Could the Autumn Budget harm businesses, investment, and the economy?

As the government explores ways to increase revenue, Alastair warns that some of these changes could hurt businesses, investment and the broader economy if they are not carefully considered. Alastair believes the focus instead should be on simplifying the tax system and cracking down on tax evasion.

Employers’ National Insurance (NIC) – could an increase reduce the UK’s attractiveness?

Alastair says, “There is a growing debate about increasing Employers’ NIC, with the political focus seeming to centre on whether this would break Labour’s previous promises. Regardless of the vagueness of their commitment, government should remember the volume of employment in owner managed businesses where an increase in the cost of employees is a tax on those, working, owners.”

Alastair emphasises that increasing this tax could discourage hiring and investment. “More importantly, the UK’s relatively low social security contributions has been an advantage in attracting investment. By increasing NICs, we could make the country less attractive to investors, which would have a knock-on effect on jobs and the economy.”

Capital Gains Tax (CGT) – are fears driving early transactions?

“Recent announcements suggest that the significant increase in Capital Gains Tax that was expected next year may not happen, but concerns about an increase have led to many asset sales often much earlier than planned.”

Alastair warns that this spike provides a misleading view of CGT’s potential as a potential source of revenue. “With many transactions being brought forwards, future tax revenues from CGT are likely to decline.”

“CGT is often seen as an ‘optional’ tax – if rates increase too much, investors can simply choose not to sell their assets.”

Alastair says that ongoing uncertainty about the taxation of carried interest, often taxed under CGT rather than income tax, is also an area of concern. “There needs to be a clear, consistent approach to ensure fair taxation, otherwise we run the risk of changing investment behaviour.”

Whether in this Budget or later, Alastair believes that we are likely to see an end to CGT rebasing on death in situations where no inheritance tax is paid, which currently allows people to inherit assets at a higher base value, reducing CGT liabilities. “Removing this rule would prevent estates from escaping tax twice.”

Property Taxes – time for a re-think?

Alastair believes that property taxes, including council tax, business rates, and Stamp Duty Land Tax, are in major need of reform. “The current system often encourages people to stay in homes that are bigger than they need because moving can be too expensive. A smarter, fairer approach to property taxes could help people move more freely without being hit by excessive costs.”

Call for a simpler, fairer tax system

Alastair notes that Labour pledged to tackle tax avoidance and evasion but worries that the focus will be on short-term fixes rather than long-term solutions. “Simplifying the tax system would reduce the amount of revenue lost to misunderstandings and confusion. The days of widespread tax avoidance seem to have passed; simplification and additional resources would help HMRC focus on problems like tax evasion and the underground economy.”

How are people reacting to the uncertainty?

Alastair commented that “uncertainty leads to anxiety and there has been a significant increase in planning activity over recent months. The structure of the tax system is a political choice and what most taxpayers crave is fairness and certainty.”

Alastair believes that if the tax system is stable and seen as broadly ‘fair’ most people won’t engage in significant planning to avoid taxes. “But if the current uncertainty persists, more people will start making big changes which will not be healthy for the economy.”

Get in touch

If you would like to speak to one of our specialists about how the Budget could impact you, fill in the form below and we will be in touch shortly.