Scottish business leaders have given an icy response to Chancellor Jeremy Hunt's maiden Autumn Statement.
Nicola Sturgeon accused the UK Government of “repeating the mistakes of the past”, as she warned there could be “significant consequences” as a result of the autumn statement.
Hunt told MPs he was having to make tough choices to ensure a “shallower downturn”, but the UK economy is still expected to shrink 1.4% in 2022.
The Office for Budget Responsibility (OBR) has now concluded that the UK “like other countries” is in recession and is facing an increase in unemployment.
Hunt said he was taking “difficult decisions” to curb inflation, as he set out a package of around £30bn of spending cuts and £24bn in tax rises over the next five years.
The autumn statement will see around 55% of households worse off, according to a Treasury analysis, which also revealed that an extra 92,000 people will be paying tax above the personal allowance and 130,000 will be paying the higher rate of income tax in 2027/28.
The OBR’s assessment said explained that rising prices will erode real wages and reduce living standards by 7% in total over the two financial years to 2023-24 - wiping out the previous eight years’ growth - despite more than £100bn of additional government support.
“The squeeze on real incomes, rise in interest rates, and fall in house prices all weigh on consumption and investment, tipping the economy into a recession lasting just over a year from the third quarter of 2022, with a peak-to-trough fall in GDP of 2%.
“Unemployment rises by 505,000 from 3.5% to peak at 4.9% in the third quarter of 2024,” its report added.
Andrew McRae, Scotland policy chair at the Federation of Small Businesses, commented that small businesses have spent months watching their margins vanish due to rampant inflation.
“It’s alarming, therefore, that the VAT threshold will be held at £85,000 - a real terms cut - which will see more small traders dragged into the system against their will.
“Businesses, like households, are extremely anxious about sharp, unaffordable rises in their energy bills – the government must publish details about what support firms can expect when the initial term of the Energy Bills Relief Scheme comes to an end in April.“
He added: “We need to see what impact the £1.5bn in Barnett consequentials will have on the Scottish Government’s plans - especially around December’s Budget - at the very least, they should now be able to reverse some of the cuts to employability schemes and economic development.”
Douglas Sinclair, a partner in Shepherd and Wedderburn's private wealth and tax team, responded: “Jeremy Hunt’s Autumn Statement is a clear example of the power of so called ‘stealth taxes’.
“Given previous manifesto commitments to not increase rates of tax, the freezing and reducing of tax thresholds in a time of inflation will serve to increase the total tax receipts of the government without changing headline rates.
“In recent years, we have become used to people being taken out of the tax net, but there will now be many more people exposed to income tax at the higher and additional rates - likewise the freezing of the inheritance tax nil-rate band, coupled with major cuts to the capital gains tax annual allowance, will bring greater exposure to capital taxes for many.“
Tom O’Brien, financial planner at RBC Brewin Dolphin, said: “The changes to income tax may affect taxpayers in the rest of the UK, but it is only a matter of time before they come to Scotland – the reduction of the 45% additional rate to £125,140 in particular is highly likely to be at least matched by the Scottish Government during its next budget.
“With many employers giving cost-of-living pay increases, a lot more people are likely to find themselves in a higher tax band – especially in Scotland, where we have six.
“Similarly, the reduction in the tax-free allowance for capital gains from April - and then again in a year from then - may see people decide to take any gains in investment portfolios now, particularly with rumours of an increase to the rate further down the line.
“The cutting of the tax-free allowance for dividend income may contribute to this as well, but will also affect business owners who take income from their companies as a dividend instead of a wage.“
Scottish Licensed Trade Association managing director Colin Wilkinson stated: “The Chancellor’s eye-watering Budget leaves the Scottish licensed trade shedding more than just a few tears - there is nothing in it that gives us a fighting chance to get through the next few months - the future is grim.
“We welcome the Chancellor’s pledge to ‘soften the blow on businesses with a nearly £14bn tax cut over the next five years’ which will mean nearly two-thirds of properties will not have to pay more on business rates – pubs and restaurants will benefit from that and we hope that the Scottish Government can give us more information on that soon.
“Every day is a challenge for our pubs and bars who have worked very hard post-Covid and Brexit to showcase Scotland’s hospitality industry, but we need more help to protect the jobs that outlets provide directly and the associated jobs in the wholesaling, brewing/distilling and food-producing sectors.”
Responding to the announcement to extend the windfall tax on energy companies, Ryan Crighton, policy director at Aberdeen & Grampian Chamber of Commerce, said: “It has become impossible to keep up with what this government wants from the energy sector.
“Does it want to increase energy security and accelerate the UK’s path to net zero? Or does it simply want to use the North Sea as a cash cow? Today’s £80bn tax raid sends a clear signal that it is the latter.“
He continued: “The Chancellor has ignored explicit warnings from some of the North Sea’s most experienced figures that a 75% tax rate will force them to invest elsewhere – and he has also failed to extend the Investment Allowance to low carbon technologies like hydrogen and offshore wind farms, a move which could have turbo-charged the energy transition here.
