Host
- Guy Ruddle
Guests
- Frances Haque, Chief Economist, Santander
- David Williamson, Chief Political Commentator, The Express
- Iain Wright, Chief Policy and Communications Officer, ICAEW
Producer
- Natalie Chisholm
Transcript
Guy Ruddle 00:00
Hello and welcome to accountancy insights. I'm Guy Ruddle, stepping slightly nervously into Philippa's shoes as she's away this week for a special episode dissecting all the announcements in the autumn statement and the likely impacts on business and the economy.
David Williamson 00:22
From the moment she stood up, she was basically sending out this message that, yes, this is what I'm doing. I'm not spinning this, and this is absolutely something I'm not the slightest bit ashamed of.
Iain Wright 00:35
Business was almost an afterthought in the previous budget. It was very clear: wanted a big increase in taxes, and that would be paid for by business. Whether she was scarred by that, she didn't come a second time for business.
Frances Haque 00:49
Given the long lead time in, I was expecting that there would be some other policies out there, and they didn't materialise. And I find that slightly strange, because they did have a very long time to think about this.
Guy Ruddle 01:01
The usual economic dream team is joining me today. Francis Haque, Chief Economist at Santander, and Ian Wright, ICAEW, chief policy and communications officer, are in the studio, and we'll be getting the thoughts of David Williamson, Chief Political commentator for the Express. Ian, Francis, welcome to the studio again. Look after me, won't you? How are you both?
Frances Haque 01:26
Very good. Thank you. We'll look after you.
Guy Ruddle 01:28
Excellent. Well, I feel in safe hands. I think we've got to start with the drama of the whole thing, with the budget, with the accidental pre-release of all the major budget details by the OBR putting a link on their website before Rachel Reeves had even stood up. As I say, David Williamson was our man in the room, in the chamber of the House of Commons, when it was all going on. So I went over to Westminster, and I asked him what it was like.
David Williamson 01:53
It was extraordinary. People were saying they hadn't seen the House of Commons so febrile in years. And it was one of those moments where it's just sheer human drama, because you see on the Tory ventures the shadow Chancellor, Sir Mel Stride, he's sitting there scribbling frantically as he's getting to actually write a proper budget response, rather than hoping to wing things. You've got Andrew Griffith, the shadow business secretary, leaning across. You've got Kemi in the middle. It was extraordinary, and then you've got a very unimpressed-looking Prime Minister and Chancellor immediately opposite them. So it was intense human drama, but it also perhaps was just the sense that you get in prison so often of 'oh no, something's gone wrong,' (laughs) which wasn't how the chancellor wanted to set the scene, but perhaps in a way, it did get a lot of the most controversial things out of it. So from the moment she stood up, she was basically sending out this message that, yes, this is what I'm doing. I'm not spinning this, and this is absolutely something I'm not the slightest bit ashamed of, and it was a very forthright delivery – it was a true House of Commons moment.
Guy Ruddle 03:09
It's all good knockabout stuff, but is there a sort of more important element to this? Because there's so much sort of pre-leaking of things this time around, to the extent that the deputy speaker had a go at Rachel Reeves and previous chancellors for how much leaking there is before a budget. And I remember the days when nothing was leaked, so do you think that for the business community, at least, there is a more important element to this?
Iain Wright 03:36
I think you need to take the two things separately. The OBR League was appalling. It was embarrassing. It will be mortifying for the OBR, but actually, in the overall scheme of things, it didn't change matters. Markets did not move. People did not do a sort of insider trading element as a result of this, because of new information. What I take more seriously is, from September onwards, this flying of kites. Are we going to increase income tax? Are we going to break the manifesto pledge? What about an exit tax? What about a wealth tax? What do we need to be doing about a whole range of things like NICs, National Insurance contributions, on LLPs? That freezes business confidence. We cannot let this happen. This is no way to produce the tax and spending plans of a major economic power. And so I think it really is a terrible thing for business investment. We have to revolutionise the way that we look at the run-up to a budget, how business and other stakeholders are consulted, and then what the chancellor does, one of the things we've been saying, Guy, in terms of ICAEW, is our members tell us, amongst other things, business is too uncertain. Since people returned from summer holidays this year, it's been really uncertain, largely because of all this speculation.
