Tim Sarson, Head of Tax Policy at KPMG UK, said:
“The Chancellor has moved from telling the nation that no tax cuts were possible, through the possibility of the abolition of inheritance tax, to announcing major tax cuts in the form of a cut to National Insurance and a boost to business in making full expensing permanent.
“These measures were not on the table, even a couple of weeks ago. They are the product of two bits of good news: inflation has dropped and there is more fiscal headroom than expected. But they are a gamble because the outlook for the next 12 months is still very uncertain. And so we have a mix of announcements showing the tension between short term electoral and longer term economic needs.
“A total of 110 measures were announced, but only two tax announcements are likely to dominate the headlines. Ironically, it is the increased tax receipts driven by high inflation and recent fiscal drag from frozen thresholds that has made these measures possible.
“The key announcement for individuals is the cut to National Insurance, while the move to make full expensing permanent will please business: no business makes major capex decisions based on something that is short term and temporary. The challenge now is political uncertainty and whether Labour will keep the measure if they get into power. Business will be anxious to have a commitment soon to prevent investment stalling until the election result is in and post-election tax policies are understood.
“There will be some disappointment over areas that were not covered by the announcements today.
“There are still significant distortions in the tax system that need to be resolved: high marginal tax rates as in-work benefits are withdrawn, the distortion between the taxation of the employed and the self-employed, cliff edges like the VAT registration thresholds, a business rates system that has put down roots in the long grass, to name a few.
“Those benefitting will be pleased with the cuts announced today, but the country is left wondering what the priorities are for the government – investment, inflation management, culture or tax cuts – and which will come out on top.”
