walk “an unenviably fine line” between collection and enforcement.
Retail Sales
The Office for National Statistics reported, retail sales fell 6.1% in October on an annual basis, but this was better than expected and an improvement when compared to a 6.8% fall in September. The market had expected a 6.5% decline cited by FXStreet. On a monthly basis, sales grew 0.6% in October, compared to a 1.5% fall in September. Sales had been expected to remain flat.
Banks boosted as Government cuts surcharge
The Government is to cut the surcharge on bank profits to 3%, reducing the additional tax from 8% in a bid to keep the UK’s finance industry competitive. Richard Milnes, UK banking tax partner at EY, said the move would “reassure” the sector, adding that lenders “will be particularly relieved there won’t be a further tax burden placed on it which could have detrimental effects to UK banking competitiveness on the global stage.” Despite the cut to the surcharge, the overall tax rate on lenders will rise from 27% to 28% in April as the corporation tax rate is set to jump to 25%.
Windfall tax to pull in £56bn
Energy companies are set to hand over an additional £56bn in taxes after the Government increased the windfall levy on oil and gas businesses and introduced a new charge on electricity generators. Chancellor Jeremy Hunt has raised the windfall tax on North Sea oil and gas producers from 25% to 35% and extended its duration to 2028. He has also introduced a 45% levy on low-carbon electricity generators. The proposals are due to generate tax revenues of £41.6bn from oil and gas companies and £14.1bn from electricity generators, according to the Office for Budget Responsibility.
OBR: House prices set to fall 9% over two years
The Office for Budget Responsibility (OBR) says the economic downturn and higher mortgage rates will drive a fall in property values, forecasting that the average price will drop by 9% between Q4 2022 and Q3 2024. It also expects average interest rates on the stock of outstanding mortgages to peak at 5% in the second half of 2024. The OBR noted that there is significant uncertainty over its forecast, “given the sensitivity of house prices to mortgage rates and the recent volatility in the bond yields that drive pricing in the mortgage market.”
Twitter
After giving staff an ultimatum of a choice between “long hours and high intensity” and termination of employment, swathes of employees opted for the later, forcing twitter to close their headquarters until next week to stem the exodus.
Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.