Guy Ruddle 04:55
And Francis, do you think it was particularly bad this time? I mean, it's not like it's a new phenomenon.
Frances Haque 05:02
It was particularly bad this time. I mean, I think I wrote a note, well, must have been a few weeks in, that sort of had... I mean, it ran on for pages as to lots of different things that they'd come out with, different initiatives, different policy actions, even then it wasn't the end of it. And, you know, to the point that Iain's made on, you know, business confidence, and it's also affected the housing market. Because obviously, all the talk about mansion tax, or what was happening with council tax and all this possible, even removing of capital gains from those at the top end, really didn't help the housing market either.
Guy Ruddle 05:37
Well, that's the sort of drama and the packaging of the whole thing. But what about the actual content of the budget? Let's go back to David Williamson for his thoughts.
David Williamson 05:48
What's immediately clear is that there are now great dividing lines in British politics. Do you remember it wasn't that long ago–people were always talking about, 'oh, you know, apathy is such a problem, and all the parties are the same. How you decide to choose between them?' Well, that's no longer a problem. The great British voters, the next time they go into the supermarket of democracy that is the polling booth, are going to have a smorgasbord to choose from which you would need to go to a very fine deli to find anything like that.
Guy Ruddle 06:17
Who do you think she was talking to with the budget?
David Williamson 06:21
Yeah, this is the key criticism of her budget, is that she was essentially talking to two groups. One is the people out there in the bond markets. The second are the people who are sitting immediately behind her, the Labour backbench MPs. And what about the actual country? And has everybody else essentially been frozen out of the discussion? Now she will vehemently say that's not the case, and she'll point to things like frozen rail fares, frozen prescription charges, help with energy bills, but there is this sense that this was a budget which was designed to pacify two groups which threaten her personal electoral survival, and that of Keir Starmer as well.
Guy Ruddle 07:05
And do you think, if that was her objective, has she succeeded?
David Williamson 07:09
Well, the market reaction was very muted in the immediate aftermath, which she'd probably, in these days, chalk off as a bit of a win that she hasn't caused panic to any great degree. And certainly the labor MPs, who were very keen to see the two child benefit cap scraped, they were waving their order papers in true theatrical House of Commons fashion. And that's something which you actually don't see that much the days of noisy backbenchers. Things have been a little more muted this parliament, but this was the moment where suddenly they were roaring. However, there's a bit of nervousness about this as well, because there was polling at the start of the week that showed even among people who voted Labour in 2024 there's actually pretty broad support for the benefit cap, and she knows that she's in a difficult position. If the narrative that goes out, which is going out is that your taxes are going up to fund benefits, and that it's actually hard-working people who are being squeezed, and that is what certainly the Conservatives and Reform are going to be pushing relentlessly.
Guy Ruddle 08:23
So that's a sort of political viewpoint on the budget. Francis from an economic viewpoint, what did you think overall?
Frances Haque 08:30
Well, if I'm totally honest, I was a little underwhelmed, and that was because of the lack of growth measures that were in there. And I think, that's been picked up today by newspapers. I mean, it was... what's the resistance? It could have been worse, I think, has been the most commonly used phrase, which, I mean, that's not necessarily what you want to hear. But in fairness, the markets haven't reacted badly, and obviously her backbenchers seem to be happy. So from that perspective, you know, a win, maybe for her. I do wonder how MPs are going to fare when they go back to their constituencies, and people are asking and the reason for that is partly because, actually, if you look at, how the tax burden will be placed, it really will sit with middle income very much, because of the thresholds being frozen, and it will bring more and more people in. So from that perspective, that may not go down so well, but at least for now, everything was.... well, the markets are at least calm. That's a good thing.
