Budget predictions 2021
As February and winter draw to a close, we now approach spring and a new Budget on 3 March. It is likely to be the most important Budget in recent times, almost certainly so in the last 50 years.
The perhaps conflicting needs of addressing record public borrowing while not inhibiting the economic recovery are not easy to accommodate. However, we anticipate the Chancellor attempting to do both. So what can we expect?
Increases to corporation tax and capital gains tax rates have been widely touted for some months, as neither were covered by the triple-lock in the government’s election manifesto. Also these rates are at record low. It is unlikely that there will be an immediate increase in rates but they might well be announced now.
The latest speculation is that Chancellor Rishi Sunak will announce an increase in corporation tax rates that will come into effect gradually, perhaps starting next year. An eventual move to 23% compared to the current 19% is the latest ‘rumour’. If that happens, the UK will no longer be able to boast that it has the lowest corporation tax rates in the G20. However, other countries may be forced to make similar moves, so perhaps the UK’s competitive advantage will remain.
As a balance to such an increase, providing more incentives for investment, particularly in manufacturing activities, is a strong possibility. This would have the twin benefits of bringing back manufacturing to the UK and also addressing the balancing-up agenda, with most manufacturing taking place in the Midlands and the North. One of the lessons of the pandemic has been that we need to be more self-sufficient in certain areas.
Increasing capital gains tax is a more difficult issue. There is scope for an increase to the rates, but to do so across the board could hinder investment and encourage wealthy investors to relocate overseas. Again, we expect a gradual change in capital gains tax rates, perhaps linked to differential rates for gains on business assets as opposed to non-business assets.
The UK could have a return to the taper relief concept introduced by Gordon Brown when he was Chancellor, where gains are taxed at income tax rates, but the rates are tapered the longer the asset is held. Under that regime, which ended in 2008, tapering for trading assets and shares in trading companies was to a lower rate and over a shorter period.
It is difficult to see how income taxes can be increased. Perhaps the only change here will be a freezing of allowances and rate bands.
Property taxes in the UK are often seen as being too complicated and over burdensome for some types of business. Addressing this is not a quick fix and it would be expected that this may be subject to one or more consultations announced on Budget Day.
The Treasury recently announced that consultations and calls for evidence will be published on 23 March. It is widely recognised that the UK tax system is ripe for reforms. Perhaps Rishi Sunak sees this as an opportunity and these consultations are a start of that process?
As a final thought, the UK is hosting the COP26 climate conference later this year. Some tax changes linked to the environment are to be expected, perhaps even a carbon tax.
It is a complex area that Rishi Sunak will need to handle delicately but determinedly. Moore Kingston Smith will be standing by, as usual, to comment live during the Budget and help our clients react appropriately.