Tax burden still to rise despite Autumn Statement cuts, say MPs

Chancellor Jeremy Hunt made his Autumn Statement on Tuesday 22 November, with headline announcements including:

• The National Insurance rate will be reduced from 12% to 10% from January
• “Class 2” National Insurance contributions will be abolished, and “Class 4” contributions will be reduced by one percentage point
• “Full expensing” for capital allowances has been made permanent
• Despite rumours, there was no cut to inheritance tax

Debating the statement over three days in the House of Commons, the Government advocated its cuts to national insurance and incentives for businesses, but other members of the House criticised the measures, which they say will not leave taxpayers better off in the long term.

At the end of the debate MPs voted on 37 Autumn Statement resolutions, which will form the basis of Finance Bill 2023-24, which was published on 28 November. None of the resolutions were opposed. You can read them in full here.

Income tax and national insurance

Making his statement, the Chancellor said the NI cut of two percentage points would save someone on the average salary of £35,000 more than £450 a year, and “urgent legislation” would see the change made from 6 January. He said that the abolition of Class 2 contributions would support those who “kept our country running during the pandemic”. Despite the abolition, access to entitlements and credits will be maintained in full and those who choose to pay voluntarily will still be able to do so.

The Shadow Chancellor said previous tax increases implemented by the Government were worth the equivalent of a 10p increase in national insurance, which the national insurance cut will “not remotely compensate” for. She added: “The fact is that taxes will be higher at the next election than they were at the last.”

Treasury Committee veteran Dame Angela Eagle (Labour) said even after the measures announced in the statement, this was the “highest tax-raising Parliament since records began”, with taxes remaining at their highest level during peacetime and the tax burden set to increase by £4,300 per household. She described the freezing of tax thresholds as a “stealth tax” and questioned why the Chancellor has now decided to cut National Insurance despite “having spent most of the last year saying that tax cuts were irresponsible”.

Former Shadow Chancellor John McDonnell (Labour) branded the statement’s tax cuts as a “pre-election bribe”, while Andy McDonald (independent) said cuts to support for disabled people and benefits, while handing businesses £12 billion in “tax giveaways”, was “totally unconscionable”. Peter Dowd (Labour) added: “The frozen tax thresholds mean that those who make their living from work will pay tens of billions of pounds more while taxes on the wealthy remain largely flat.”

Treasury chief secretary Laura Trott said taxes for the average worker have gone down by £1,000, with those on higher incomes paying more, which she described as “the right approach in a difficult period”.

Liam Fox (Conservative) said the UK was “moving slowly towards a lower-tax economy”, with Priti Patel (Conservative) adding these economies are “naturally the fastest growing” because “businesses and people spend their money far more effectively, efficiently and productively than the state”. Patel said: “we can do more to freeze income tax levels” and she continues to “want to see a shift in tax-free and higher rate allowances”.

John Redwood (Conservative) welcomed the statement but called for measures in the future to be “much kinder to the self-employed and small businesses”. Nigel Mills (Conservative) also called for the measures to go further, with a “much higher starting point” for paying income tax and national insurance. He added: “It should be heading back towards a point where someone working full time on the minimum wage does not pay much tax.”

Economic Secretary Bim Afolami said the measures in the statement will “grow the economy, to make us more prosperous, to make businesses invest more and to cut taxes for working people”. He added that he would “constantly listen” to colleagues to get taxes down further.

Corporate taxes

The Chancellor said that more than 200 business leaders had backed making “full expensing” permanent, calling it the “single most transformational” thing he could do for business investment and growth. The Chief Secretary said the decision to make full expensing permanent means the UK now has “not just the lowest headline corporation tax rate in the G7, but the most generous capital allowances, too.”

Priti Patel also backed full expensing, but called for clarity over how it will operate, such as whether businesses would need to “employ an army of accountants who will eat into their business expenses”.

Shadow Financial Secretary James Murray backed the decision to make “full expensing” permanent, which he said Labour had previously called for. However, Steve McCabe (Labour) questioned how many businesses would actually benefit from full expensing, adding: “even those that do will still suffer due to corporation tax.”

The Shadow Chancellor said that making full expensing permanent “does not make up for the years of uncertainty that businesses have faced, with taxes going up and down like a yo-yo.”

Nigel Mills described full expensing as a “pretty radical and permanent change to our corporation tax system”. “We should think about whether we need all those rules, or whether we could sweep them away and just have some anti-avoidance restrictions,” he added.

Business minister Kevin Hollinrake said the statement would allow businesses to “confidently invest in their futures and “strip away burdensome red tape”, while Gareth Davies (Exchequer Secretary) added: “It is businesses that contribute billions and billions in tax revenue, which pays for our public services. To back our businesses is to back our economy and our country’s prospects for the future.”

Therese Coffey (Conservative) called for further adjustment on R&D tax credit rules, adding: “We need to make sure that in R&D we focus not just on research but on development too, because that is where the value will come from.”

Conservatives including Wendy Morton and Sir Robert Syms called for the top rate of corporation tax to be reduced.

Drew Hendry (SNP) questioned why more could not be done to address the cost-of-living crisis, following the lead of countries in Europe. He said: “France got companies to commit to freezing or cutting prices on 5,000 everyday products. In Canada, the five largest grocery chains made an initial commitment to help to stabilise food prices and say that that is just the beginning of their work. For six months, the Greek Government covered 10% of food expenses for households, funded by a windfall tax on two oil refineries.

