Andrew Moorby’s Pre-Budget Comments
Our Managing Partner and Head of our Teesside office, Andrew Moorby, shares his pre-Budget comments…
At present the economy is recovering very strongly from the lockdowns. We have wage and price inflationary pressure which if they persist, could affect interest rates with implications for the economy and Government finances.
Whilst labour shortages remain a huge problem, the furlough scheme concludes at the end of this month and so unemployment may become an issue again. In addition, whilst another lockdown appears unlikely, it is certainly possible that some covid restrictions could be reinstated which would inevitably affect growth. Hence, it’s an uncertain picture albeit based upon a recovering economy in which certain sectors are booming.
In terms of tax therefore it is difficult to really gauge what the Chancellor might announce on the 27 October. The general feeling is that due to the uncertainty, there won’t be many major changes. Instead, the announcements will be more technical.
They will include various “stealth” taxes (i.e., freezing of allowances, the removal of reliefs, the change to basis periods for self-employed, an increase in the date people can draw their pensions etc). Obviously, many of these have already been announced but others are expected.
We have already had announcements on NIC and dividend taxes and so we don’t expect further increases from a personal tax perspective.
For businesses, we already know that their employment costs are to rise, and the headline rate of corporation tax will go up to 25% in 2023. Hence it is unlikely that further increases will occur at this time.
It is undoubtedly true that both IHT and CGT legislation need to be updated. In the past the simplification of taxes has tended to lead to higher taxes for some and so this is likely to be a consequence of change. These may however take some time to flow through as changes to large parts of the legislation can take longer to agree than simple measures announced in the Budget and implemented immediately.
Capital Gains tax is often referred to, as a “discretionary tax”. You don’t have any discretion over whether to pay what is due, but you can decide whether to sell the asset in the first place. Hence large increases in the rate of tax can reduce the tax due as people hold their assets instead of selling them. For this reason, many observers feel that rates won’t increase significantly now but rather reliefs may be changed. Hence for example Business Asset Disposal Relief may be removed thus taking away the 10% tax on business sales. The counter argument to this is, however, that tax on earnings has increased and so CGT rates should too, to prevent the differential between CGT and income taxes becoming too large.
Business rates are an area where reform is undoubtedly coming. This has, however, been put off many times and so many think that this will not happen this year but will be delayed until the state of the economy is known better.
Pensions tax relief is another area that could see change. If taxes on company profits and earned income are increasing then unless pensions tax relief is restricted, the cost of that relief will simply increase too. Without new restrictions, the savings for businesses and individuals achieved by contributions will become more attractive and the cost to the Exchequer will grow.
We do expect to see some technical changes to taxation to promote green initiatives (and retraining linked to these new industries and techniques), to promote business innovation and assistance to help the unemployed (particularly the young) back into work. The problem with these is that they are difficult to anticipate and therefore there is little that can be done prior to the announcement.
There is very little said about VAT and so the assumption is that this will not rise at this time, although some refinements may be required linked to Brexit issues etc.
Similar to VAT there is little said about Stamp Duty or Stamp Duty Land Tax and so again the rates are expected to remain as is.
So, in conclusion, it is difficult to be certain what is going to be announced. It is possible that we will get a clearer view as we advance through October as information leaks and the Government tests the reaction to a measure, as frequently happens. Or, as is also often the case, we may just have to wait until Budget day.