As many anticipated, today’s Budget focused on the Government’s pledge to ‘Build Back Better’. The Chancellor made it clear that the Treasury is ready to take on additional debt to fund investment in continued support through Covid-19 incentives as well as building a roadmap for getting people back into work and rebuilding the economy - an economy which the Government wants to be more geographically diverse and less London-centric.
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What is also clear is that Rishi Sunak has recognised the importance of offering businesses a degree of certainty about the future. Today’s announcement established the landscape for both personal and corporate taxes. We now have clarity on the unwinding of the increased stamp duty nil rate band, the business rates holiday as well as the reduced rate of VAT for Hospitality and Leisure. These are all very welcome and should help to avoid the sudden cliff edge of a return to ‘normal’ levels.
Whilst there is, of course, a recognition that our unprecedented levels of debt will need to be repaid, the timescales for doing so are long. As expected, today was about the Government tinkering at the edges. As with any Budget announcement, the Chancellor worked to strike the right balance between filling the coffers through increased taxation and encouraging a greater tax take by encouraging businesses to boost the economy through increased activity and spending.
The freezing of income tax bands, national insurance, and VAT registration thresholds allows the Government to keep to its manifesto promise of no increases in IT, NI, or VAT. In reality, this will only start to erode real-time earnings as the economy starts to recover. The rise in Corporation Tax was also hotly anticipated, although pushing this to April 2023 does allow for businesses to prepare a little more than usual. Many small businesses will welcome the return to a small profits rate, which will remain at 19%.
Further investment in HMRC’s tax avoidance teams is another indicator that the Chancellor expects larger businesses to pay their share of the overall debt burden.
It is clear that the Government wants businesses to do their share of rebuilding through investment too. Incentives such as the super deduction of 130% of eligible capital spend and the extension of loss carry back to three years from one will all aid cashflow and fund investment in future growth.
There were other clear signposts on how the Government would like to incentivise growth in key areas of the economy. Sustainability played a prominent role in this Budget with green incentives alongside consultations on innovation reliefs as well as EMI, as expected. This will be supported by visa reforms to incentivise the relocation of highly skilled individuals to the UK, particularly for the Fintech sector.
Of course, there is a sense of anticipation of what will come next, with areas such as Capital Gains Tax and Lifetime Pension Allowances hotly tipped to be areas that will be next to fund the recovery. However, with a return to marginal rate calculations for corporate tax, are there are other areas we could see reintroduced, as well as wider tax increases next Budget?
All in all, this was a Budget set to add a welcome degree of stability and focus on retaining the tax base. It also hinted at future changes we may see in tax as the economy starts to recover in the coming months.