The Chancellor, Jeremy Hunt, will deliver the Autumn Statement on Thursday, 17 November. It is anticipated that there will be a raft of measures to plug a £50bn black hole in the country’s finances. The government needs to raise taxes and/or cut spending. What could be on the table? With inflation in the background and the potential of further interest rate rises on the horizon, Chris Groves and Charlie Tee, partners in our Private Client and Tax practice, explore the options open to the treasury.
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So following the recent fiscal event or not a budget that was actually a budget which had such a turmoil in the country and the departure of both Kwasi Kwarteng and Liz Truss from Office. The new chancellor Jeremy Hunt has announced the event on 17th of November will be a full Autumn statement and this time will be supported by full forecasts from the office of budget responsibility something that was conspicuously lacking last month. Earlier this year, Rishi Sunak when he was actually still Chancellor of the exchequer rather than Prime Minister had said that look I want to go back to having one fiscal event a year. It's gonna be a budget and it's going to be in the Autumn and so it's possible that despite having got here by a roundabout route, this is what we're getting back to.
As is traditional on the run-up to any kind of budget or Autumn statement is a mixture of announcements and leaks that tried to set the scene beforehand to test the public mood. We know the chance is placing facing a £50 billion hole in his finances and he's got to fill that. Some of that will come from spending cuts, some of them will come from tax increases. What we're hearing is about half of it will be spending cuts and half of it tax increases. That compares with the period of austerity under George Osborne where 80% was spending cuts and 20% tax increases.
What I think the first thing is likely to happen is, and it seems to be again widely drail, is there's going to be an increased windfall tax on the big energy companies. So BP and shell in particular are going to be spending some money and it looks like this could raise about £5 billion. The energy companies are expecting to pay this tax, and it's likely that although it's already a winful tax the rate will increase and the period in which it's going to be paid will be extended. I think the other area where they're going to get tax rises and actually one that people don't often appreciate quite as much is what we call fiscal drag or stealth tax. And here you have instead of rates between the bands of income tax rising with inflation as would normally be the case, they're pegged at a certain level and do not increase and what this means is millions more people are dragged into a higher tax bracket and end up paying more tax. People don't tend to notice this as much because the headline rates of income tax aren't increasing. But again, this could raise a further £5 billion or so and I very much expect to see this on the cards.
Chancellors are always very fond of saying they like to benefit hard-working families, but in reality no one gets taxed more than the hard-working family and income is taxed at a much higher rate than investment income. That may come under pressure now. The chancellor may look to raise rates of tax on unearned income investment returns, either by increasing the rate of capital gains tax or increasing the tax payed on dividend income. Both these look right for a rise.
There's been a lot of talk in recent weeks about the non-dom regime. I can't see him actually introducing anything to change the non-dom regime immediately, but I wouldn't be at all surprised if he announced that there's going to be a review into the non-dom regime and actually what might happen there, possibly with the views legislating towards the end of 2024 just as we're going into the election.
Over the next few weeks we'll no doubt see an increasing series of leaks from the treasury as they look to test the public mood on their proposals. Those will be refined. We won't really know what's going to happen until the 17th of November when Jeremy Hunt stands up at the dispatch box.