Budget 2021: Levelling up could be a tricky balancing act
by Jay Boyce, partner, MHA MacIntyre Hudson
Looking at the Budget from a wider perspective, we anticipate the Government will seek to outline the direction of travel with its “levelling up” agenda whilst rebuilding public finances – a tricky balancing act.
It does remain to be seen whether the levelling up targets the East and West Midlands region or whether, because of the investment in HS2, it is considered that their work here is done. We shall see.
Of course, all of this needs to be framed with the background of rising inflation, the spectre of higher interest rates on the horizon, labour shortages, supply chain challenges and baked in tax increases already announced. The Chancellor has an unenviable job.
We anticipate some announcements on business rate reform given that the review is due to complete this autumn. Although some continuing relief would be welcome to the region, this needs to be balanced with the fact that local authorities rely on the income to fund local services.
In terms of employment taxes, we feel the vast majority of the changes (increase in NIC and tax on dividends) have already been announced and what we need are further tax incentives for business to hire domestic workers. This could take the form of further cash grants targeted at taking on younger workers. If the Government is truly focussed on building a strong domestic labour market, then we consider a meaningful increase in the national minimum wage is absolutely crucial.
The annual debate surrounding the reform of capital taxes as usual rears its head at this time of year. As always, this usually takes the form of discussion about the introduction of a wealth tax, wholesale reform of inheritance tax and a tweak of capital gains tax rates. The wealth tax (or more pertinently the one off wealth tax) has already been discounted by the government and, after all we already have tried and tested taxes dealing with assets – the aforementioned capital gains tax and inheritance. Is it possible that the discussion of a wealth tax can finally be put to bed perhaps? Famous last words?
The Office of Tax Simplification is, rightly in our view, concentrating its efforts on looking at refining the impact of both CGT and IHT. Could we see a rise in the rate of capital gains tax, tinkering with some of the inheritance tax reliefs specifically business property relief? The Budget speech could be place where we hear more about the governments thinking on what it believes the reform on both of these taxes looks like. For our part, we do not foresee any meaningful changes in either of these areas.
One area that maybe worthy of attention is pensions and not only from a revenue raising perspective as is often discussed. Regulations surrounding the investment of pension funds may be relaxed to draw investments into the green energy agenda for example or other business investment.
Having said that, the “raid on pensions” may well continue by, for example the abolition of higher rate income tax relief on contributions or limiting the ability to carry back pension contributions to earlier years.
The last year has also seen a shift towards a greener business world, It is likely that there will be “green tax incentives” to assist the business community to invest in this direction. This could be through direct business investment and associated tax relief or relief for investors in businesses with green credentials. It could mean a reform of the current Research and Development tax credit system to direct investment into greener technology.
Finally, if we look at some real outsiders, what about an online sales tax addressing the change in consumer behaviour? Some form of wholesale reform of property taxes perhaps? Both highly unlikely but worth a mention in a prediction piece as a discussion point if nothing else.
Whatever the Chancellor does, there will probably be some finer detail closing perceived loopholes. None of which will produce huge revenue gains but may impact in certain areas.
It is clear, given the intended spending announced in the press already, the finances of the country are finely balanced. The Chancellor has little room to manoeuvre. Investment in infrastructure, innovation and skills is good, but it comes with a price. And as with many things at the moment, that price is going up!