Tag: PWC

The press release issued by PWC on 17 November 2022.

Isabelle Jenkins, Leader of Financial Services at PwC UK, said:

“The Government is clearly dealing with a range of economic challenges, so it’s encouraging to see the Chancellor reaffirm his commitment to the importance of financial services. A dynamic financial services sector is a prerequisite for the success of the other growth industries identified by the Chancellor.

“The plan set out by the Government today for Solvency II will see the release of capital, which underpins the government’s desire to encourage growth, something that will no doubt be welcomed by the sector. However, the rest of the industry will have to wait to hear what other areas of regulation the Government will seek to change. It is of course right that the Government ensures the UK’s regulatory framework is fit for purpose, but providing certainty and stability as soon as possible will also be important.

“Finally, as one the most innovative and digitally enabled sectors in the economy, transformation is being driven through the deployment of technologies such as Cloud and artificial intelligence. With future opportunities from technologies such as distributed ledger technology and quantum computing, the announcement that Sir Patrick Vallance is to lead work to consider how the UK can better regulate emerging technologies makes good sense.”

The press release issued by PWC on 17 November 2022.

Barret Kupelian, senior economist at PwC, comments on the Autumn Statement:

“We knew it wouldn’t be pretty, but today’s Autumn Statement demonstrates just how challenging the UK economic situation is, with the policies announced marking a return to Treasury orthodoxy. The Chancellor today announced a large fiscal consolidation to the tune of £55 billion, but it is his specific choices about both the form and the timing of when his policies will be delivered that didn’t make his statement.

“First, he decided to shoulder c.55% of the fiscal consolidation on spending cuts. The philosophy adopted by the Chancellor was similar but not as extreme to what George Osborne had followed in the Emergency Budget in 2010 where he chose to focus around three quarters of the policy decisions on spending cuts. Despite focusing on spending, the OBR estimates the tax revenue to GDP ratio will be at its highest sustained level since World War II, to almost 45% by FY 2027/28. Second, the overwhelming large proportion of the spending decisions come into effect in FY 2025/26, which is after the life of the current Parliament (see chart).

“The fiscal implications of the policy choices made in the Autumn Statement depend on how the economy fares in the future. On this, our high-level observation on the economic backdrop assumed by the OBR is that it is gloomy in the short-term but brighter in the medium-term. Specifically, the OBR assumes that there will be a recession next year, coupled with inflation. In practical terms this means economic output will return to pre-pandemic levels by the end of 2024, which is a significantly worse performance compared to all other G7 economies. The impact on the labour market is for unemployment to increase by half a million, followed by a gradual decrease in the subsequent years.

“Soberingly, this means that the combined impact on households will be to erode real household disposable incomes by a cumulative 6.5% relative to 2021 levels. This type of contraction has never been recorded in Britain’s post war history.

“On a more hopeful note, the OBR assumes financial markets’ forecasts on the path of interest rates, which are higher than those of professional forecasters. If the view of professional forecasters prevails, then this could mean lower debt repayments than those forecast by the OBR”.

The press release issued by PWC on 17 November 2022.

John Harding, leader of PwC’s Employment practice, says:

“Following recommendations by the Low Pay Commission, the Chancellor’s announcement that the National Living Wage (NLW) will increase by 9.7% and the National Minimum Wage (NMW) will increase by similar levels from 1 April 2023, will be welcomed by the 2 million employees who are expected to benefit.

“A full time worker aged 23 or older currently on the NLW will see the biggest ever increase to £10.42 per hour. These increases mean that the Government is on track to meet its commitment to have a NMW equal to two-thirds of median earnings (for workers aged 21 and over) by 2024.

“This commitment supports the Government’s ambition to create a high productivity, high wage economy and a fairer society. But an employer with 200 employees paying at the National Living Wage will now face an increase of over £500,000 in their employment costs as a result. So while the proposed increases look good for employees, they will create challenges for many employers in industries such as retail and hospitality who traditionally employ large numbers of workers close to the NLW. In addition employers that also pay above the NMW levels are likely to be impacted as employees look to retain the differentials.

