The Government has made growth a central ambition. The upcoming Budget is where that ambition needs to become more than a slogan. Every tax measure announced should be judged against one simple question: will this encourage businesses and individuals to invest, employ people and grow?
For me, the priority should be creating a tax environment that gives businesses the confidence to make long-term decisions. That starts with Business Asset Disposal Relief. Restoring the 10% rate and increasing the lifetime limit to £10 million would send a powerful signal to entrepreneurs that building a successful business is something the Government wants to encourage. Just as importantly, there should be a commitment to leave the rules alone for the rest of this Parliament.
Constant changes to the tax treatment of business assets make it harder for owners to plan and invest. If capital gains tax has to rise, there is a strong argument for applying a higher rate to investment gains rather than gains arising from actively running a business, reviving the principle behind the old taper relief system.
We should also be thinking about how to encourage people to take greater responsibility for their own long-term financial future. Given the government’s announcements regarding the Triple Lock, there needs to be a stronger incentive for people to invest in private pensions including a review of the proposed cap on salary sacrifice. That would not only support individuals in building retirement savings, but could also increase the pool of capital available for investment in the UK economy.
The early years of a business are often when the greatest risks are taken, yet they are also when cash is most valuable. A lower tax rate for genuinely new trading businesses could encourage more people to start companies and give those businesses greater scope to reinvest profits, create jobs and establish themselves.
Investment incentives should go further. Some sort of Growth Investment Allowance for expenditure on artificial intelligence, automation, digital infrastructure and employee training could help businesses invest in productivity and future-proof their operations. The old super deduction demonstrated how powerful the tax system can be in changing investment behaviour. With corporation tax at 25%, a similar incentive could help make the UK a more attractive place to invest.
There are other relatively simple changes that could support growth too. Increasing the Employment Allowance would reduce the cost of employing people and help businesses create and retain jobs; and raising the VAT registration threshold would also remove one of the artificial barriers facing growing businesses, particularly those whose turnover is close to the current limit.
Finally, the Government should look again at inheritance tax and business and agricultural assets. A deferral mechanism for liabilities arising on business or agricultural property above £2.5 million could prevent viable businesses and farms being forced into a sale simply to meet an immediate tax bill. The tax could instead become payable when the asset is eventually sold.
None of these measures should be viewed in isolation. Together, they would send a much stronger message about the direction of travel. If growth is genuinely the Government’s priority, the Budget needs to make it easier to start a business, invest in it, employ people and ultimately build something of lasting value. That should be the benchmark against which every announcement is measured.
