Autumn Budget 2023: tax cuts “not likely” but OBR could push for a VAT threshold rethink
UK Chancellor Jeremy Hunt will deliver his Autumn Statement on November 22, 2023, in what could be his last major economic announcement before the next general election
The Autumn Statement is a chance for the Chancellor to update Parliament on the state of the economy and announce any changes to tax or spending. This year’s statement is expected to be relatively low-key, with the Chancellor limited in his scope for new measures by the UK’s high tax burden and ongoing efforts to bring down inflation.
However, the Autumn Statement could pave the way for more detailed tax announcements in the Spring Budget. The Chancellor has previously ruled out immediate tax cuts, but he may use the Autumn Statement to set out his path for future tax-cutting measures.
“While the UK tax burden is at its highest level for decades (with an increase in corporation tax, a reduction in allowances, and personal tax thresholds frozen until 2028), immediate tax cuts are not expected,” according to the corporate team at law firm Osborne Clarke.
One possibility is that the Chancellor could announce cuts to inheritance tax, which is currently at its highest level in decades. However, any major tax cuts are likely to be delayed until the Spring Budget or even the Conservative Party’s manifesto for the next general election.
In addition to tax, the Autumn Statement is also expected to focus on the government’s plans to boost economic growth and productivity. The Chancellor is likely to announce measures to support businesses and investment, as well as to help people get into work and keep them there.
OBR: frozen VAT threshold distorts business behaviour
The Autumn Statement will be accompanied by an economic and fiscal forecast from the Office of Budget Responsibility (OBR). The OBR’s forecast will provide an independent assessment of the UK’s economic outlook and the impact of the government’s policies.
If imminent tax cuts are unlikely Hunt instead could throw the self-employed a bone and increase the VAT threshold. That change alone could have a much wider spread impact on economic growth, earning power and hiring practices of small businesses than inheritance tax.
In its March 2023 Economic and fiscal outlook, the Office of Budget Responsibility (OBR) found that the frozen VAT registration threshold is having a distorting impact on business behaviour. The OBR found that businesses are bunching just below the threshold, as they limit their turnover to avoid needing to register for VAT.
The VAT registration threshold is the turnover threshold at which firms must register for VAT. It has been frozen at £85,000 since March 2017. This means that businesses with a turnover below £85,000 do not have to charge VAT on their goods or services.
The OBR found that the frozen threshold is leading to a number of distortions. For example, some businesses are artificially limiting their turnover to stay below the threshold. This can stifle business growth and innovation.
“With Labour waiting in the wings and with Rachel Reeves already having given an indication of her and a potential future Labour government’s tax measures, the chancellor will no doubt wish, with a general election looming, he had more at his disposal,” said Osborne Clarke in a published statement.