Guy Ruddle 09:38
And Iain, are you slightly more sanguine about the content than the way it was delivered?
Iain Wright 09:42
Business was almost an afterthought in the budget. In the previous budget, in Rachel Reeves' first budget last year, it was very clear. Wanted a big increase in taxes, and that would be paid for by business. Whether she was scarred by that, she didn't come a second time, for business. And I suppose, you know, in Francis's words, it could have been worse in that regard. But in terms of a government that has growth as its number one mission, there was very little in the way of growth measures. There were few things. You know, it wasn't just black and white in that regard. You know, some exemption stuff with regards to SDLR for capital listings in the UK - that was a good thing. I'm a big fan of EIS, the initiative to encourage investment - that's been a long-standing feature, that's probably why it's been such a success. It's been a long-standing feature for many, many years that's been expanded and doubled, that's a great thing. But in terms of things that will move the dial to raise the growth rate and, importantly, to raise the productivity performance of our country, not much there, to be honest.
Guy Ruddle 10:51
Yeah, it's interesting that you've both picked up on the growth story, because when I talked to David earlier, he did the same.
David Williamson 10:58
It was fascinating in the immediate response to the budget. One, I think, was the Tony Blair Institute came out with the line that what we need now is a plan for growth. That would be quietly quite damning, because the rhetoric from Rachel Reeves and Keir Starmer from day one has been that they have a plan for growth, that this is what this government is all about, and to say that you need to have one, that's basically an admission that this government, this budget, hasn't been a plan for growth. So whether we now start to see something dramatic in things like house building, where there's so much worry that there simply aren't enough people in the construction sector that so many brickies are coming up to retirement. There's all these things and the endless question of, well, it's great that real players are frozen, but can we actually build the lines that are promised? Can we actually do this? And there's that question, which is just nagging, and it saps confidence, both consumer confidence and investor confidences. Is Britain a place where you can get things built?
Guy Ruddle 11:59
The sort of fundamental thing about growth is productivity, right? And that's, Francis, been downgraded from 1.3% to 1.1%. How big a problem is that, do you think?
Frances Haque 12:14
That's an issue in terms of what your growth outlook then looks like? Although I will say that actually the OBR's forecasts, looking forward, don't worry so much about what it is for this year, but looking forward is actually more aligned to actually what external forecasters already have. So I think from our perspective, it's more in line, you know, with what we expect to see going forward. But obviously that's because we never had such strong productivity rates in there. So, I mean, not great from Labor's point of view, that we've had the downgrade. But what's more concerning is that, you know, the OBR weren't suggesting that at any point it was going to be uplifted, which is really what we need to see. And that goes back to this point about the fact that they said that basically, there were no measures to look at because there were no growth measures in the budget. So, you know, it is definitely an issue, and it will be for them going forward, because the only way out of this is to grow. Otherwise, we're going to constantly be coming back for more.
Iain Wright 13:17
I would really agree with that. Without exaggerating too much productivity is everything. How much unit of output you can squeeze from a unit of input, and making it better is the key to rising living standards, your ultimate wage growth that is sustainable and economic growth, and we haven't had that since the 2008 global financial crash. We're not alone in that. You know, other Western European nations have had it too. But is it a big concern that you know–people are grumpy, the chancellor acknowledged yesterday, people are angry, and they're angry because they feel like their living standards haven't risen for quite some time. But the only way we can do that is by focusing on productivity.
Guy Ruddle 14:01
What in that area specifically could she have done, do you think?
