There has been a mixed response to today’s Autumn Statement from the business and accountancy sector
The chancellor George Osborne admited today that he had been forced to extend austerity measures until 2018, and had missed his own target for reducing the national debt. He also announced a cut in corporation tax and a continued crackdown on those who did not pay the right amount of tax.
Experts were divided over how much the measures announced today would benefit the business community.
Scott Corfe, senior economist at the Centre for Economics and Business Research, said that reducing the rate of corporation tax to just 21% from 2014, the lowest rate of any major Western economy, “should encourage business investment in the UK."
But he added that “reform of taxation should be considered to attract top talent into the UK - a 45% top rate of income tax is still internationally uncompetitive and at best raises no more tax revenue than a 40% top rate.”
Michael Izza, chief executive of ICAEW, agreed that the reduction in corporation tax will be welcome news for large companies and inward investment. “The increase in the Annual Investment Allowance, which ICAEW called for, will be good news for smaller businesses," he said.
"The chancellor will hope that the new measures will impress the 67% of ICAEW business members who are not confident that the government’s Plan A for the economy will deliver growth this Parliament."
However, others warned that the new PAYE system will create additional burdens for businesses when they should be focusing on growth, slowing deficit reduction.
Commenting on the tax measures, Chris Morgan, head of tax policy, at KPMG said the “big tax carrots” essentially meant the government were saying, “we are committed to delivering a competitive and business-friendly tax system but you must play by the rules.”
The chancellor set out restrictions on pension relief to £40,000 per annum and a reduction in the life time limit from £1.5m to £1.25m.
Patrick Stevens, tax partner at Ernst & Young commented that this will add “one more deterrent to pension saving.”
“The diversion of funds elsewhere can be expected to increase the costs of those that continue to save, particularly in employer pensions." Stevens said. "Whilst the reduction in the annual limit was less than was speculated before the statement, many will be hoping that this is now the last change in this complex area."
Mike Smedley, pensions partner at KPMG UK, agreed it is “disappointing that government is tinkering with tax and pensions again, less than two years after the current regime was introduced.”
He added that it “can only serve to work against government’s stated aims of encouraging and reinvigorating workplace pensions.”
Mark Groom, partner at Deloitte partner, warned that the pension relief reduction would impact on employees for years to come. "This will penalise employees in defined benefit schemes and those who have not yet built up substantial pensions, who will now be prevented from catching up in the later years of their careers." he said.
Plans to tackle tax avoidance were announced, with £5bn over six years expected from a treaty with Switzerland to deal with undisclosed bank accounts and importantly, HMRC’s budget will not be cut to deal with this crackdown.
Frank Haskew, head of ICAEW Tax Faculty, welcomed this move. He said, “It is good to hear that HMRC will be protected from the extra cuts. However it should be remembered that HMRC still faces a 15% cut in its budget by 2015. HMRC is the credit control department of a business and is having to deal with unreasonable demands like the child benefit changes and Real Time Information (RTI).
"Policies are forced on HMRC without consideration of the strain it is already under. A properly resourced HMRC will also be able to tackle tax avoidance.”
Andy White, a tax partner with accountancy firm, Carter Backer Winter, argues that “law abiding companies have been getting the flak for not paying an “acceptable” amount of tax when the blame should be laid at the door of UK’s incompetent tax legislation and HMRC.”
“The chancellor’s announcement today of an additional two and half thousand tax inspectors and £77m investment to counter tax avoidance and evasion is perhaps an admission that not enough has been done in the past” he added.
The government’s new “employee-owner” contract proposal was announced in October and confirmed today with final legislation set down in next year’s Finance Bill.
Ross Welland, a tax partner with accountancy firm Littlejohn, warns that employees that opt for it face an immediate and sizeable income tax bill and their employers may also be liable for an NIC charge.
“‘Good’ employers will take on the burden of dealing with HMRC to safeguard their employees’ PAYE and NIC positions, perhaps applying for agreement on the value of the shares with HMRC before issuing the shares. But less caring, or less knowledgeable employers could leave employees with the responsibility of dealing with the Revenue alone,” he added.
The chancellor also announced that Whitehall department resource budgets are to be cut by 1% next year and 2% in 2014, with the NHS and schools exempt.
Alan Downey, UK and Europe head of public sector at KPMG, said that “the hope must be that this turns to advantage by using it as an opportunity to drive fundamental reform of our public services, and invest the money that is saved in capital programmes.”
Yet he warned it is “far from clear” that other parts of Whitehall will follow suit.
“There are certainly risks as well as potential benefits. But if ever there was a time to think and act bold, this is it,” said Downey.
Overall, official growth forecasts have been downgraded and the austerity programme extended to 2018.
David Bywater, tax partner at KPMG, praised Osborne for “keeping it simple”, especially the £1bn of extra capital for the Business Bank that will consolidate “numerous existing schemes that provide capital to small and medium sized firms.”
Andrew Smith, KPMG chief economist, praised Osborne for doing his best to avoid “piling Ossa on Pelion.”
“Deferring new austerity measures until well into the next Parliament and re-allocating limited resources, for example from current to capital spending, to get the biggest growth bang for his buck. But there is no getting away from the fact that the fiscal squeeze is set to progressively tighten and the cupboard is pretty much bare,” commented Smith.
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