March 3rd will be the first post-Brexit Budget, but for obvious reasons, this fact has almost been swept under the carpet, as the Government grapples with public finances and the need for a clear covid recovery plan.
According to the Institute for Fiscal Studies (IFS) the UK could need tax increases of about £60 billion if the Chancellor wants to balance the books after Covid-19. According to IFS this would be equivalent to a tax rise of 6p or 7p for every £1 earned. There is a fiscal plan to come, but the Chancellor should prioritise a slow and steady approach to avoid any issues that could have a further negative impact on the economic recovery. The priority must be to reopen the economy and start to generate momentum as businesses gradually reopen. We would then expect the Chancellor to announce a more detailed budget in November providing further clarity and detail around how the public finances will be addressed.
Consider the reality: what is going to effectively raise money to address the deficit?
So many of the rumours are politically charged and we know that today’s problems cannot be fixed in a single Budget. We would urge the Chancellor to think realistically about what will solve the toughest short term issues we are facing.
Extend stamp duty holiday for 12 months: barriers to property investment are the last thing we need
There is currently a potential 160,000 home sales stuck in limbo and at risk of falling through if the stamp duty holiday is not extended. At a time when the economy desperately needs a quick boost, slowing the housing market would be unadvisable.
The economy needs to start moving and the stamp duty land tax holidays will keep the market moving – otherwise we are at very real risk of stagnation.
Another way to incentivise inward investment and stimulate the housing market would be to abolish the 2% surcharge for overseas buyers. The UK needs to remain an attractive option for overseas buyers and attract foreign capital to our shores.
Start thinking about life after furlough
We urge the Chancellor to extend furlough but only for the sectors that really need it – it continues to be a serious time for British business. However, as part of this extension, the Chancellor must share a longer term strategy for our struggling businesses. Confidence is at rock bottom. A longer term strategy is key to building long term confidence. And the first step is to focus on life beyond furlough – the reality is that the scheme cannot last forever. It will end. We need to see a phased exit strategy.
Extend the VAT and business rates holiday
We stand aligned with UK Hospitality and ask the Chancellor to extend the business rates and VAT holiday to support this struggling sector. The hospitality and tourism industry is the bedrock of local economies and this is the quickest way for the sector to recover.
Both of these measures have been a lifeline for our struggling businesses, switching off life support too soon will be detrimental to British business at a time when there is an opportunity to start building back following the vaccine rollout.
Sales tax on digital services would be a dangerous move
A potential online sales tax is rumoured in a bid to save the high street, yet the reality is that the costs of a potential “Amazon Tax” would stifle entrepreneurship. 55% of everything Amazon sells is from third party merchants and Amazon will simply pass the tax on to small businesses.
A good example is the Digital Services tax introduced in August last year – costs were increased by 2% overnight.
An alternative here could be to increase the business rates on warehouses, raising them by 50%. This would help level the playing field between online business with and independent chains with city centre stores.
Landlords are businesses too!
Commercial landlords are the forgotten businesses of the Covid-19 crisis. The most common arrangements being negotiated are rents based on turnover until the end of 2021 or rent free periods being given during the Covid/Lockdown periods with a corresponding extension to the terms of the lease. These agreements are vital to ensuring these businesses are still operating at the end of the year and that the Government measures are not wasted. The one area that the Government has not tackled is the relationship between Landlords and Tenants and this needs to be prioritised now!
Climate change – is it a Budget too early?
We would like to see climate change at the front and centre of the March Budget, however, any substantial movement on carbon taxes is likely to be slow. It might be a Budget too early to prioritise Green investment as the Chancellor grapples with how to best close the largest deficit since World War Two, yet it is important that the UK continues it’s commitments to the Paris Accord and therefore the Chancellor must carefully weigh up the Government’s Green priorities alongside those needed to genuinely kickstart the economy.
Our message is clear: political motivations must step aside
It has been a dark 12 months for businesses, but the light is at the end of the tunnel. Our message to the Chancellor is clear – keep it slow and steady and avoid populist tax changes in favour of targeted, longer-term reform of the tax system.
We will have to wait and see if the Chancellor chooses austerity, or to tax his way out of the deficit or encourage the country to spend and invest but the impact will ultimately be felt somewhere.
If he does choose to raise corporation tax, for example, it will be the small businesses impacted the most and any VAT increases will hit the poorest in society, so careful thought will need to be given to ensure those with the broadest shoulders bear the most, but not at the expense of suffocating growth.
It is clear we will need to work together to ensure the country recovers and is even stronger post-Covid, using what we have learnt along the way