Budget Matters: Appropriate Actions for Reeves in the Upcoming Autumn Fiscal Plan

The upcoming Autumn Budget is shaping up to be a significant event in the UK's financial landscape, with the Chancellor of the Exchequer poised to make some potentially transformative tax decisions.

One of the key considerations will be the impact of changes to the main taxes, such as income tax, national insurance, VAT, corporation tax, and others, on the overall tax take. Adjustments to rates, reliefs, or thresholds could have a meaningful impact, but the approach must be thoughtful, taking into account the objective of growth and avoiding measures that inhibit activity.

However, the process is not without its challenges. The risk of tax nimbys (not in my backyard) influencing budget decisions and hindering necessary tax changes is a real concern. Niche taxes often come with organised and vocal interest groups, as demonstrated by the backlash on agricultural property relief last year.

In some cases, tweaking the rate or reliefs on one of the big taxes might be insufficient for niche measures. Reforming these may require major reform to generate substantial revenue.

Employer's national insurance is likely off the table for this year's budget, and whether the Chancellor can and will hold to the wider manifesto promise is uncertain. The current government has boxed itself into a corner by promising not to touch the big revenue raisers, and employer's national insurance has already been adjusted last year.

Despite potential public backlash, measures for potential tax changes are being discussed, including reconsidering the health and social care levy and adjustments to the more obscure edges of the tax system. The principle that those with the broadest shoulders should bear the largest tax burden is widely accepted, but there are not many broad shoulders to rely on.

The Chancellor should take advantage of the last three years of the parliament to make deep and proper reforms. Tim Sarson, the head of tax policy at KPMG UK, suggests that the Chancellor should consider cutting a few Gordian knots, even if the public backlash is loud.

The best tax changes the Chancellor should focus on include promoting investment through new depreciation rules like a 30% declining balance depreciation and super-depreciation for electric utility vehicles. Additionally, reforming wealth taxes such as inheritance, gift, and wealth taxes to address structural inequality and ensure higher contributions from the richest is also a key consideration.

These changes, if implemented effectively, could strengthen SMEs, enhance liquidity, and improve competitiveness, all while addressing issues of structural inequality. The Autumn Budget promises to be a pivotal moment in the UK's fiscal policy, and the decisions made will shape the country's economic future for years to come.

Budget Matters: Appropriate Actions for Reeves in the Upcoming Autumn Fiscal Plan