Iain Wright 14:05
She could have made it a budget for business investment, to say we're going to give the conditions. She could make things simpler. In particular, what was really striking is, and I think successive governments are doing this, the notion of better tax simplification. Just make the tax system simpler, easier to comply with. You know, some of my members might not agree with that, because they might say, 'Hang on, you know, I can give advice by giving that advice to, you know, in terms of a complex task tax system'. But, you know, our members are generally going, it's too complex. It's getting ever more complicated. The tax code is something like, what, 23,000 pages long. I mean, this is ridiculous, and getting longer by the year. So bold, tax reform on things like business rates and investment could have really helped, and you can only really do that in the front half of a parliament. So now we're getting towards the middle of the parliament. It's not going to happen. But I don't think any government of any political persuasion in recent years have really had the appetite
Guy Ruddle 15:03
Our sister podcast 'The Tax Track' is going to be obviously looking at the details of the tax measures in the budget, so you should go and listen to that as well. But at a higher level, aside from the more fundamental reform of the taxes – the actual tax measures that came in. Was there anything that struck you as particularly good or bad?
Frances Haque 15:37
Good? (laughs)
Guy Ruddle 15:37
Well what about, you know, you say it was a dull budget, but some of those measures were quite significant. You know, thresholds freezing for another three years, so that's right out to 2031. That's a long time...
Iain Wright 15:47
And that's a long-standing feature. I can't see a government in, you know, recent years and in the future changing that, you know, so more people will pay more tax. It's interesting that, in terms of the model of yesterday's budgets, the chancellor was very clear that we're going to have another big tax increase, and that will be paid for by individuals, more or less. So the big feature is the thresholds and the freezing for another three years. The other thing, which surprised me, though, Guy, was all the trailing on salary sacrifice for pensions, but that doesn't come in till April 2029, so one, what will happen? How will people redesign their remuneration in terms of salary, pensions, any sort of tax relief on the back of that? You know, there's a long time to think about that. Whether people say, I demand a pay increase, I demand that you pay as an employer, national insurance on this for me, I don't know how it will work, but it's a long time before it comes in.
Frances Haque 16:45
I think that's partly because businesses were worried about how quickly they'd have to turn it around, because certainly, to do it in less than six months, if it came in, for example, in April, would almost have been impossible, I think. So they've obviously taken note of that, but I was slightly surprised that it was 2029, for when it starts, but I suppose it gives them time to think about what they could do. I mean, for me, actually, one of the things was it was interesting to see that they did go ahead with the electric vehicles levy and things like that. I mean, I think this has been talked about sort of before, about the fact that we are getting to a point where, if more electric vehicles coming through that means less petrol, so less fuel duty and all the rest of it. So I don't know how that will land, particularly, but I think that the fact that they've actually made a start on it probably is at least a good thing from that perspective.
Iain Wright 17:33
I think the electric vehicles tax thing is an interesting point about that wider 'do we have tax reform?'. So, you know, petrol and diesel engines are in some degree of slow decline. So how would you raise money from vehicles? But having a more comprehensive, simpler tax system based upon that, whether it could be, and this is politically very contentious, well, why don't we pay per mile? You know, the more miles you do, the more you're paying tax, all of that. But having something to think about, you know, that tax reform, tinkering again doesn't help, and doing one thing that might affect maybe a growth area of this country. I come from the northeast. I'm proud that Nissan is the most productive car factory anywhere in Europe, it's brilliant. And their electric vehicles are fantastic, and potentially, really export-led, you know, it can help us. This is a growth sector as part of our industrial strategy. But what impact will this have? Will people go, 'oh I won't buy an electric vehicle now because I used to quite like the fact that I didn't have to pay any sort of fuel duty or tax on it'? So just thinking about things in a holistic manner. This is a good example about: have you looked at the short term rather than the wider, longer term view?
Guy Ruddle 18:46
And the fact that it's not being brought into until 2029, Francis, was there a sense that quite a lot of other things were sort of kicking the can down the road in this budget as well?
