The chancellor launched a multibillion pound raid on companies to help fill the hole in Britain’s finances but sweetened the package of wide-ranging tax increases with a five-year, £13.6bn relief on business rates.
Bosses warned that Jeremy Hunt’s raid across national insurance, value added tax, dividend tax, capital gains, corporation tax and R&D risked freezing investment as companies were forced to absorb extra costs in a recession.
Martin McTague, national chair of the Federation of Small Businesses (FSB), said the Autumn Statement was “high on stealth creation and low on wealth creation, piling more pressure on the UK’s 5.5mn small businesses, their employees and customers”. He described it as “a missed opportunity to avoid further economic slowdown”.
Other business groups expressed dismay that the government had not done more to try to stimulate the economy out of recession. The Institute of Directors said it was disappointed that there was no commitment to extend the super-deduction allowance, which offers 130 per cent relief on purchases of equipment, beyond next April. It also pointed to the lack of any new initiatives to address skills shortages or improving energy efficiency.
But there was a warmer reception from the FSB and others for the decision to provide relief on business rates, which Hunt said would mean no increase for two-thirds of commercial properties next year. The government has also dropped plans for an online sales tax.
The Treasury had been in line to land a £3bn windfall from the annual rise on business rates based on September’s CPI inflation number of 10.1 per cent. This multiplier will instead be frozen next year with companies immediately benefiting from any downward revaluation along with extra help available for some small businesses as well as retail, hospitality and leisure firms.
Kate Nicholls, UKHospitality chief executive, welcomed the shift on business rates but added that the chancellor failed to deliver “any plan for economic growth, despite him recognising its importance . . . there is nothing to give firms confidence, let alone invest, and we need to see an urgent plan for economic growth and how business will be at the centre of that”.
The government extended the freeze on national insurance threshold at £9,100 per year until 2028, which will mean employers paying more for every member of staff. It said it was “fair that businesses play their part in reducing the UK’s debt”.
The chancellor will extend the freeze on the £85,000 turnover threshold above which VAT becomes payable for another two years. The move will drag thousands more small companies into paying the tax for the first time, raising £1.5bn over the next five years.
The tax-free threshold for capital gains tax, charged on the sale of most assets, will be cut from £12,300 to £6,000 and then £3,000 from April 2024.
Small business owners who pay themselves in dividends will also be hit by a cut in the tax-free allowance from £2,000 to £1,000, and then £500 from April 2024.
Susannah Streeter, analyst at Hargreaves Lansdown, said that entrepreneurs were “being penalised” by the dividend and CGT measures, which will raise nearly £5bn in the next five years.
The chancellor had already said he would increase corporation tax to 25 per cent from 19 per cent. The government also said it would implement an OECD agreed global minimum corporate tax on some overseas profits at an effective rate of 15 per cent, which would raise almost £2bn a year.
The government also made R&D tax credits for small companies less generous, which has caused alarm among many research-intensive businesses and tech start-ups.
“R&D tax credits are critical to tech start-ups at the earliest stage in their journey. The cut to the headline rate of relief today will hurt the UK’s most innovative businesses,” said Dom Hallas, head of Coadec, a lobby group.
The FSB said cut to R&D tax credits, which the government billed as a way to tackle fraud without materially changing the levels of expenditure, would “crush innovation and growth”, creating a “doom loop [that] makes a mockery of plans for growth”.
The government will review legislation inherited from the EU to identify possible changes that could unlock growth in key industries, including life sciences, financial services and advanced manufacturing. Sir Patrick Vallance will also lead work to consider how the UK can better regulate emerging technologies.