Last week's Budget was impressive but unexpected. The Chancellor had to dance along the tightrope of being fiscally responsible whilst being generous enough not to crush any recovery. There was little in the way of direct tax increases, and where tax increases were announced he was smart enough to push them out three years from now to give businesses an opportunity to recover.
Businesses have been hit with a large stick and some small carrots. A rise of over 30% in corporation tax, from 19% to 25%, will no doubt come as a shock to businesses, but as the major recipients of the covid-19 bailouts, they are now being asked to cover the costs. There will be an exception for those companies with profits lower than £50,000, but overall, this was a stark and new approach from a conservative government who are usually unwilling to raise tax on business.
There were carrots though:
Businesses can carry forward £2 million of losses over the next three years
There will be recovery scheme loans from between £25,000 and £10 million
Businesses will be able to take advantage of a ‘super deduction’ where they can offset 130% of any qualifying investment to reduce their corporation tax liability, which is a very novel approach to encouraging investment.
Whilst the Chancellor announced some innovative plans for new jobs throughout the UK, businesses have been hit hard by covid-19 and it is yet to be seen whether such a significant rise in corporation tax will come at the expense of further investment and staff hires. We’ll have to wait until 2023 to find out.
Individuals had a lot to be cheery about: stamp duty extension, no direct increases in personal taxes, a freeze on alcohol and fuel duty, lower VAT on hospitality and tourism, and hopefully lower rates of covid-19. The Chancellor was keen to paint himself as a man of the people, and he has set up a hedonistic summer for us all.
Be careful of the hidden tax of inflation though. With average levels of savings increasing significantly over lockdown, and high demand for services outside the home, short term inflation is likely to pick up over the coming years. If it is higher than 2%, which I suspect it will be over the near term, the fact that personal tax allowances won’t increase will mean a significant reduction in take-home pay over the short to medium term.
The Chancellor said that he would not use “public borrowing for public spending”. This was a small badge of fiscal honour and contrasts with the US approach of handing out free money to people.
There will be a one-off £500 working tax credit
The extra £20 a week for Universal Credit will be extended for another 6 months
Stamp Duty for houses valued up to £500,000 remains at the nil rate until 30th June. Then it will decrease to £250,000 until end of September before falling back to £125,000 on 1st October.
Investment in the future
Much of today’s budget focussed on investing for the future economy, which could ultimately help to recover the country’s coffers.
Infrastructure and Freeports: This was a significant announcement for jobs, targeting eight new locations in largely traditional labour seats.
Buy Your Boozer / Peoples’ Pubs: £250,000 matched funding for communities who want to purchase their local pubs.
MBA’s for all: With likely reductions of people working in an office, the introduction of MBA’s for all and help with software purchases is a good nod in the direction of the future of work.
Green economy: With everything else that is going on, it was always likely that the Green agenda would need to take a back seat. The only two announcements of note were the Teeside wind farms, and The Bank of England’s “Net Zero” political target. It will be interesting to see how they manage the targeting of this objective as it is open to political trickery.
Decentralisation: The Chancellor was keen to continue the decentralisation of wealth and power away from London, which is good news for all UK regional hubs.
As well as the Green Economy taking a back seat, the much-feared Wealth Tax didn’t come to pass. And it will come as a surprise to many that he made no change to Capital Gains Tax (CGT) rules, despite conducting a rigorous review of CGT last year. However, it should not be forgotten that ‘Tax Day’ on 23rd March could bring forward consultations on matters such as CGT, so the Chancellor may yet have some surprises up his sleeve.
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