Tax changes possible, but fiscal fireworks most likely to come in Spring 2024

With a UK general election likely to happen at some stage in 2024, a key question for many is whether the government will use this Autumn Statement to unveil some potentially vote-winning tax cuts.

To announce anything now just weeks before Christmas, is going to have less impact than if the government waits for a few months before the voters go to the polls.

Additionally, the short-term priority for the Chancellor has to be about bringing down inflation, so any major tax changes will probably be saved for the Spring Budget in March 2024.

Creating a point of difference

Currently, there is not a great deal separating the UK’s two largest political parties, the Conservatives and Labour, in terms of their tax policies. If the government does decide to use the Autumn Statement to engage in some early election positioning, any proposed changes will need to be big and bold to create that point of differentiation.

For example, would cutting 1p off the rate of income tax, a policy mooted previously by the Conservative Party, be enough to make an impact on the electorate?

Will the Chancellor be keen on tweaking other major taxes that have already seen recent change, such as corporation tax which was only raised in April 2023?

The one area where change may be feasible is Inheritance Tax (IHT). It is one of the few areas where the Conservatives would be able to create an ideological difference between themselves and the other parties on tax policy.

Would any changes to IHT need to be more drastic than just raising thresholds? Could the government abolish inheritance tax altogether? It would be radical, but not entirely surprising, even if IHT does raise around £7bn per year for the public finances.

At this stage, however, the abolition of inheritance tax will probably be seen as a step too far – although definitely one to watch out for in the future!

Controlling inflation is still the priority

Cabinet member Robert Jenrick said recently that tax cuts will only be considered if the government meets its target of halving inflation by the end of the year. The mantra from Downing Street continues to be that ‘cutting inflation is the best tax cut’.

Essentially, the government needs people to start feeling like they are better off and, while there are signs that may be starting to happen with the recent figures on wage growth outstripping inflation for the first time in two years, we’re still some way off this. The Chancellor will not want to risk spooking the markets with any major policy shifts when inflation is just starting to come back down. The Autumn Statement will be more about the macro-economic (an update on how income and expenditure is doing against forecasts) rather than unveiling tax cuts.

The Office for Budget Responsibility (OBR) figures are expected to show that state borrowing is some £20bn less than what the OBR forecasted back in March. While there is a school of thought that this gives the government leeway to increase spending, it seems likely they will resist that temptation, at least for now.

In summary

Don’t rule anything out but do expect fiscal fireworks in the Spring 2024 Budget, when an election will be looming large on the horizon!