“Aberdeen and its energy sector is again plugging the UK’s fiscal deficit and the bare minimum we should be getting in return is a Green Freeport and the acceleration of support for the Acorn project on the Buchan coast.”
Pinsent Masons partner and energy project specialist Ian McCarlie also pointed out that increasing taxation on generators in the long-term is likely to disrupt future investment in the UK’s low-carbon infrastructure, and at worst, lead to investors taking their money to other, more investor friendly international markets.
“Following weeks of political turmoil, the windfall tax on renewable energy generation will do nothing to calm investors' nerves.
”Utilities, pensions funds and specialist infrastructure funds which invest heavily in UK renewables will all be impacted by this tax and will now be carefully considering how they should adjust investment plans – the government cannot deliver on its commitment to decarbonise the power market by 2035 without these key players.”
Martin Bell, tax partner at BDO, said: “The Chancellor set out his stall to prioritise stability, growth, and public services through tax rises and spending cuts.
“Given the instability of the past few years, businesses were calling for certainty and a longer-term tax roadmap, so many will welcome some of the announcements signposting planned changes and freezes up to 2028 - attention will now turn to the Scottish Budget next month and in particular the response to today’s proposals regarding income tax thresholds and the reduction in the starting point for the additional tax rate which in Scotland is 46%.
“As well as the headline issues around inflation and rising costs, businesses are deeply concerned about supply chain disruption, energy shortages and rising energy costs this winter.
“The Chancellor announced an update on the proposed Investment Zones that they will be focused around R&D in universities in 'left behind' areas - the key will be connecting businesses in Scotland with the talent and ideas in these clusters to ensure the investment will effectively drive levelling up.”
Susan Love, strategic engagement lead for Scotland at the Association of Chartered Certified Accountants, said: “While more us being asked to pay more tax was not a surprise, it’s nonetheless disappointing for both consumers and businesses battling headwinds of rising costs.
“While greater certainty is welcome and we look forward to early sight of the details, today’s statement provided few bright spots about the path back to economic growth.
“As businesses hunker down, it will become more important than ever for government to pump-prime investment and business growth.
“Businesses in Scotland will now wait to hear how the Scottish Government’s tax and spending plans will be shaped by today’s announcement, in the hope that this doesn’t translate into less competitive rates of tax, whether on income or property.”
David Ovens, joint managing director of Scottish investment syndicate Archangels, said: “We are encouraged by the government’s renewed commitment to innovation with an ambition to turn Britain into the next Silicon Valley – positive support from the Chancellor includes a commitment to look at how regulation could change to better support safe and fast introduction of new emerging technologies, protection of the government’s R&D budget and the retention of investment zones.
“While there has been a halving of the capital gains tax (CGT) allowance, we are also relieved to see that the government has not pursued a strategy of making fundamental changes to the CGT regime, which is important for entrepreneurs and founders, by way of providing reward for the years of risk they have taken to build their business.”
John O’Malley, chief executive of Glasgow-based estate agency firm Pacitti Jones, responded: “It is imperative that the country’s finances are put on the right track to reduce mortgage rates, which are a key driver of house purchases.
“The Chancellor has had to make some hard decisions but if the new measures steady the waters, a gradual softening of the market is more likely rather than the hard crash some people were predicting.
“Of course, less money in people’s pockets due to tax increases will theoretically reduce likely demand, but we are seeing some people looking to downsize to save on extortionate energy bills and softening of prices will provide opportunities for first time buyers.”
Luke Bartholomew, senior economist at abrdn added: “Having learnt the hard way the risks of shocking financial markets, the government’s fiscal announcements today were all largely as leaked and so expected – as such there likely to be a very limited market reaction.
“That doesn’t however, make them any less economically painful.
“The economy is heading for a deep recession, with tighter fiscal policy adding yet another headwind to growth,“ he continued. “However, with the UK suffering from pronounced underlying inflation pressure, it is far from clear that there is much space for significantly easier fiscal policy to support growth.
“The government’s strategy appears to assume that by tightening fiscal policy, this means that monetary policy will not have to tighten as much, with the consequence that interest rates will stay lower than they otherwise would have.”
Vishal Chopra, head of tax for Scotland at KPMG UK, said that from a business tax perspective, the majority of announcements were made in an effort to create stability through springing no major surprises.
“This was not a big reforming budget – there was very little to indicate what the future might hold from a tax policy perspective.
“Attention now turns to Holyrood and the Scottish budget in December – if today’s measures are anything to go by, we can expect further tax increases in Scotland as the government prepares to tackle the recession and choppy waters ahead.”
The pound fell against the US dollar as investors appeared concerned over the prospects of a lengthy recession and fears Hunt’s austerity budget will compound the economic woes.
Sterling dropped nearly 1% to 1.18 US dollars and was 0.3% lower at 1.14 euros. On the London market, the FTSE 100 Index was 0.7% lower at 7300.4.
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