What Autumn Budget 2024 Means for CEOs

UPDATED: Chancellor Rachel Reeves has promised a “tax road map for business” will be revealed in the Budget on 30 October, including a promise to cap corporation tax at 25%.

Ms Reeves and Sir Keir Starmer have ruled out raising the main rates of income tax, national insurance contributions and VAT but Treasury officials have not rejected a possible rise in capital gains tax.

However, despite Ms Reeves and Mr Starmer ruling out raising the main rates of income tax, the Chancellor could still increase it by lowering the thresholds at which the rates – 20, 40 and 45 per cent – take effect. 

Tax rises are likely to be introduced in the Budget to fill what Reeves termed the £22bn “black hole” left by the Conservatives.

Ms Reeves told Labour Party MPs at its annual conference: “At the Budget the Government will be outlining a tax road map for businesses to offer the certainty that encourages investment and gives business the confidence to grow.”

She added that the tax plan would include a pledge to cap corporation tax at 25% and maintain the “full expensing” system for capital allowances. 

Labour said that the £22bn deficit left by the Conservatives must be closed by “difficult decisions”. 

According to the Office for Budget Responsibility, this year the Treasury will raise more than £1 trillion in taxes - 30% of that will come only from income tax, the biggest revenue raiser for the Government.

How will this year’s Autumn Budget 2024 affect business?

Capital gains 

The Treasury has not ruled out increasing capital gains tax. The chancellor may announce an increase in the main rate of capital gains tax, which is usually between 10% and 20% or widening the range of assets subject to CGT. 

Business inheritance tax 

Reeves may abolish or cap the inheritance tax exemption for business assets. Scrapping this tax relief could yield £1.1 billion. 

This would be particularly bad news for the Alternative Investment Market (AIM), which relies heavily on the benefits of IHT business relief for its investors. The entire capitalisation of AIM is around £75bn, roughly £11bn of which comes from making use of the shelter. Investors can sell shares and avoid paying IHT providing they hold on to their AIM shares for two years or more. 

Julia Hoggett, CEO of the London Stock Exchange, said in a letter to the Treasury reported by Sky News that  the “ongoing viability” of AIM, London’s junior stock market, would be threatened if 100% IHT business relief is jettisoned.

Notable companies that list on AIM include soft drinks company Fevertree, clothing brand Boohoo and travel firm Jet2.

The irony here is that hobbling AIM as a way for fast-growth companies to raise finance goes directly against the Government’s “growth first” message. 

Charles Hall, head of research at Peel Hunt, said in a report last week that the index was “fundamentally important to business creation, scale up funding, job creation and economic growth”. 

In his report, AIMing Higher, Hall said that specific AIM inheritance tax funds have become an important part of the AIM “ecosystem” as they provide long-term funding and mainly invest in UK companies. 

Jessica Franks, head of investment products at Octopus Investments, said: “AIM has never existed without business relief, so concern around the impact of its removal is understandable.

“The potential savings often quoted resulting from the abolition of business relief are significantly overstated, not accounting for the negative impact on UK productivity nor other planning options investors should be expected to seek out.”

In a report commissioned by the London Stock Exchange, Grant Thornton said that last year AIM contributed £35.7 bn gross value added to UK GDP and directly supported over 410,000 jobs, while constituent companies made a corporation tax contribution of £5.4bn.

Neil Stevens, joint CEO of Aim listed company Fintel, told The Times that removing the tax break would “destroy the ability to innovate and grow companies” and that questions about the policy are “causing a lot of panic”.

Stevens said that if the government cannot provide “specifics” about the policy before the budget they could change the rhetoric, which “generally is doom and damaging business confidence”. 

Private equity profits

Executives in private equity firms could find themselves paying an additional £2 billion worth of tax if the Chancellor clamps down on the way executives pay themselves. 

Executives in a private equity fund invest in the vehicle alongside investors, receiving what is known as “carry” or “carried interest” on profits, which are taxed at 28%, the rate of capital gains tax, rather than the combined income tax and national insurance rate of 47%.

The Treasury has already written to the industry, probing how executives in private equity firms remunerate themselves.  

Employer pension contributions

Despite Reeves and Sir Keir Starmer previously ruling out raising the main rates of National Insurance contributions, Reeves could raise National Insurance costs for employers through pension contributions. 

The Resolution Foundation, a left-leaning think tank, has urged Reeves to implement a £9bn tax on pension contributions by making companies pay 13.8% National Insurance on their staff pension contributions, which could raise an estimated £9bn for the Treasury. 

Meanwhile, the Government is reportedly considering increasing the minimum level of employer pension contributions, along the lines of Australia’s pension system. 

Employers in Australia must currently contribute 11.5 per cent of employees’ salaries to their pension, a figure set to rise to 12 per cent in 2025. By comparison, the total minimum workplace pension contribution in the UK is 8 per cent, of which employers only need to contribute 3 per cent.

Former pensions minister Steve Webb said that paying National Insurance on employer pension contributions could raise up to £16bn annually.

If Ms Reeves applies full National Insurance rates to all employer pension contributions, this could result in a huge increase to costs for businesses, which would contradict Labour’s goal of growing the economy. It could also reduce the amount of money firms are willing to contribute to pensions.

Pensions consultancy Lane Clark & Peacock (LCP) said employers might respond to this tax by reducing future pay rises for their workers or putting up prices.

Again, the former would conflict with Labour’s “Make Work Pay” scheme that aims to put employees first.

The National Insurance exemption on employer pension contributions costs the Treasury £23.8bn a year, according to Government figures.

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