Shoosmiths experts react to Autumn Statement
The new chancellor, Jeremy Hunt, has today unveiled the contents of the Autumn Statement. Our rail, corporate, pensions, employment, technology and tax experts give their views on the measures announced, below.
Michelle Craven-Faulkner, partner and rail lead at Shoosmiths, said:
“A reliable, sustainable and well-connected rail network is pivotal to driving economic growth across the UK. Today’s announcement shows a recommitment to unleashing the full potential of rail travel and infrastructure.
“It is critical, however, that projects like Northern Powerhouse Rail are delivered in full, with questions over what constitutes building the ‘core’ part of the network. These connections matter and cannot be delivered in a piecemeal fashion.
“Electrification, high speed rail and constructing better local rail networks are not only key to levelling up the UK, but also in meeting the aims of boosting energy efficiency and securing energy independence.
“Rail is the most sustainable public transport service in the UK and by continuing to invest in expanding and upgrading the network, the government can help meet its target of cutting emissions by 68 per cent by 2030.”
Sarah Teal, co-head of Shoosmiths Manchester office said:
“Today’s Autumn Statement confirming plans that the Northern Powerhouse Rail are set to continue is a welcome relief for Northern Towns and cities. A commitment to large projects, included the much-needed improvements to the Pennine route from Manchester to Leeds, will bring private investment and job opportunities that are vital to create growth in such difficult times. Manchester is a brilliant, diverse and thriving city and this is a positive step forward as the Government looks to progress its levelling up agenda.”
Paul Carney, pensions partner said:
“We note that the state pension will increase by 10.1% - roughly in line with inflation – from April 2023. The Prime Minister has also indicated (albeit not as part of the budget) that the (so-called) triple lock which relates to increases in state pension benefits will remain in place.
“Given that the consumer price index (CPI) showed an increase of 11.1% for October 2022, a 10.1% increase in benefits would (still) represent a reduction in real terms although this could be offset (for the least well off) by the proposed increase in other means-tested benefits and an increase (from April next year) in the national living wage.
“The government has also indicated that the lifetime allowance (LTA) will be frozen until 2027. The LTA is currently £1,073,100 and represents the maximum value of pension benefits one is permitted to hold (under tax legislation). Where the value of an individual’s pension benefits exceeds the LTA, a punitive tax charge is applied. Freezing the LTA has been referred to as a “stealth tax” by other commentators on the basis that it will capture more individuals as they continue to accrue rights to benefits and/ or as their benefits are revalued to take inflation into account.
“We also note that the chair of the BMA Pensions Committee has written to the Government claiming that freezing the LTA would cause “irreparable” damage to the NHS. The Chair stated that the freeze on the LTA already causes doctors and senior NHS staff to reduce their hours/ retire early and indicated that a further freeze on the LTA would worsen the situation.”
Charlie Rae, employment partner said:
“I can’t see employers taking many, if any, positives from the Chancellor’s Autumn Statement. Many businesses are already feeling the pinch of the costs of employing staff alongside the increasing costs of almost everything else, so the Chancellor’s announcement that the minimum hourly wage (the National Living Wage) is going up by almost 10 per cent, from £9.50 to £10.42 an hour from April 2023, represents a significant increase to the costs of employing staff. Naturally, it’s not just the impact of the hourly pay itself, although that is a large part of it, but there’s also the knock-on increase to employment costs that go alongside it, such as employer national insurance costs or employer pension contributions.
“A number of employers are currently in the midst of pay negotiations with trade unions, so an announcement by the Government that hourly minimum rates are being increased by almost 10% will no doubt embolden trade unions who are seeking pay rises at least at that sort of level for employees who earn more than the National Living Wage.
“A less apparent workforce implication might arise from the lowering or freezing of tax allowances and thresholds. Whilst many of these changes will affect higher paid employees, in a market where there is still lots of competition for the best talent, higher paid employees who are hit in the pocket may be more attracted by higher salaries on offer elsewhere in the employment market, to make up for the fact that they will end up paying more tax under the measures announced.
“That said, these changes sit alongside the Bank of England’s recently released sobering forecast that unemployment will rise to 4.9% by end of 2024 from the current rate of 3.6%. If that forecast plays out in practice, the current employment market, which is still seeing plenty of vacancies, with employer demand generally outstripping supply, will probably move in the opposite direction and jobs may soon become harder to find. If employers are going to be cutting down on staff headcounts, and if the recession gathers pace, I’ve seen commentators predict that the effect on the employment market would result in a downward pressure on wages.”
Meanwhile, James Klein, head of technology sector at Shoosmiths commented on the chancellor’s announcement on turning Britain into the “next Silicon Valley”
“It marks an exciting new chapter for the UK technology sector with the Chancellor outlining a vision to turn Britain into ‘the next Silicon Valley’, in today’s Autumn statement. From fintech and health tech to artificial intelligence and smart mobility - the UK boasts companies which are developing cutting edge technologies that are positively changing the world. The proposed introduction of regulation changes to better support the safe and fast introduction of new emerging technologies is a positive step in ensuring our leading innovators and entrepreneurs are best supported to scale up their offering - both within UK and across the globe.”
Dan Sharman, tax partner and head of employee incentives practices said:
“Today’s proposed income tax rate increases, which will lead to an increase in payments for millions of people, are a stark contrast to the previously proposed growth plan - where additional rates were abolished altogether.
“Perhaps most notably, £125,140 is the amount where UK taxpayers will lose their income tax personal allowance in full (£1 of the £12,570 personal allowance is lost for every £2 of adjusted net income above £100,000, being an effective tax rate of 60%). This means that individuals no longer have the comfort of going back to a 40% rate after the dreaded 60% rate, instead going straight onto the 45% rate.
“The capital gains tax (CGT) annual exemption allowance being cut is also of note, given the size of the cut (down from £12,300 to £6,000 in April 2023 and £3,000 in April 2024) - also interesting this route was chosen rather than increasing the CGT rates. It potentially brings a lot of people into the CGT net that otherwise wouldn’t have been, whilst also reducing the scope to structure disposals so they happen over a number of years - in order to make use of multiple annual exempt amounts. Keeping CGT rates at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers means there’s still a lot of value in structuring arrangements, particularly on the incentives side, so they fall into the CGT net rather than income tax.
“From an incentives perspective, it is heartening to note plans to keep the proposed changes to Company Share Option Plan (CSOP) options, to make this type of tax-advantaged incentive arrangement more widely available for companies and their employees.”
Stephen Dawson, partner and head of financial services, said: “The chancellor has now revealed that we are already in recession, and that tax measures and policy changes announced in the statement are an effort to shorten the time it will take to get the economy back on track.
“Most taxpayers remember our last recession, and I believe this isn’t the last we’ll see in terms of tough decisions being made by the government. With the largest tax rises made in a generation, against a backdrop of inflation and interest rate rises, businesses will need to be prepared, not only to deal with these said rises, but also the knock on effect they will have on their customers.
“The cost of living crisis is not only affecting the spending power of consumers, but exposing their vulnerabilities. The FCA’s recent push for firms to increase the support they provide to vulnerable customers has already placed an increased financial burden on firms, and as the number of vulnerable customers increases, so do the associated costs. It is hoped that today’s measures will lead to a decrease in inflation, but while we wait, will the cost burden of supporting vulnerable customers be too much for businesses already dealing with supply issues and tax rises?”