THIS HAD TO BE one of the most leaked Autumn Statements ever.
We knew well ahead of the event today what the big infrastructure plans were going to be – Stonehenge Tunnel, more trains, more cash for the NHS and even in the morning ahead of the Statement, the Treasury and the Bank of England officially announced the revisions to the Funding to Lending (FLS) scheme.
However, the chancellor’s spending plans give the false impression that the coffers are full ahead of the general election, but we are concerned about how sustainable this spend actually is during what are still economically turbulent times globally.
A major concern for ACCA is the economic landscape and the public finances. The public sector balance sheet for 2013 shows net liabilities of £1.6tn. While the chancellor spoke about growth – at 3% for the coming year – the challenge for political parties is to show how they can sustain this. Even the slightly lower rates forecast for the next five years.
The chancellor certainly delivered some early Christmas presents for UK plc – especially for small businesses and home owners. The review of business rates has been long called for, and saving the best present to last, the chancellor announced big reforms to stamp duty.
We have long asked for the 300-year-old slab system to be reformed, and it’s finally been done. Abolishing the single slab rate is a welcome move, and we think this will end the significant distortions of this burdensome tax. It will hopefully help more people onto the housing ladder. As the chancellor said, if you buy an averagely-priced home of £275,000, you will pay £4,500 less in tax as well as the same for London buyers.
We were also pleased to see the announcement about corporation tax in Northern Ireland. For ACCA, there are clear and fundamental economic reasons behind the proposals rather than a politically driven reason as would be the case if the same tax were devolved to Scotland. The Irish rate of corporation tax is 12.5%. Northern Ireland needs to consider matching that. Northern Ireland has suffered negative earnings growth in the year to April 2014 and employment increase has been one of the lowest in the UK in that same period – so there is clearly a need to readjust and rethink.
The new rules to stop big companies shifting profits offshore – the new Diverted Profits Tax – will raise over £1bn over the next five years – apparently. But how this will happen we do not yet know. The OECD rules around permanent establishment are quite clear. So is the UK as a pillar of the OECD going to breach those rules? Unlikely. I’ll be watching for the details to be published.
What concerns us is the fact that this move could have unintended consequences, with multi-nationals leaving the UK for countries with a lower tax base. We also need to be realistic and cautious about the yield from these measures. There are potentially some significant hurdles to overcome with the EU Freedoms, not to mention the scope for double taxation if the interaction with treaty obligations is not addressed in specific detail. Could this be a first step towards unitary taxation, along the lines of the CCCTB proposals?
The UK’s tax take is clearly a concern for the chancellor and the government, especially when borrowing is high. Aggressive avoidance measures to prevent ‘disguising’ tactics were also aimed at ensuring business and individuals pay their ‘fair share’ – a phrase the chancellor said three times throughout his speech that I counted, if not more. More detail on the proposals here were hidden away, as ever, in the press releases. PLCs for example face a clampdown on returns of capital, a technical measure not mentioned in the speech but which will directly affect many small shareholders.
While many ordinary people have little good to say about banks the restricting of loss carry forward for banks is a concern. For two reasons. Firstly if these are genuine losses why should they be restricted. But the concern is that similar restrictions could then be imposed across all companies. Loss relief restrictions occur in other EU countries and it makes those locations not especially a location of choice for business. The second point is, regardless of all the government’s talk of rebalancing the economy, the real globally premier league sector that the UK has is the finance sector. We need to recognise that and not keep putting in place measures which might cause that sector to bypass the UK of relocate elsewhere.
Simplicity, certainty and stability
We all know the UK has a complex tax system – we issued a paper a few days ahead of the Autumn Statement called Certainty in tax – for ACCA the three pillars of a good tax system are simplicity, certainty and stability.
Without these, the system collapses, runs the risk of being more burden than benefit. While we can welcome many of the measures, the theme is still broadly of more, not less, legislation. Against the backdrop of devolutionary complexity that needs to be managed very carefully.
And lastly, given we are a nation seemingly obsessed with tax and the weather – it was interesting to see how the weather changed once the statement was done and dusted. At 11.30am the chancellor set off in bright clear sunshine; by the time I started to write this the clouds had gathered and it looked distinctly wintery. This ties in nicely with my colleague Gillian Fawcett’s comment that this statement “breeds ‘winters of discontent’ for most public services.” There is a distinct chill in the air as far as we are concerned. Let’s see what May – Spring – 2015 brings.
Chas Roy-Chowdhury is head of taxation at ACCA
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