Budget will be defined by the ‘dogs that don’t bark’

Budget will be defined by the ‘dogs that don’t bark’, predicts KPMG’s UK head of tax policy

• Tim Sarson at KPMG says that major Corporate Tax and Health and Social Care Levy announcements mean that tax levels are already at record highs.
• Chancellor expected to focus on strengthening UK’s fiscal prudence and map out a timeframe to balance the current budget.
• Policies such as wealth, windfall and land value taxes are unlikely to feature

The Health and Social Care Levy and impending Corporate Tax increase will force the Chancellor towards a fiscally neutral Budget with little room for giveaways, according to Tim Sarson, head of tax policy at KPMG UK:

“We haven’t seen this level of taxation as a proportion of GDP since the 1950s. The economy might be clicking into gear, but businesses are reeling from the planned hike in the headline rate of corporation tax and increase to National Insurance Contributions, let alone the changes set to be wrought from global tax reform. As board rooms adjust forecasts and business models in response, they’ll have little patience for any further increases and most will hope for a quiet budget.

“So, while there is a degree of political consensus that taxes need to rise to pay for pandemic spending, the public reaction to the Health and Social Care Levy and ongoing challenges facing many businesses has shown that there aren’t any easy conversations when it comes to tax increases. With such a high bar already set for taxation and spending, I expect the Chancellor’s Budget will be broadly fiscally neutral with some tinkering around the edges in more niche policy areas.

“There will be little room for giveaways so any further relief will be focused on helping specific sectors that have been significantly impacted by the pandemic, such as retail, as well as targeted environmental-focused policies in the run up to COP26. That said, any plans to level the playing field between on-line and physical retailers appear to have been largely side-lined by the pandemic. The Chancellor may be concerned that addressing the distortion caused by business rates with an online sales tax may increase prices for consumers at a time when household finances are under significant pressure.

“In terms of raising funds to repair public finances, the Budget will be defined by the policies not introduced – the dog’s that don’t bark, such as wealth, windfall and land value taxes, which have all been discussed at length in recent months. Instead, the Chancellor will likely look to deal with the flaws of established policies and address pensions tax relief for high earners and Capital Gains Tax to claw back some funds.”

ENDS

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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 21 offices across the UK with approximately 16,000 partners and staff. The UK firm recorded a revenue of £2.3 billion in the year ended 30 September 2020.
KPMG is a global organization of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 147 countries and territories and has more than 219,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients. KPMG Law has over 2850 legal professionals operating across 81 countries.