The new Chancellor Rishi Sunak presented his first budget to Parliament on Wednesday 11th March.
Budget first reaction: that was interesting
There is always some satisfaction in seeing past orthodoxies comprehensively trashed, with a new enthusiasm to borrow and spend being a central announcement in the Budget. It was full of detail and will take a lot of unpicking, but we certainly have a coordinated set of fiscal and monetary interventions from the Chancellor and Bank of England.
The first Budget of the current government was framed by two sets of things: the first being around manifesto commitments and the second around the economic context. In the first group were ‘levelling up’ and ending austerity, whilst at the same time promising no increase in the main rates of income tax, value added tax and national insurance (although there was a mention of limiting the ‘arbitrary tax advantages for the wealthiest in society’). In the second, we have the economic disruption of Brexit and coronavirus. So let’s pick out some of the headlines, focussed mainly on tax, in this initial reaction to Rishi Sunak’s speech.
Levelling up, infrastructure and tax changes
The huge jump in public borrowing for infrastructure and other long-term investment to drive ‘levelling up’ mark the official end to austerity, and everyone will probably agree on that. It was noticeable that this additional funding is principally going to be managed by government rather than being given to the private sector through new tax breaks. Given the manifesto commitment on tax, any future changes will avoid any increase in income tax, value added tax and national insurance. Which leaves Capital Gains Tax, Corporation Tax, Stamp Duty and new taxes, together with restricting a whole range of reliefs, to work on. Amongst the steps taken in this Budget we had reduction in the value of Entrepreneurs’ Relief, the scrapping of the planned cut to Corporation Tax, the Stamp Duty surcharge for non-UK residents, and the perennial focus on combatting aggressive tax avoidance aiming to collect £4.4bn of additional revenue. There will probably be more on this in the coming years and it may be worth remembering that it was a Conservative Chancellor, Nigel Lawson, who aligned income tax and capital gains tax rates in the 1980’s.
A tax code to encourage long term productivity growth?
There is of course an argument (if a bit controversial) that the restriction in Entrepreneurs’ Relief is one such change but there were a swathe of others which are less controversial and were presented as being paid for by the Entrepreneurs’ Relief restriction: increase in R&D tax credits, increase in structures and buildings allowance; increase in the employment allowance. However relatively little change so far in aligning incentives in the tax code to productivity growth.
Finally the measures to support companies and households affected by the coronavirus in both the Budget, and announced by the Bank of England earlier, are really welcome. These included an effective payroll tax cut through the NI threshold increase, faster access to benefits and SSP for individuals, a scaling up ‘time to pay’ arrangements for tax and (perhaps most significantly) the first 14 days SSP being fully funded for smaller businesses.
So, like it or loathe it, and perhaps both for different bits, the Budget is at least a bold break with the past and past orthodoxies, and a sign of a preparedness to pursue new thinking. Whether bringing UK infrastructure investment broadly back to mainland European levels will lead to a similar improvement in UK productivity will no doubt be hotly debated over the coming weeks.
or read the Budget 2020 articles on our blog for:
Budget webinar 2020
On Friday 13 March, we held a webinar to discuss the budget announcements made. A recording of this is available to view below:
Scottish Budget 2020
Full commentary from our tax experts in Scotland can be read here.
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