‘Tax’ the word on consulting industry’s lips following autumn budget
Chancellor Rachel Reeves has delivered her second autumn budget, since a landslide election victory swept Labour into Downing Street in 2024. But with the government’s popularity tanking in the polls, her latest plans have divided the opinions of the consulting sector.
Prior to the 2024 general election, the Labour Party had been courting the private sector continuously under the leadership of Keir Starmer. Among other things, this saw Labour quadrupled its use of consultants in preparation for the 2024 general election, according to Electoral Commission data. This reversed a stance taken by previous leader Jeremy Corbyn to freeze Big Four professional services out of the party’s activities.
While ultimately this helped the party to a massive Parliamentary majority that summer, however, consultants then wasted no time underlining the factor their clients were most concerned about: taxation. That should not come as a surprise, after all, the professional services industry’s top players regularly work with businesses to reduce their tax burden – for example, the sector is closely tied to the offshoring of private wealth in tax havens – but the extent to which it dominated their early wish lists directed at the government was still eye-catching in its totality.
16 months later, with the embattled Rachel Reeves having delivered her second autumn budget as chancellor, the industry has not minced its words in reiterating that stance.
Tax is the word
Referencing recent toing and froing from Reeves on an income tax rise, which displeased some investors – but wiped £26 billion from the FTSE 100 when she further spooked them by reneguing on what they had presumed was a ‘done deal’ – Neil Armstrong, tax director, at Baker Tilly Mooney Moore, pointed to the chancellor having “quickly discovered just how little room she had to manoeuvre.”
He went on, “It is therefore unsurprising that the centrepiece of the budget targeted measures affecting only a minority. The so-called “mansion tax” will be felt in parts of London and the South East of England but barely registers in Northern Ireland. Politically, it is a neat move: lucrative for the Treasury and unlikely to trouble most voters… When the dust settles, the reality remains that every taxpayer will end up contributing more, whether or not it is immediately obvious. Reeves may hope this careful balancing act will spare her the political fallout of more direct tax rises, but despite the targeted nature of many announcements, this was still a revenue-raising Budget, one that quietly ensures we will all feel its impact in the months ahead."
Grant Thornton’s Nick Parkinson also picked up on the lack of clarity around taxation heading into the budget with his response, noting that “uncertainty has been the feature of the year in tax policy and it is unlikely the budget has resolved that for clients, particularly with those making the decisions coming under increased scrutiny as a result of how the budget panned out”.
The private tax partner argued high net worth individuals might come under further pressure in the future, as “the chancellor seems to have left the door open to revisit some of the rumoured policy changes in the future”. While there was “a welcome announcement” for spouses to “transfer their £1 million allowance for assets qualifying for Business Property Relief and Agricultural Property Relief”, which Parkinson claimed would bring “more flexibility to managing overall inheritance tax liabilities for married couples”, importantly “the chancellor did not announce anything which closes the door to sensible wealth and succession planning which remains a priority for our clients given their lack of confidence in the tax environment.”
EY’s Andrew Pilgrim supplied a seemingly more trusting take. The Big Four firm’s UK government and financial services leader, commented that the government’s decisions on banking tax rates in particular provided welcome clarity and certainty. Holding them steady means that UK banks will “continue to pay a higher tax contribution compared to other sectors and indeed other nations”, but “the lack of increase is a small but reassuring sign that the government is listening to the concerns of the sector.”
Pilgrim closed, “With the budget now behind us, UK banking and wider financial services leaders will look to continue working effectively with government to drive forward efforts to embrace emerging technologies, support job creation and ultimately ensure the UK remains a globally competitive place for financial firms to invest and do business.”
Meanwhile, an up-beat Theresa Lindsay, chief marketing officer at retail finance firm Novuna, welcomed “cuts to business rates and wider tax pressures”, which she said would “come as a genuine relief for Britain’s high streets” – as rates for retailers are now set to fall to their lowest level since 1991. After years of trading on “wafer-thin margins”, she said that the measures “offer some much-needed breathing space to stabilise and look beyond mere survival.”
"But no one in retail believes these changes fix the fundamentals,” Lindsay added. “Costs remain high, footfall is unpredictable, and physical shops still face fierce competition from online retailers who simply don’t carry the same overheads. So, while retailers will welcome today’s announcements, this cannot be boxed off as ‘job done’. If the Government is serious about protecting the high street, it needs a long-term strategy that helps shops grow and thrive – not just hang on.”
Consumer concerns
On the front of the average consumer, the jury was out as to whether Reeves’ balancing act would pass muster. Jacqueline Windsor, head of retail at PwC in the UK, found that the budget might have supplied breathing room for some in the short-term, but in the long-term, it may place further pressures on the cost-of-living.
“Today’s budget brought some respite for the 85% of consumers who have told us that they are concerned about the cost of living, with one-year freezes on fuel duty and rail fares and a short-term cut to energy bills being the biggest impacts. While these will be offset by longer-term indirect tax rises such as the freeze on income tax thresholds, in the short-term retail and hospitality businesses will hoping these measures bring spending momentum to what has been a slow start to the critical Golden Quarter in the run-up to Christmas.”
However, Windsor claimed, “Longer term, the budget does not allay many consumer-facing businesses’ concerns about the cost of doing business. While there has been no repeat of the employee NICs rises from last year, the 4.1% increase in National Living Wage and even higher 8.5% increase in minimum wage for 18-20 year olds particularly affect the workforces of the retail and hospitality sectors. While there will be reductions in business rates for smaller properties, the permanently higher multiplier for properties over £500,000 will affect larger stores, notably supermarkets and high street anchor stores, as well as warehouses. This will inevitably put pressure on, for example, grocery prices that are already bucking the wider trend of lower inflation.”
Elsewhere, Laurence Field, partner in corporate tax at Crowe bemoaned “a lost decade for taxpayers”, with personal tax allowances for basic rate taxpayers last raised in the 2019. With that freeze now set to continue to 2030, he argued that “inflation will be doing the heavy lifting for revenue raising” instead – citing “over 25% inflation since the pandemic”. And while Field conceded “few tears will be shed for the asset rich and tax poor”, he also reeled off a number of shifts which will see taxes rise.
“Wealth taxes are here. The mansion tax is effectively a tax on accumulated wealth. We will wait to see what resources are available to make valuations of property and how often these valuations are reviewed."
Finally, while broadly Professor Joe Nellis heralded a “bullish budget from the chancellor”, centred on “prioritising long-term investment, providing financial stability, and reassuring the financial markets”, the MHA economic advisor was still sceptical of Reeves’ taxation plans. Suggesting “those with ‘the broadest shoulders’ are certainly bearing the brunt” of changes, he noted “the surcharge on properties valued at more than £2 million” were facing a 2% tax increase on dividends, and restrictions to salary sacrifices in pensions will hit higher earners.” But while some of that will go towards helping lift the two-child benefit cap – “a crucial intervention in the fight against child-poverty”, and cutting £150 “from average annual household energy bills from 2026”, he remained unconvinced whether the “cost-of-living budget” really added up.
Nellis questioned, “Has the Budget actually helped put money in people’s pockets in the short-term? Not really. The freeze on income tax and National Insurance thresholds until 2028 will drag many earners into paying higher rates of tax, and the above-inflation increase in the minimum wage could disincentivise hiring at a time of high youth unemployment and economic activity.”