Frances Haque 18:55
Well, I mean, I think there is that given how late all the tax rises come in. I would also say that the one thing that actually I found interesting was the OBR didn't mention anything about, obviously, the employment rights bill, so there was nothing in there, which I thought was slightly strange. We know that that's going to be a cost to businesses as well. So I don't know whether maybe some of the delay is also to do with that in terms of, you know, how that might land. Obviously, that's to do with the salary sacrifice scheme, so yeah, but all in all, there was that view of, we've got a bit more spending up front, and we'll just tax towards the end. And obviously everyone goes, Well, are you going to tax towards the end? Because obviously, 2029 is, of course, election year.
Guy Ruddle 19:40
Yeah, it's kind of the wrong way around, isn't it?
Iain Wright 19:43
It completely defies political convention. Do the difficult decisions in the first 18 months of a parliament and then start to give away towards the end. We haven't got that this time.
Guy Ruddle 19:53
Yeah, that's interesting. So just looking specifically at business and measures that are likely to impact business. You know, we've talked about the salary sacrifice limit at 2000 pounds, quite a lot. Do we care a lot about the tax exemption on low-value imported goods going? Does that really matter an awful lot? I know it's a sort of, quite a complicated thing to bring in, but quite a lot of sort of smaller businesses, of UK businesses have been saying that it's, you know, you're competing against imported goods through Amazon or whatever, which aren't paying the same tax rates.
Iain Wright 20:28
I'm never a fan of protectionist measures. You know, in terms of free trade is always a great thing, but I think there's a fair point in terms of, is there any way that we could, shield is probably the wrong word, but shield our domestic businesses in the face of cheap imports in this regard? So that could be a positive step.
Guy Ruddle 20:46
And one thing that doesn't sort of seem to have got many headlines is sort of a 2% increase on the tax rate on dividends, which, you know, for lots of businesses, which are, one man bands, or slightly small businesses, quite a lot of them pay a lot of their income to themselves out of dividends rather than salary. It's quite a big tax rise for them, isn't it?
Frances Haque 21:10
Yeah, I would say so. And it's also not just on dividends. We're talking savings and, of course, property as well here. And obviously a lot of people will have noticed that the threshold for ISA cash, well, the cash ISA has dropped, but you have got, you know, greater tax on savings. So if you want to keep them in cash, that's also a bit of an issue. But, yeah, the dividends, I think, fair point.
Iain Wright 21:32
My sense…I don't know whether there's a sort of plan in the Treasury for this, but it looks, you know, on the basis of two budgets from the chancellor that she's quite keen to get her tax take from income tax, National Insurance contributions. It was striking that the other biggie that wasn't really a feature of this budget, but in terms of trying to push behaviour towards income tax, and maybe the dividend tax changes, and savings tax changes a bit of that. There may be an element of a feeling that taxation of property is somewhat light in this country relative to international peers, and therefore squeezing that a bit more. That could be a feature of subsequent budgets, perhaps, but I definitely think dividend taxes doesn't help the small business in that regard. The other thing I would mention, full expensing of capital allowances is a great thing. Hopefully that's a permanent feature to boost business investment. But for those elements where you don't get full expensing, the decrease of writing down allowances is going to impact adversely on business investment. That was a bad sign.
Guy Ruddle 22:42
And were there specific asks that the ICAEW had of this budget, and if so, were they met?
Iain Wright 22:52
The big one was, concentrate on growth.
Guy Ruddle 22:55
So no? (laughs)
Iain Wright 22:57
The other things, and I sort of alluded to this in my first answer was, businesses are telling us constantly– it's too expensive to do business, it's too complicated to do business, and it's too uncertain to do business. So those measures such as simplification of tax business rate reform to make sure that you're not penalised for wanting to invest in new assets, patent machinery and luggage, that sort of thing. So in that regard, as I said, given that business was a bit of an afterthought in this budget, we could have done a lot more in terms of that growth element and our ask and our members asks.
Guy Ruddle 23:34
Do we overall, then sort of mark this as a bit of a missed opportunity?
Frances Haque 23:39
I would say so. I mean, given the long lead time in, I was expecting that there would be some other policies out there. I mean, we weren't just talking about tax raising here, and they didn't materialise. And I find that slightly strange, because they did have a very long time to think about this.
