What will the 'fiscal' event bring?

The death of HM Queen Elizabeth II has put many of the normal political processes on hold. Two days into the Truss administration a ‘fiscal event’ was announced, with an expected date before the end of the month. It is now being reported that the plans remain in place, though it may require a juggling of parliamentary time and tinkering with the timing of the recess. Whether a fiscal event is a euphemism for an emergency Budget remains to be seen – but with significant expenditure announced Chancellor Kwarteng will need to explain how he intends to pay for it.

Unless seeing the reality of government has put Team Truss off, based on her statements over the last few weeks we can expect there will be no new taxes. The question will be which ones will the new Prime Minister look to reduce or abolish. Truss’ team have been talking about creating a growth environment, with an aspirational target of 2.5% per year, rather than focusing on redistributing existing wealth through tax policy.

So what could that mean? 

We know Truss has promised:

1. the planned increase in corporation tax to 25% from 1 April 2023 to be reversed
2. the national insurance rise – the Social Care Levy – to be reversed
3. windfall taxes on energy producers to be abolished
4. investment zones will be created.

Most analysis of the UK economy over the last few years has pointed to a lack of investment holding back productivity and depressing growth. A weak pound currently helps exporters, so we could see several actions:

1. Research & Development (R&D) tax credits were due to be reformed by the previous (but one) Chancellor. We expect to see more on encouraging business to carry out R&D in the UK to attract both investment and technical jobs.
2. The super deduction for investment in plant and machinery could be extended – the two year window was due to close in April and is becoming increasingly less valuable as we approach that deadline. Extending that deduction for longer would give business more certainty about the costs of long-term investments.
3. Fiscal drag has been at the heart of tax policy for the last few years. Indexation has been abolished, freezing of personal allowances is planned to last until 2026 and thresholds for various registrations are held at below inflation. Could we see some of this unwound? Increase personal tax bandings, provide relief for inflationary gains on assets and for those with long memories, reintroduce stock relief?
4. With global supply chains under pressure, perhaps credits could be provided to reward onshoring or returning functions to the UK. This would encourage economic activity and improve business resilience.

While it seems a long time ago now, the leadership campaign promises suggested that Prime Minister Truss wanted a change from the recent orthodoxies of taxation. By the end of this month we might find out whether she means it.