“Finally, the rules governing the calculation of NLW and NMW are complex and have been subject to significant changes in April 2020. Given this increase and how many employers will now have employees caught by the NMW regulations, they should be taking the time now to understand what impact these changes will have on their current operations as well as their future employment models to ensure they are not breaching the rules inadvertently. The financial and reputational implications of a NLW or NMW breach are significant and include penalties of up to 200% and being publicly named as a non compliant employer by the Government.”

The press release issued by 17 November 2022.

Commenting on the personal tax measures announced at today’s Autumn Statement, Laura Morris, tax partner at PwC, says:

“HMRC is expecting to collect additional revenues of 13bn by 2028 as a result of the personal tax measures announced today. Nearly 30% of this will come from the reduction in the 45% tax threshold with approximately 23% each coming from the reduction in the dividend allowance and vehicle excise duty for electric vehicles.

“While the freezing of thresholds brings more people into higher tax brackets as wages and incomes increase, it’s clear that savers and people who ‘have more’ were the biggest focus of the personal tax changes announced today.

“The reduction in the threshold for the 45% tax rate to £125,140, brings it in line with the point at which individuals also lose their personal allowance. This means people will pay an effective tax rate of 60% on income between £100,000 and £125,140, and 45% on income above this.

“Threshold freezes create ‘fiscal drag’ whereby tax receipts rise because tax bands are not increasing in line with income and wage increases. For the maximum impact to be felt in terms of increased tax revenue, employment needs to hold up and wages need to continue to rise.

“The reductions in annual exemptions for Capital Gains and Dividend Tax will bring more people within the scope of these taxes and increase the tax return compliance burden for both individuals and potentially HMRC.”

Commenting on capital taxes, Alex Henderson, tax partner at PwC, adds:

“The Chancellor has announced a wide range of seemingly technical and limited changes to the tax system to raise taxes but they will have significant practical consequences. Many more people will now find themselves caught by the new lower thresholds which could mean we see behavioural changes. If you put yourself in the shoes of someone considering selling or investing in an asset, you may well delay your decision due to the threshold changes, but also due to the Chancellor’s signalling of a future direction of travel aimed at taxing capital gains more heavily.

“There will be a knock-on impact on the complexity of the tax system. The capital gains relief is only available to the most wealthy, but it does mean more smaller gains will now enter the tax system, adding to complexity for taxpayers and HMRC alike. The question is whether there will be any significant uptick in tax receipts resulting from these changes after the costs and behavioural changes are factored in.

“Ultimately all taxpayers value clarity and stability when it comes to taking a longer term view and unfortunately even relatively technical changes when they come seemingly every year undermine confidence.”

The press release issued by PWC on 17 November 2022.

Jon Richardson, head of tax policy, PwC, says:

“The Chancellor delivered on the promise that there would be few rabbits out of the hat on tax for this Statement. The bulk of extra revenue raised has come from freezing or reductions in allowances as well as the expected increase in the energy windfall tax. There was some positive news on business rates but the net impact is the UK is now facing a record tax burden.

“Apart from the additional tax there is a hidden cost to the announcements which is the additional tax compliance burden – as tax free allowances reduce, more income and gains are brought into the tax net which will need to be reported on tax returns for the first time.

“The Chancellor talked a lot about growth but with the corporation tax rate going up to 25%, no replacement to the super deduction and a net reduction in R&D tax relief, the UK’s tax competitiveness is significantly deteriorating.”

Rachel Moore, R&D tax partner, PwC

“The Chancellor has given large companies a surprise and much welcomed bonus by increasing the headline R&D credit rate from 13% to 20% resulting in a change in cash value from 10.5% to 15% (after taking account of the change in corporation tax rate). However this is being more than paid for by a significant reduction in credits available for SMEs where the rate of relief for loss making companies nearly halves from 33% to 18.6%. This rebalancing of rates between the two schemes will result in more than a £1 billion of extra funds for the exchequer.

