UK’s Autumn Statement

The UK Autumn Statement on 17 November was like a tin of Ronseal — it did exactly what it said on the tin. This was never going to be a time of surprises — the last UK chancellor produced enough of those. It was pre-leaked, and it delivered to those leaks. We were told the economy was bad, but not as bad as many others, though the list of statistics did have a feel of having been cherry-picked.

The UK needs a stable, long-term tax system if it is to encourage growth and investment in the country. The statement was long on tax rises and short on specifics about growth. Much was made of how tax rates for individuals were not being increased, but at any pretense at stealth has gone. Allowances are being frozen, thresholds lowered, and inflation will do the heavy lifting to raise revenue in the future.

For companies, it was different—2022 has seen the expected tax rate from 2023 be 19%, then 25%, then 19%, and now 25% for large companies. The definition of a “large company” is also smaller than it was at the start of the year. Businesses looking at their post-tax rate of return on projected investments will have been rerunning their spreadsheets many times over.

There was no mention of any plan to replace the super deduction for investment. It is possible this is being saved up for a Spring Budget, but at a time where the economy is probably in recession, a failure to provide a clear fiscal signal to the private sector to encourage investment feels like a wasted opportunity.

Most fiscal events have the chancellor outlining plans to grow the economy and encourage private enterprise. Chancellor Jeremy Hunt made the right noises, but focused on government spending on infrastructure renewal and green energy projects. Previous Chancellor Kwasi Kwarteng believed the private sector would use tax savings to turbo-charge the economy. Hunt believes government should be trusted to do this by raising taxes and then directing the money to favored projects.

Tax Raids

To help fund this, tax raids on super-profitable businesses remain the flavor of the month. Housebuilders have been lined up in the past, energy companies are in the firing line now. Prime Minister Rishi Sunak and Hunt used the Autumn Statement to target tax rises on energy companies, which are going through a successful period, after losing billions in the pandemic. Neither the current successes, nor the previous difficulties, were necessarily things corporate management had any control over.

However, the target of politicians’ ire tends to change with the seasons. The chancellor specifically highlighted that he was going to introduce a measure that the UK signed up to some time ago, which is aimed at taxing the big tech companies. This is in line with the policy of his predecessor (a few chancellors ago) and now boss.

In 2020, Sunak said,

“There needs to be a way of ensuring big tech corporates pay fair taxes rather than pass them on. As with all policy changes, both the digital services tax and a tax that targets excessive profits must be considered holistically to mitigate adverse impacts on scaling businesses.

An admirable sentiment with which few would disagree.

Amazon.com Inc. had sales of £19 billion ($22.6 billion) in the UK in 2020 and was perceived as not paying its fair share of tax in the UK. Against this background, the UK introduced a digital services tax and then signed up to elements of global tax reform that would target the profits of the tech giants.

These OECD reforms were designed to target the profits of digital companies and spread the tax receipts more evenly around world. At the same time, banks and extractive industries such as oil and gas were specifically excluded from the very same global tax reforms.

Last week, Amazon reported a $3 billion loss for the first nine months of the year. Meta Platforms Inc. has reported a decline in net income of around 50% and laid off 11,000 staff, and Twitter Inc. got rid of half its employees.

So, it turns out that in a post-pandemic world, in an era of higher interest rates the digital giants may not be the cash cow many governments hoped they would be. Timing is everything, and with the profits of big tech in decline (though maybe only temporarily), stable doors and horses spring to mind by introducing the measures now.<

Attention therefore has turned to the old economy, and energy businesses. For example, BP PLC made losses of $20.3 billion in 2020. It made profits of $8.2 billion between July and September 2022. Quite a turnaround of fortune, though both results were probably due to events outside of management control. The Autumn Statement proposed an energy profits levy and a generator profits levy—covering the profits of some of the same companies that were excluded from the global tax reforms last year. A lack of foresight? Surely not.

While they might be pragmatic, all of the above measures hardly create the conditions for large or small companies to make long-term investment. Perhaps the government recognises that any fiscal measures to encourage growth are unlikely to have any impact before the next election, after which delivering private sector growth will probably be someone else’s problem.

This article first appeared in Bloomberg Tax on 22 November 2022.