Budget 2021 predictions
Becky Maguire, partner at Garbutt + Elliott has shared her predictions for Wednesday’s budget.
The Chancellor Rishi Sunak may have thought he had a tough first Budget in March 2020 at the start of the pandemic but his second this week (3 March) is not looking much easier. The combination of the UK still being in a national lockdown, significant economic uncertainty and this being the first Budget after Brexit have contributed to huge speculation on what we can expect to hear when the Chancellor stands up.
As I write this Budget predictions piece the week before Budget 2021, the whole tone and tenor of what we might hear from the Chancellor is up in the air.
There is one thing that is not in doubt – that this Budget will have to be set against the backdrop of a global pandemic that has had more extreme and far-reaching consequences than the government, or indeed any of us, can possibly have envisaged this time last year.
There are 2 broad views that have developed over recent weeks on what we may hear on Wednesday. The first, and I think the view that has gathered momentum, is that it is far too early for the government to introduce tax rises which could stifle economic recovery and discourage entrepreneurial behaviour. Instead, the government should be focused on measures that stimulate investment, support jobs, and boost those sectors of our economy hardest hit by Covid-19. Some commentators are even going as far as suggesting that the UK can trade itself out of the hole in our public finances and that tax rises should not be in the plan.
The other view is that tax rises are inevitable and the sooner they start, the sooner there is clarity for individuals and businesses about their future tax costs.
As a tax adviser helping businesses and their owners both manage today and plan for tomorrow, I think a balance between the two should be sought. Many businesses are relying on continuing government support to survive and so measures like extending furlough and the support for the self-employed are crucial. But as Tony Danker, the CBI Director, General noted this week the Budget should be about more than an emergency mindset; it should also be an opportunity to encourage the businesses who are able to invest in growth to do so and particularly encouraging them to do that in a climate savvy way.
So what tax changes might we see announced?
A rise in corporation tax (currently at 19%) has been widely speculated, perhaps to 24 or 25%. However, any change in rate will apply to all businesses since the small company rate was aligned some years ago. Could this be something the Chancellor builds back in to protect the large number of small businesses emerging from Covid?
The other area that has been front and centre over recent weeks is Capital Gains tax. Sparked by the Chancellor asking the Office of Tax Simplification to review the current rates and structure of the tax, rumour has developed that capital gains tax rates could be aligned with income tax over time. But as the OTS noted, such a move would need to come with a review and alignment of reliefs, use of losses, and tax basis and any changes would need careful planning and review. Fundamentally capital gains tax and income tax are taxing different economic activity and that needs to be built in. I think we are therefore unlikely to see anything significant on 3 March with perhaps a roadmap for change to be planned and actioned in the next few years.
Such a roadmap might also apply to aligning national insurance for the employed and self-employed following the debate after Budget 2020 and the announcement of the initial job retention scheme about the inequality that exists there.
The other measure that could feature is a restriction on higher rate tax relief for pension contributions. Having said that I can’t remember a Budget in recent years which hasn’t included speculation on that and with the potential impact that could have on key NHS workers, it doesn’t feel like now is the time.
The green agenda generally will no doubt feature from a spending, skills, and job creation perspective and I hope we also see more meaningful tax incentives there to encourage businesses to make green choices.
Finally, the Chancellor has been vocal in the past about the simplification of the tax system and as many tax adviser’s will agree that is long overdue. However, in this Budget with so much else at stake, Rishi may have to park this for another day.
Whatever is to happen in the future in terms of tax changes, businesses and business owners value certainty. With many businesses continuing to trade through the economic uncertainties from Covid and dealing with changes arising from Brexit, visibility of the domestic plan for any tax rises will be even more important to minimise disruption and allow businesses to focus on what they do best.