Rishi’s balancing act sees the Chancellor play it safe, with potential September cliff-edge

“Facing a fragile economic and political environment, Mr Sunak had to find a balance between manifesto commitments on no tax rises with raising revenues to fill the COVID-sized black hole in public finances. The Chancellor presented an optimistic three-part plan to support people, fix public finances, and build the future economy.

“Mr Sunak made the expected and well-trailed moves today to support lower income households, freeze personal allowances and tax bands, a measured increase in corporation tax, and extensions to much of the COVID relief packages.

“The Chancellor gave fair warning that the support over the last year will need to be paid for, and at first glance the focus is on large businesses. The larger-than-expected corporation tax increase to 25% on the most profitable businesses from April 2023 will still allow the UK to claim a competitive rate against international standards. This is the first time since the 1970s that the main rate of corporation tax has been raised, although there is the unexpected return to a form of small business profit rate at 19%, with the Chancellor’s intention to place the burden firmly on larger taxpayers.

“The Super Deduction will be welcomed by businesses, particularly those outside of London in the manufacturing sector. In the short-term, the Chancellor will hope this initiative will provide businesses with the confidence to invest any cash now rather than waiting. The eagle-eyed will have noticed that this incentive will expire when the higher rate of Corporation Tax comes in. Continuing on the levelling-up theme, Freeports will offer tax incentives to attract investment both from the South of the country, and internationally.

“The Chancellor was silent on a number of initiatives that could be explored to raise revenues, and we are now expecting a package of consultations to be released on 23 March. Mr Sunak gave no hint as to what is expected, but these are likely to contain the proposals that do the heavy lifting on changes to tax policy, such as the taxation of capital gains, the Gig economy, and more detail beyond the signalling on the green agenda.

“It remains to be seen whether Mr Sunak will grasp the nettle and truly reform the tax system for the future, creating one that addresses the challenges of increasing digitisation, the changes to work and wealth creation, climate change and intergenerational inequities.

“Businesses will now need to take the time to read into the small print to fully understand whether this Budget puts them in the winners or losers category.”

                                                                                -ENDS-

 

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