“While it is widely recognised that there are issues in the SME market, this seems to be a blunt approach which penalises all claimants and does not tackle the underlying issues. It is also a double whammy for SMEs operating globally who will see claims reduced by the previously announced exclusion of overseas costs from claims. These changes will particularly impact the life sciences sector who depend heavily on R&D credits for funding.”

The press release issued by PWC on 17 November 2022.

Commenting on today’s Autumn Statement, Zubin Randeria, ESG Leader, PwC UK commented:

“The tricky balance between protecting tax revenues while encouraging sustainable behaviour was made clear in the Autumn Statement. On one hand, we heard a renewed commitment to reduce greenhouse gas emissions by 68% by 2030, on the other electric vehicles will be subject to road tax by 2025. With tax incentives expensive, reducing energy consumption will be key to realising our climate ambitions.

There is a clear imperative to reduce energy consumption as one aspect of keeping increased costs down, but by setting out a national ambition to reduce energy consumption by 15% by 2030, the Government is also showing its commitment to the Glasgow Climate Pact.

“Hitting emission reduction targets will require collective action by every household and business in the country and brings with it a chance to make lasting changes to our behaviours when it comes to energy use.

“The new Energy Efficiency Taskforce can play an important role in moving us close to Net Zero but there should be no underestimating the scale of the challenge ahead. It’s encouraging then, that alongside direct support to counter steep energy prices, the government is aiming to introduce a range of cost-free and low-cost steps to reduce energy demand.

“A key aspect of hitting this necessary target is reducing energy consumption from buildings and industry, as highlighted in the Autumn Statement. Our Green Jobs Barometer research has shown that can only be achieved by investing in retrofitting – which could not only help the UK hit Net Zero, but can sustain upward of 500,000 jobs.”

The press release issued by PWC on 17 November 2022.

Kevin Ellis, chair and senior partner at PwC UK, said:

“It’s good to see the Chancellor’s focus on skills and education, and without lots of bitty new initiatives. Instead, the announcement that Sir Michael Barber will review the implementation of a skills reform programme is welcome. We need a big picture approach. Employers like PwC that rely on a strong pipeline of talent will be keen to support this important work, which links to other priorities including today’s renewed commitment to the Glasgow Climate Pact, and making the UK the ‘world’s next Silicon Valley’.”

The press release issued by PWC on 3 November 2022.

Barret Kupelian, Senior Economist at PwC, comments on today’s BoE interest rate decision:

“Surprising no one, the Bank of England today increased its policy rate by 75 basis points to 3% which is its biggest hike for thirty years. At the same time, the Bank also released its Monetary Policy Report, which contains its latest thinking on the good, the bad and the ugly of the UK economic outlook. We summarise below.”

“The good: Consistent with our own forecast, the Bank thinks consumer price inflation will peak by the end of this year and gradually fall from early next year as the energy price falls out of the annual comparison. In its main scenario, the inflation rate falls under target by the second quarter of 2024 using market-determined interest rate paths, or slightly later when conditioned against a more accommodative policy rate of 3%.”

“The bad: The Bank expects Sterling’s effective rate to remain around 5% lower than its 2020/1 average or around 25% lower than its pre-financial crisis rate for the foreseeable future. However, the Bank also expects UK consumers and businesses to be hit with all the downsides of cheaper sterling (i.e. more expensive imports with import inflation expected to peak at 16% by the end of the year), but with very little of the upsides (i.e. higher volume of goods and service exports). In net terms the Bank expects virtually no growth spurt from cheaper sterling.”

“And the ugly: The Bank of England predicts that there will be virtually no growth in the next couple of years and a prolonged period of recession.This is a significantly worse economic performance compared to our peers, i.e. the US and the Eurozone. More worryingly, the Bank expects no growth in labour productivity and a fall in business investment, all of which make the UK a less attractive place to do business. Precisely because of the lack of growth, the Bank expects the unemployment rate to steadily increase to just around 6.5% in three years’ time.”