Partner Article

Deloitte's take on the Autumn Statement

Inside the offices of Deloitte, here’s what some of the staff thought about the Autumn Statement.

Bill Dodwell, head of Deloitte’s tax policy group: “The Autumn Statement produced mainly helpful news for business. Companies will be pleased with the 1% cut in corporation tax to 21% from 2014. The two year increase in the annual investment allowance to £250,000 is valuable, but confusing to apply, as the allowance goes up from £25,000 to £250,000 on 1 January 2013 and then down again in 2015. The announcement of the 25% creative industries tax credit is excellent and helps support sectors where the UK has a strong presence, but where there had been economic incentives to move activity elsewhere. The decision not to proceed with changes to the IR35 rules, or to introduce a new ‘controlling person’ test will also be welcomed. The Government will also review the use of offshore intermediaries, which claim to avoid UK NIC.

“The pension tax relief changes will be less welcome, although they had been widely trailed. The cut in the annual allowance to £40,000 in 2014-15 will affect several hundred thousand people, including those in the public sector – and the cut in the lifetime allowance to £1.25 million reduces by about £15,000 the pension that can be paid without a special tax levy. There will be protection for those with current pension savings of £1.5 million and consultation on extending that protection to those with £1.25 million in pension savings. All other aspects of the current rules – including the ability of defined benefit funds to bear the tax charge – remain unchanged.

“The most costly tax relief is the decision to cancel the planned 3p per litre increase in fuel duty. This is worth about £1 pw. for the average motorist, but costs £1.6 billion pa.

“The Coalition Government’s flagship personal allowance policy receives another boost, with an increase in the personal allowance to £9,440 from 6 April 2013. This will reduce the impact of the earlier decision to withdraw the higher age allowance for those reaching 65 from April 2013. This benefit will flow through to higher rate taxpayers, but the increase in the higher rate tax threshold and the capital gains tax exempt amount will be kept at 1% for 2014-15 and 2015-16.

“The two biggest numbers in the statement are the expected £3.5 billion proceeds from the 4G spectrum auction and the confirmation by the Office of Budget Responsibility that they accept the Treasury estimate of a £5 billion return from the Swiss tax evasion agreement. These amounts finance the fuel duty and personal allowance changes.

“There was no word on the Government’s response to various measures being consulted on, including the income tax reliefs cap; statutory residence rules; the annual charge on high value residential property. These will no doubt arrive by 11 December, when draft Finance Bill clauses are released.”

Rachel Austin, Deloitte director said: “Companies engaged in the production of culturally British video gaming, animation and high end TV programming will be delighted with the Chancellor’s announcement in his Autumn Statement that the proposed creative industries tax relief will offer a payable tax credit worth 25 per cent of qualifying expenditure.

“The proposed relief was announced in Budget 2012 and is based on the current film tax relief, which provided £214m of support to the British film industry in 2011-12. The Government consulted on the design of the relief over the summer and today’s announcement responds to calls from the industry that the relief would need to be worth at least 20 per cent of qualifying expenditure in order to compete with similar reliefs in other countries. At a rate of 25 per cent, the relief will meet the Government’s objective of being among the most generous available anywhere.

“Research by industry bodies has concluded that a creative industries tax relief could create thousands of jobs in the UK and have a significant impact on UK GDP.TIGA, the videogame industry trade association, estimates that the relief could enable UK video games developers and digital publishers to secure 4,660 direct and indirect highly skilled jobs, and increase

the game development sector’s contribution to UK GDP by £283m over the next five years. Research carried out by the TV Coalition concluded that a UK tax credit, similar to that of the film industry, would generate at least £350 million per year as a result of high-budget TV production relocating to the UK. It also said that it would create thousands of jobs and preserve British skills in a highly competitive economy.

“Subject to EU State Aid approval, the relief will apply from 1 April 2013. Draft legislation setting out the detailed design of the relief is expected to be published next week along with the rest of the draft 2013 Finance Bill.”

Simon Bedford, head of public sector at Deloitte North West, the business advisory firm, said: “It is clear from today’s Autumn Statement that austerity is here to stay. The public sector is going to have to manage on ever-shrinking budgets for a much longer period.

“But did we really hear enough from the Chancellor on reforming and improving the public sector to help meet this challenge?

“The public sector as a whole must transform itself, modernise and save money now and in the long term. Public sector managers cannot tread water and wait for the good times to return. True financial sustainability will only come from new ways of work and new models of delivering services.

“This means confronting every area and activity where cash is tied up or lost, taking action to address unsustainable long-term net liabilities and reversing the downward trend of public sector productivity. Steps like these will be ever more important in cutting costs without harming services and ensuring the long term sustainability of public finances.

“We need a fundamental rethink about cultures and structures in the public sector to adapt to the new normal of austerity.”

Robin Cohen, partner in Deloitte’s Energy & Resources practice, said: “Yesterday’s publication of the Gas Generation Strategy reinforces the dramatic recent changes in the character of

the UK electricity market from an investor’s perspective. Rather than assessing the viability of future power generation projects by analysing supply, demand and the resulting market prices, investors now need to anticipate the aggregate effect of several key policy measures, some of which have no track record as yet.

“These include the carbon price floor, contracts for differences within the levy control framework, the capacity mechanism and the UK’s response to the EU target model for electricity markets. While the strategy will be broadly welcomed by investors, it highlights the limits to the level of future certainty that the Government can provide. Given the scale of our future challenges, uncertainty will be a long-term characteristic of the market. Investors will now be determining how to deal with that regulatory uncertainty, rather than when it will disappear.

“The positive messages on the potential for shale gas, although tempered by realism on the timelines and challenges for the sector, will be welcomed by those involved in developing a potentially significant future energy resource for the UK.”

This was posted in Bdaily's Members' News section by Deloitte LLP .