Changing times

This article is taken from the autumn 2024 edition of Equinox. You can view the full version here.

This has been one of the hardest articles we’ve had to write. Much has changed during the last 6 months, but potentially bigger changes are afoot, and at the time of writing, we don’t know what those will lead to – some of which will no doubt have been decided by the time this edition of Equinox is issued!

I am, of course, referring to the outcome of the forthcoming Autumn Statement as one of the unknowns. The government has been silent on what we can expect, leading to unprecedented speculation, particularly from the press, as to what the infamous red box contains. That being said, Chancellor of the Exchequer, Rachel Reeves, has made it very clear that she has a £22bn (allegedly) black hole in the nation’s finances to fill, and Keir Starmer’s election promise of not changing income tax, national insurance or VAT gives us some idea of the possible direction they may look to take.

How bad will it be?

The summer announcement about the immediate removal of the winter fuel allowance for all but the most disadvantaged appeared to indicate a tough line. However, was this merely a tactic to scare everyone and, actually, we’re all now breathing a sigh of relief that the anticipated ‘doom and gloom’ wasn’t quite as severe as expected?

We have used Benjamin Franklin’s famous quote many times over the years as it rings so true: “In this world, nothing can be said to be certain, except death and taxes”.

Hopefully any changes to the latter will not take effect until at least the start of the new tax year, which allows time to plan ahead and minimise the impact.

Muddying the waters

Unfortunately, by tweaking around the edges and avoiding radical reform, successive governments have made matters increasingly complex. For instance, pension simplification was introduced in 2006, known as A-Day, in a bid to simplify (surprise!) the current regime by allowing individuals to save into both a company scheme and a private pension at the same time, whilst also introducing a maximum contribution level and a maximum retirement pot (referred to as the lifetime allowance or LTA). Since then, the LTA has not increased with inflation as it was intended and, as a result, several different forms of protection were introduced over the years – seemingly for nothing, as the LTA was abolished by the last government, much to Labour’s chagrin who threatened to  reinstate it. Instead, we now have new allowances which restrict the amount of tax-free benefits that can be paid (as a lump sum to the individual and on their death). Transitional tax-free amount certificate (TTFAC) anyone…

Whatever happens (or has happened by the time this article is published) in the Budget, we don’t expect matters to become less complex. Indeed, the Office of Tax Simplification (OTS), which was created to advise the government on how to simplify the UK tax system, was closed down last year. Perhaps the task was too complicated after all, and we remain stuck with multiple regimes that don’t always work together, creating unintended consequences. In fact, the UK’s tax code is widely cited as the longest in the world, with the Tolley’s Tax Handbook surpassing 11,000 pages when reviewed by the OTS! Let’s hope we don’t have to go back to the extremes of the 17th century, when many families bricked up their windows to avoid paying the much-despised window tax, introduced by William III who was running short of money! Daylight robbery really was the robbery of daylight!

Where do we go from here?

Despite not knowing how the government will go about reducing the national debt at the time of writing, the uncertainty surrounding their approach has brought with it an element of fear amongst the population. During the summer and beyond, a number of our clients stated in their review meetings that they would seriously consider moving abroad if taxes increased further.

Whilst income tax and national insurance have actually been falling over the last few decades for the average worker, the freezing of tax thresholds and money raised from indirect sources (such as VAT) means that the overall amount of tax raised has gone up.

High earners have seen big increases, and the top 1% of earners pay 29% of the total income tax raised, compared to 25% in 2010 and 21% back in 2000.(1) Despite funding almost a third of the income tax bill, these high earners receive only 12.5% of the income. Will we see a mass exodus if the wealthy are targeted? It is certainly a more attractive and easier proposition these days than it was 30 years ago, for example. Remote working is becoming more widespread as the ability to work flexibly becomes almost the norm; maintaining communication with family in far flung places is no longer confined to expensive international phone calls as we now have Whatsapp or other social media platforms to stay in touch; and corresponding has been transformed from snail mail to email.

And it’s not just individuals who may be looking to restructure their arrangements. Ireland’s favourable corporation tax rates have resulted in bumper surpluses, largely from US technology and pharmaceutical companies, which the country is planning to use to establish a sovereign wealth fund. In the event that this tax take diminishes, Ireland is hoping to future-proof its finances by creating a fund that would essentially serve as a rainy-day savings account for future expenditure. Notably, half of the total corporate tax receipts come from just 10 US companies, including Google and Meta, which could be at risk going forwards as other countries aim to compete.

Popularity contest

One of those countries could be the US, depending on the outcome of the election in November. For instance, Donald Trump would be aiming to cut US corporation tax rates, close tax loopholes and look to force (or ‘encourage’?) multinationals back to the States as part of his economic policy.

Again, the results of this election will be known by the time you are reading this magazine. However, Mr Trump and Ms Harris are currently neck and neck in the polls, with Kamala Harris perhaps slightly ahead. Incidentally, 64 countries will be holding (or have already held) elections this year, representing over 4 billion votes – nearly half of the world’s population.(2) I’m sure that the winners of those elections will be hoping to remain popular for longer than our own Keir Starmer has. According to an Opinium poll for the Observer(3), Starmer’s approval rating in September plummeted by 45 points since July, with 50% of those polled disapproving of the job that he’s doing. Maybe he’s reminding himself that this Prime Minister business is more of a marathon than a sprint, and we will no doubt see how he fares over the coming months and years.

Meanwhile, despite the apprehension that elections and budgets may bring, our business remains focused on making people’s lives better by giving them the confidence to live the life they want, look after those they love and to leave a powerful legacy.

This article is intended as an information piece and should not be construed as advice.

Sources

(1) www.bbc.co.uk – Are taxes going up or down?

(2) www.statista.com

(3) www.theguardian.com – Keir Stamer now less popular that Rishi Sunak, poll suggests