Since the new date was announced in December 2020, there has been much speculation about the content of the upcoming Budget, which is Rishi Sunak’s second since he became Chancellor, and notably the first Budget since Brexit. It was delayed from November last year, with the Treasury continually bringing in measures of support in the meantime – for example, the Winter Economy Plan, and various extensions to the furlough scheme.
But what will the Spring Budget hold for businesses? Will we see tax-raising measures? How likely is more support for the hospitality sector? Here’s what might be in store.
Striking the balance
As Sunak looks to set out his latest economic strategy, there are two major factors at play – on the one side, there’s the need to find a way to start recouping the £300 billion the government has used to fund coronavirus support measures. And on the other side, there’s mounting pressure to provide more financial support to businesses in the wake of a double-dip recession.1
Indeed, the Spring Budget will come as the UK faces the fallout from the second wave of the pandemic. Official forecasts have predicted the biggest economic decline in 300 years, with the UK’s national income expected to fall by 11.3% in 2020 and not return to pre-crisis levels until the end of next year.2
What’s more, the Office for Budget Responsibility has predicted that unemployment will increase to 2.6 million.3 These ominous figures will likely be at the forefront of Sunak’s mind while he also juggles planning how the Treasury will pay for its record borrowing, which will rise to its highest level outside of wartime.4
So, will the Chancellor opt to start recovering funds or will he provide more support as the coronavirus pandemic continues to damage the economy? Or a mix of the two?
Prioritising support for business?
The answer might be found in his statement when announcing the Spring Budget date, saying: “This will deliver the next phase of the plan to tackle the virus and protect jobs”.
In his November spending review, Sunak outlined his plans to prioritise jobs, businesses and public services. Some changes have been introduced already, including the furlough scheme being extended by an extra month to 30 April 2021, with the government continuing to pay 80% of wages during this time. There’s also speculation that he might use the Budget to extend it again, as the government has previously been criticised for extending it too late.
The government is also coming under pressure to announce more support for businesses before the Budget. In January, the British Chambers of Commerce (BCC) stressed the need for a new package of cash grants, and an extension of a range of tax cuts to help struggling businesses during the third national lockdown.5 Hospitality and tourism businesses are also calling for the government to extend the reduction of VAT (from 20% to 5%) or risk 310,000 redundancies across the sector.6
There’s some debate over whether we are likely to see tax rises in the Spring Budget – on one hand, the Institute for Fiscal Studies has warned that tax rises of more than £40 billion a year are “all but inevitable” to stop debt from spinning out of control7, but other industry commentators believe that now is the wrong time, and significant tax rises would actually be damaging to economic recovery.
One thing that experts seem to agree on is that a rise in the rate of Capital Gains Tax (CGT) is very likely in the near future (but not necessarily in the Budget) – especially since the government has pledged not to increase rates of income tax, VAT nor NIC in this parliament.
The Office for Tax Simplification (OTS) has made recommendations on the reform of CGT, which could result in closer alignment with rates of Income Tax that would, in some cases, see CGT rates more than double from the current rates. If you’re considering selling or gifting business assets, disposing of a company, or making a transfer to a trust, you may therefore want to do this before the Budget – if you’re in a position to do so.
Last but not least, we expect Sunak to outline the post-Brexit tax plans, including the implications for VAT.
All eyes on the Chancellor
To conclude, then, it is clear the government will start seriously looking at recouping funds in order to balance the economic books, but whether any major changes will be announced in the Spring Budget remains to be seen, as the UK economy is far from out of the woods. Businesses will hope that, instead of choosing to raise tax, the Chancellor will look to boost economic recovery in other ways, such as schemes like ‘Eat out to help out’ to encourage public spending.
But it is clear that now is the time for businesses to plan ahead for potential future tax rises. When it comes to CGT in particular, the government’s direction of travel appears abundantly clear, even if it doesn’t happen in March.
At Wellesley, we will be keeping a close eye on the Spring Budget announcements, and, if you have any questions, or wish to discuss Capital Gains Tax, please contact us today.
2, 3, 4, 7 https://www.bbc.co.uk/news/uk-politics-55352605
The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations.