The Autumn Budget is taking place on 27 October 2021 with Rishi Sunak setting out the Government’s spending and financial strategy. He is expected to outline a number of measures to balance the books after billions of emerging spending during the Covid-19 pandemic.
From business rates changes to expected minimum wage rises and energy price reform, this is a Budget that has to balance optimism with pragmatism to help the UK economy continue to build back stronger in the years ahead. Here, Jamie Morrison from HW Fisher’s tax team shares his views on what the Chancellor should be prioritising in his statement.
Remember the bigger picture
Against a backdrop of national debt – according to the ONS, the UK general Government gross debt was £2,224.5 billion at the end of financial year ending March 2021, equivalent to 106.0% of gross domestic product (GDP). By comparison, this is 13.1 percentage points above the average of the 27 European Union (EU) member states.
Given this context, the Chancellor must take a pragmatic approach in this Budget. It is unlikely to be a Budget of ‘giveaways’ – the reality is the unprecedented levels of COVID support needs to be paid for.
In addition, wage rises, staff shortages and energy price hikes are contributing to an uncertain environment. A month after furlough schemes have come to an end, The Guardian has projected that 1 in 16 UK firms could face closure as a result. There will be a difficult few months ahead and small businesses need confidence to thrive.
Our message to the Chancellor is to think carefully about his tactics and to try to bring back the British fighting and entrepreneurial spirit.
Help instead of hinder British Business – avoid further tax bombshells
Boosting British business doesn’t mean lowering taxes – while the Chancellor has limited options, we urge him to refrain from increasing taxes further – corporate tax is already set to rise substantially in 2023 and employers have also been hit by the NIC changes. Instead, the Chancellor should be putting together an action plan to reduce red tape and improve efficiency in driving the economy forwards.
Incentives for Business
We are calling on the Chancellor to use the Budget as a platform for business. Small businesses and entrepreneurs have come close to breaking point since the pandemic began. As the lifeblood of the UK economy it’s time to take a stand! Growth stimulation is essential.
It’s expected that further measures to help businesses grow – such as March’s capital allowances super deduction – will be announced by the Chancellor this time around.
Modernise the tax system
Calls from ICAEW to modernise the tax system hold a lot of merit. However, previous attempts at tax simplification are yet to be a resounding success and in many cases have made things more complex.
This is unlikely to be top of the Chancellor’s priority list, however we would welcome a consultation – the first logical step in moving towards positive change.
Expect closer alignment of capital and income tax rates
Closer alignment of capital and income tax rates will likely be an easy target and in keeping with a simplified approach, to reduce the impact of seemingly aggressive tax planning.
It would also be a logical step in line with the decision on increasing both the NIC and the dividend tax rate – which was a likely tactic to reduce people tinkering with tax planning strategies. However, some recognition of risk/reward for longer term holding of assets may be reflected, for example re-introduction of some kind of taper relief type adjustment for capital gains.
Steer clear of inheritance tax rises
Inheritance tax rises are likely to be a political move, rather than a cash generating exercise. The Chancellor will be wary of implementing changes that will likely impact a significant portion of voters the Government will want to avoid alienating right now.
Expect little generosity towards home based workers
We are unlikely to see much generosity towards home based or hybrid workers – ultimately in most cases they will be saving money compared to when they were in the office full time.
It will be more beneficial to focus on encouraging people to get back to the cities to help regenerate businesses there – for example food outlets and other hospitality businesses who have struggled throughout the pandemic. This message will likely be carefully balanced with the latest Covid figures showing rising cases.
Climate change must be high on the agenda
Climate change is likely to have a profound impact on business and on us as individuals; it could lead to significant market corrections and changes in the coming years. Failure by business to respond to the risks has significant implications, such as disruption to supply chains, loss of asset values, and market dislocation.
We are at a tipping point when it comes to tackling climate change, and there is no doubt work has to be done. With the Climate Change Summit taking place almost immediately following the Budget, the Chancellor will want to show that he is playing his part in the effort to make the UK economy carbon neutral. In practical terms, this means that he must start showing support for businesses to reduce carbon emissions, as well as action to improve access to private finance outside of London.
If you have any questions about how the Autumn Budget might impact you, please get in touch.