Autumn Statement 2023: The implications for Scotland
By Justine Riccomini, Head of Tax (Employment and Devolved Taxes)
5 December 2023
We outline the key considerations for Scotland which emerged from the UK Autumn Statement on 22 November 2023.
Several key tax announcements were made at the 2023 Autumn Statement, with Chancellor Jeremy Hunt quashing the rumours that it might be a bit of a non-event. In addition to the Autumn Statement, an announcement was also made by the Deputy First Minister by way of a letter to the Finance and Public Administration Committee the day before. We explain what all of the announcements made might mean for the Scottish economy.
Letter to the Finance and Public Administration Committee
While it is not entirely clear why the Deputy First Minister chose to send her letter the day before the Autumn Statement, in her letter, the Scottish Deputy First Minister Shona Robison, set out a series of current year funding reprioritisations amounting to £680.3m with downward spending revisions in areas such as agriculture, mental health and the Scottish Funding Council. The letter did not set out details of the areas into which the revisions would be channelled – and instead pointed towards a combination of areas within the health and social care system which appear to be suffering from inflationary squeezes, public sector pay deals, the Scottish child payment and the fuel insecurity fund.
Part of the reason for needing to reprioritise was stated as the absence of additional funding from the UK Government to allow the Scottish Government to fulfil its three critical missions as outlined in the Policy Prospectus. However, the Autumn Statement announcements the following day clearly allocated £545 million of additional funding by way of ‘Barnett consequentials’ to the Scottish budget (£223.1 million to 2023-24; £320.6 million for 2024-25). The full picture will not become clear until the Scottish government has produced its Spring Budget revisions in early 2024.
Autumn Statement 2023
In the end, it seemed that the usual tight-lipped, pre-fiscal statement purdah was washed away in a flurry of pre-statement leaks. The Chancellor used the Office for Budget Responsibility’s more positive outlook and a reduction in inflation to facilitate several measures. The main announcements were a 1% NICs rate reduction for the self-employed as well as the abolition of weekly Class 2 NICs and a 2% reduction for the employed, taking place with effect from 6 January 2024 instead of 6 April. Full expensing for businesses investing in plant and machinery is not being phased out in 2026 after all, and research and development tax relief is to become a merged scheme rather than two separate ones, making it seemingly less complex.
NICs
As NICs are reserved to the UK Government and are not devolved, the reductions represent a saving for all employed and self-employed people in all UK jurisdictions. Employer’s NICs remains unchanged however, at 13.8%, which when added to the 9.6% increase in the main National Living Wage rate increase, could be seen by many businesses across the UK as an unhelpful measure, even though it goes a little way toward combatting the cost-of-living crisis for many.
National Living Wage
The UK’s National Living Wage will increase from the current £10.42 to £11.44 per hour from April 2024, and will apply to workers over 21. The minimum wage for 18–20-year-olds will increase to £8.60 from £7.49. For 16–17-year-olds, the minimum wage will increase by over £1 to £6.40 per hour. As this applies across all UK jurisdictions, Scottish workers will benefit from the measure directly. A qualifying full-time equivalent role paying minimum wage will now attract a salary of £20,820pa.
Research and development (R&D)
A merged scheme for tax relief on research and development is now to proceed from April 2024. As with the measures announced on NICs and National Living Wage, R&D tax relief is not devolved and so will be available to all and outside the scope of the Scottish government’s powers. Additional relief for R&D-intensive SMEs, which was only introduced from April 2023, will now change from April 2024 – on this basis, ICAS members should ensure their clients are fully prepared.
Non-domestic rates
Non-domestic rates (or business rates) are fully devolved to the Scottish parliament. However, the Chancellor announced another year of freezes for businesses with a rateable value up to £51,000 and that a temporary reduction in bills for retail, hospitality and leisure businesses of up to 75% would be extended for a further year.
This policy generated additional money in the form of ‘Barnett consequentials’- for the Scottish Budget (see below) but Scottish ministers will have the discretion to decide whether to use this additional funding to make cuts to Scottish business rates, or use for something else. As the covid support measures for businesses were withdrawn in 2022, Scotland’s business owners may be hoping the Finance Minister throws them a bone and offers a similar reprieve, given that no employer’s NICs reductions were forthcoming.
Scottish Draft Budget – 19 December
The Scottish Government will announce its spending and tax plans for 2024-25 on Tuesday 19 December. As we have seen, the main measures announced by Jeremy Hunt are reserved to the Westminster Government and outside the scope of Scotland’s devolved powers – so they will apply automatically in Scotland.
Barnett consequentials
However, some of the other measures announced apply to England only. These will impact on Scotland by generating automatic additional funding through the Block Grant and Barnett Formula – known as “Barnett consequentials”. The main ones are:
- The additional NHS pay award funding in England;
- A 75% relief on qualifying business rates in England for the retail, hospitality and leisure sectors in 2024-25
- Freezing the small business multiplier in England
Readers will note that there is no obligation on the Scottish Government to spend the additional funding in the same way – so it will be interesting to see how the Finance Minister decides to allocate the funding on 19 December.