Helen Morgan (Liberal Democrats) added that fossil fuel extractors have been “let off the hook” from the windfall tax, while Richard Burgon (Labour) said banks should also face a windfall tax on “unexpected and frankly unmerited gains”, mimicking a policy implemented already in Spain.

VAT

Sir Geoffrey Clifton-Brown (Conservative) was among those to bemoan the lack of announcements in the statement on VAT-free shopping for overseas tourists. He said: “By ending tax-free shopping for non-EU visitors, Britain is losing out on a multibillion-pound market where it was by far the leading destination in Europe for tax-free shopping. Let us get on and do something about it, because businesses believe that this new market could be worth an estimated £10 billion in two years.”

Steve Double (Conservative) said VAT cuts during the pandemic demonstrated “how positive it was in boosting that important part of our economy”, while Nickie Aiken (Conservative) added: “We need that scheme back.”

SNP spokesperson Drew Hendry also raised the issue, saying he had wanted to hear the Chancellor announce VAT cuts for tourism and hospitality, but the call had been ignored.

Responding to Clifton-Brown, the Chancellor did not rule out a change of policy. "We want to encourage international visitors. We changed policy on this issue a year ago because it cost around £2.5 billion a year and we did not think we could afford to continue it, but we are looking again at the numbers in the light of the most recent data and we can see what has happened to comparative shops in Paris and Milan. We will review this to see if it is still that expensive, and I hope that it is not.”

More broadly John Redwood said the VAT threshold “acts as a strong disincentive to expand a business when it reaches a certain point”. The Chancellor replied that the UK has the highest threshold in any major European country (and, indeed, in any G7 country), “but there is always this issue of the cliff edge, and my right hon. Friend is right to draw my attention to it”.

Another Conservative MP to raise the threshold was Kevin Foster. “We can see guest houses and small businesses closing literally the day before they would have reached the relevant amount,” said the MP for Torbay. “They are literally stopping doing business because, unless they can jump up significantly in their trade, the cost would not be worthwhile. That is particularly true in the hospitality sector, for example, with businesses not buying large amounts of product on which they could expect to reclaim the tax.” North Wales Conservative Simon Baynes made a similar call.

Maggie Throup (Conservative) meanwhile, took the opportunity to press the Government to remove VAT from high-factor sunscreen, citing both personal (she had a melanoma removed in 2019) and professional (she is a former Public Health Minister) motivations.

Simplification and administration

Priti Patel called for personal taxation to be simplified, saying: “I would go for complete streamlining and simplification of the tax system, even on NI, where I would like to see measures such as the merger of income tax and NI. I would love to see a simple system where we do not have the burdens of bureaucracy.”

Dame Margaret Hodge (Labour) agreed that the UK’s tax system is “ridiculously complex” and allows opportunities for “aggressive tax avoidance”. She said we have “no idea” how much the thousands of tax reliefs cost or whether they are effective.

Kevin Foster (Conservative) also said the personal tax system could be simplified, but warned it should not affect those who do not currently pay national insurance, such as the retired.

Margaret Hodge said the tax gap is continuing to rise, and it is the rich who “benefit most from HMRC’s failure to pursue them”. She added: “Last year, only 11 wealthy individuals were prosecuted for tax cheating and only eight were pursued for evasion over two years. However, 420,000 people on low incomes, many not earning enough to pay a penny in tax, were taken to court for filing their tax returns too late.”

New Financial Secretary Nigel Huddleston responded that the tax gap is on a “long-term downward trend” and is now one of the lowest in the world.

Richard Fuller (Conservative), who was briefly tax minister last year, said he worried that extra resourcing for HMRC would entail a “massive extension” on their roles and responsibilities. He added: “Clearly, that may be a good measure, whereby we can close the tax gap. I worry, however, that HMRC is extending itself a little too far and not focusing on the bread and butter issues, such as picking up the phone and answering the inquiries of taxpayers day to day.”

Personal taxes

James Murray welcomed the decision not to go ahead with a rumoured cut to inheritance tax, which he said would have been “the wrong tax cut at the wrong time”. Rachel Reeves observed: “When the Government realised that they had money to spend, their first instinct was a tax cut for millionaires.”

But Ranil Jayawardena (Conservative) said those who have “done the right thing by saving hard and putting their hard-earned money into their family home” should not be penalised and called for the Government to consider lifting the inheritance tax threshold from £325,000 to around £1 million.

Shadow Economic Secretary Tulip Siddiq said a Labour government would close “unfair” tax loopholes to fund schools and hospitals, including scrapping non-dom tax status, which she said costs the Exchequer £3 billion in revenue.

Rachael Maskell (Labour/Co-op) added that a wealth tax on those with wealth over £3.4 billion would bring in £70 billion which could be used to help struggling people. “We must remember that the 50 richest families in our country own 50% of the wealth,” she added. Beth Winter (Labour), agreed, saying Treasury revenue could be increased through “progressive wealth taxes, including inheritance, land and property taxes”.

Richard Burgon said a tax on wealth above £10 million “is a measure that is backed by three out of four people, including more than two thirds of Tory voters”.

Read the full transcripts from the debates on 22, 23 and 27 November, as well as the CIOT’s blog on the Autumn Statement.