Guy Ruddle 23:57
I mean, we've talked a bit about tax reform, by the way, on tax reform, I think, everybody in this room, and I think most places would think, yeah, let's simplify the tax code. But you jokingly said that the ICAEW members probably wouldn't want it too simplified, but the group of people that never want to simplify the tax code are politicians, because the more complex is that they're always looking for levers, right? They want to pull levers that have a small effect in one area. And so you're never going to simplify the tax system if you are going to lose some of your levers if you do that, right?
Iain Wright 24:29
But you just tweak. And the constant tweaking means, you know, you're building a little bit and then a little bit and a little bit, and then within quite a short period of time you realise that this is just mushroomed. And you think, I'm not sure this is working. No one has ever stood back and said, 'so what do we want to do about this?' And actually, let's be honest, and again, I've mentioned this earlier–the three biggies, you know, the really big things that move the dial on tax are: income tax, National Insurance contributions and VAT. Everything else is sort of very insubstantial. They're the big ones. They're never going to be changed that much. But it's a case of, why don't we look afresh about how we tax in the modern era to make sure that this is a fair, certainly, but an open, innovative and ultimately improving productivity economy.
Guy Ruddle 25:23
Yeah, that's an interesting question. Would, as an economist, would a simplified tax code improve productivity? Do you think?
Frances Haque 25:30
Yes, I think it would, particularly for businesses, because I think they have a better idea about what to expect and also for households as well, so they know what's the best thing to do with the money we've got. I'm always going to have income tax, of course, but you know, what's left over at the end? How do I best make the most of this? And I'd also say that has implications for moving forward, as you know, the world ages and we've got more and more pressure coming on the fiscal position. You want people to be saving more, because that will help in the future. So, you know, in that respect, I think it has two implications. One is it will help businesses, I think, to be able to understand better where to invest their money. And two, I think it would also help households to be able to understand that better.
Iain Wright 26:16
And it incentivises good behaviour. You want to make it simple. But if you have simple rates, one of the dangers, one of the risks, and we see this, is you have cliff edges. And people go, I don't want to go over that edge. It's not worth my while to take that new job or to get that pay increase. And you know, you go into the higher rates at 50,250 I think it is. And it's been like that for some time, and people might say, I don't want that promotion. Similarly, you know, people say, if you go from 100,000 to 125,000 people go, 'no, it's not worth my while'. So how do you encourage people to take that new job, to get that promotion, to be up-skilled, to be more marketable in the job market, that's how productivity will improve. You've got to inspire and aspire people to want to grow, to want to improve. And I'm not sure the tax system does that. That's not the individual fault of Rachel Reeves. This goes back a generation, successive governments, successive chancellors, but how do we lift and aspire? That's the key.
Guy Ruddle 27:21
Well, that's a great place to, well we could try and answer that, of course, but that would take us another whole series of podcasts (laughs). So I think we'll call it a day there and leave it there. Can I thank both of you for looking after me so well, it's not about me, but I've really enjoyed sharing a studio with you, and you two will be back with Philippa – thank heavens, I can hear everyone saying, in January, for the 2026 look ahead. Are we there already? We're pretty close, we're there already. So thank you both very, very much.
Frances Haque 27:55
Thank you.
Iain Wright 27:55
Thank you
Guy Ruddle 27:56
Join us for the next Behind the Numbers episode in a couple of weeks, where Philippa will be back to discuss the collapse of the crypto network Celsius, what it tells us about the actual stability of these coins and how regulators are addressing the risks. And be sure to go deeper into the tax proposals in this budget with the tax track episode, where the team has been poring over the details of every proposal. Don't forget to log this podcast as CPD on the ICAEW website, and if you subscribe to the podcast, you'll be able to log every single episode you listen to as CPD as well, including the back catalogue. Thank you for being with us.