The Autumn Statement received mixed reviews from different stakeholders and sectors within the UK economy - with many key details left out or yet to be clarified.
To work through some of the key points, and how they may impact Scottish businesses - and the forthcoming Scottish Spending Review - we spoke to Douglas Sinclair, a partner in the private wealth and tax practice at law firm Shepherd and Wedderburn.
Responding last week, he said that the fiscal plans were a clear example of the power of stealth taxes, pointing out that the freezing and reducing of thresholds in a time of inflation may increase the total tax receipts of the government, without changing headline rates.
The changes may mean many more people will be exposed to income tax at the higher and additional rates, while 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.
With a few days to digest the statement and associated documents, Insider fired a few key questions at him:
Insider: The UK economy is now in recession, so how do you think these measures will help the country back to growth?
Sinclair: I think first and foremost that Hunt wanted to reintroduce some certainty, as the markets were in disarray following the 'mini budget' and he needed to reverse away from that, showing that his party can keep the house in order.
Some of the tax raising measures he introduced will take effect quickly, but many of the spending cuts have been deferred.
Insider: We were expecting tax rises - and we got them - but can the government have its cake and eat it here - limiting some tax increases, while maintaining spending?
Sinclair: We’re heading into a recession, conventional the wisdom is that we need to stimulate the economy by cutting taxes and increasing spending to get demand going - the UK is an outlier in that it’s had to take a harder approach than other major countries.
We’ve steadied the ship, but if these spending cuts do happen - and we're not sure about some, as they've been deferred - that could be a potential issue. Can they be made without causing serious problems within the economy? I'm not sure, but hopefully the picture improves, so they won’t be necessary.
Insider: The hospitality industry reaction wasn't positive, with industry leaders warning many businesses won't survive the winter - do you have any opinions on how the government could help them?
Sinclair: There are major concerns about prices going up across the board, obviously those in the hospitality sector are particularly sensitive to energy and input costs, as well as having issues with staffing. They’d asked for a VAT reduction, which would have kept costs down, but the issue is that weaning them off that could be difficult.
There was some support offered on fuel costs, but no detail has been made available yet - and it needs to be explained quickly so that businesses can understand when it will begin and how long it will last.
Insider: As for the £1.5bn for the Scottish Government, how do you think John Swinney will use this next month - and what other challenges does he face, given the public spending warnings from Audit Scotland?
Sinclair: Clearly Swinney has to first face up to major problems in health and education, with nurses and teachers striking. Scotland claims to not have the cash required to up their pay, so he may have to look at some of the SNP's existing giveaways - things like concessionary bus travel, free tuition fees, etc.
Traditionally Scotland has had slightly higher rates, with tax bandings that haven’t kept pace with those down south - so I would be surprised if the reduction in the threshold before additional rate income tax is paid is not also mirrored in Scotland.
Over and above that, the issue is that while Swinney has this flexibility, he may have limited scope for increasing taxes beyond that, without risking making Scotland look an unattractive place to live for higher earners.
Insider: What do you think Scottish businesses may have to look forward to, or be fearful of, in the Scottish Spending Review?
Sinclair: From a business point of view, many of the available factors impacting them - corporation tax, VAT and energy cost support, etc - are being dealt with on a UK-wide basis. Swinney does have control over some levers though, so he could make changes to things like business rates and there's renewed focus on the importance of local taxation with local authorities in England being given greater scope to use that as a source of social care funding.
Capital spending is another factor and it may be that major projects such as dualling the A9 and improvements to the A96, for instance, are deferred until more funds are available.
Insider: And within your specialism, are there any points to make, or things that have gone under the radar since last week's announcement?
Sinclair: Changes to the capital gains tax annual exemption will make life a bit more complicated for some individuals, as the existing threshold at £12,000 is going to be cut significantly over forthcoming years. This will likely increase compliance costs for many, as gains are more likely to give rise to tax charges. This underlines the importance of placing assets within ISAs where possible.
Also, the inheritance tax minimum rate band, the 20 year freeze is an example of the economic impact of freezing thresholds. There will be a lot more individuals sucked into paying tax on deaths, so they will have to make good use of exemptions and relief that are already there.
Don't miss the latest headlines with our twice-daily newsletter - sign up here for free.
