Following the Chancellor’s Budget announcement this afternoon, Jane Parry, PM+M’s managing partner has provided her thoughts on what this could mean for businesses and individuals.
Balancing being supportive but appearing tough on debt is a tricky balance and today’s Budget threw up no real surprises.
The announcement that the furlough scheme will be extended until the end of September in an attempt to protect jobs as the UK’s fragile economy emerges from the ashes of the COVID-19 emergency is hugely welcome. It gives businesses and workers across the country clarity for the three months after the government expects that all restrictions on our daily lives will be removed in June. The Treasury has had to think on its feet throughout the pandemic, with various extensions on support being announced, but hopefully this timetable is fixed and we all now have an end date to work to.
The news that an additional 600,000 of the recently self-employed will also now be eligible for state financial help is welcome and will go some way to mitigate accusations that too many people have missed out on support since the pandemic began. However, it’s not a panacea for everyone as small company directors who are paid in dividends still slip through the net which remains a real concern.
Other measures like the extensions of the £20 a week boost to universal credit and the stamp duty holiday, the increase in the national minimum wage, £3,000 for each new apprentice hired between the 1st April to 30 September, the support for the long-term unemployed through the Kickstart and Restart schemes are all positive steps as is the new £5bn scheme for high street shops, personal care, gyms and hospitality firms in England – including the news that business rates for three months will be suspended with up to 66% relief for the rest of the year. Time will tell how effective they actually are though – especially the retail and hospitality grant scheme as many industry groups don’t believe it is anywhere near enough.
Like most people, I’m waiting to see the detail on the changes to tax which will be clarified as part of the tax consultations on 23 March. As painful as it is, the only way to make a dent in the debt will be via tax rises.
Corporation tax will rise to 25% in April 2023. However, companies with profits under £50,000 will remain at 19%, which means only 10% of companies will fully pay the higher rate. As corporation tax is a tax on profits it is a relatively painless way of raising revenue. We will still have the lowest rate in the G7 which should balance the UK’s international competitiveness and raising funds for the exchequer. I do think it was a clever move to announce the 130% super-deduction, which means companies can cut their taxes by up to 25p for every pound they invest. The enhanced loss carry back for the next 2 years will also be valuable for companies struggling with pandemic related losses.
Although rises in income tax and VAT rates haven’t been announced and we were told they won’t change this parliament, we will see increases in the cost of both via fiscal creep. For income tax, the freezing of the personal allowances and 40% band threshold will start to increase tax revenues and increase the number of people who fall into paying tax and who move up into the 40% tax band over the next few years. Similarly the freezing of the VAT registration threshold will see more business become liable to register for VAT.
There was no mention of capital gains tax rates changes, which is welcome news for business owners, but I do think this will happen at some point. It’s just a question of when and by how much. Likewise, I think we can expect to see future inheritance tax tightening.
For all the talk of the UK economy leading the world and the rhetoric about investment and growth, I think the biggest challenge for the chancellor over the coming weeks and months is to manage expectations that the COVID debt needs to be repaid but without choking confidence, which will be no mean feat.