The Chancellor Rishi Sunak is preparing to deliver his Budget on March 3 in the face of heightened scrutiny and commentary. The background, informed by the global Covid-19 pandemic, is emergency spending and cuts which have informed the UK’s largest peacetime deficit. All very straightforward.
Some recent commentary has centred upon the prospect of tax rises designed to address the public finance issues. There are voices within his own party known to advocate that the Chancellor stay his hand in this regard. The argument is that immediate focus should be on economic recovery, fostered by further support measures for individuals and businesses. The Institute of Fiscal Studies has made a similar call to the effect that while tax rises are inevitable now is not the time; that the focus of the budget should be on extending support for households and business whilst articulating plans for a phase out. This may, however, be somewhat at odds with perceptions of Mr Sunak’s adherence to principles of conservative fiscal responsibility. It is further understood that suggestions from within the party for him to balance the books closer to election time are considered somewhat politically imprudent.
Speculation has been rife for some time regarding what the Budget will include and what it will eschew. It is widely anticipated that the furlough scheme will be extended and provision of support for businesses will continue in some form.
Such an approach would seem sensible having regard to both the importance of building a platform of economic recovery and having regard to concerns around the growing gap between rich and poor exacerbated by the pandemic and its consequences. The Trade Union Congress (TUC) has called on the Chancellor to extend furlough, provide for a rise in statutory sick pay, and to increase Universal Credit (and not remove the £20 uplift).
The Bank of England and Office for Budget Responsibility have each predicted a rise in unemployment figures to mid-2021. On top of the importance of continued furlough arrangements, a question arises in relation to the Self-Employment Income Support Scheme (SEISS), or more specifically its exclusions. Those self-employed paying themselves in dividends and also the relatively newly self-employed have found themselves outside of the scope of SEISS, and with much focus on the ability of the economy to bounce back will come interest in whether a support infrastructure for those business owners and entrepreneurs will figure in the Chancellor’s thinking.
In terms of tax, it may be that the Chancellor considers his options limited by manifesto promises to avoid increases in VAT, national insurance, and income tax. There has been noise for some time around changes to property taxes and capital gains tax (CGT), which has led to some clients and professional advisors pushing for completion of transactions ahead of the budget – or even considering a ‘minor’ tax hit on, for example, transfer of investments now in anticipation of potentially greater pain further down the line.
A mooted CGT alignment with income tax rates, with significant implications for higher rate tax payers, could represent positive high-impact change for the public purse but, equally and conversely, for shareholders and business owners perhaps looking to sell their business. It may be that the Chancellor seeks a middle ground which might be economically less of a disincentive to business, entrepreneurship, and investment.
As a personal tax and succession professional, my focus almost inevitably falls on inheritance tax and the picture there remains unclear. IHT reform and simplification is very much a present consideration and discussions around lifetime wealth taxes replacing the current and sometimes complex rules relating to IHT have not gone away.
It may, for reasons noted above, be the wrong time for sweeping tax change; we will find out soon enough. Speculation abounds and if the can of significant tax change is to be kicked down the road then we expect many of the critical questions to accompany it.
Pete Murrin is a tax and succession partner at Turcan Connell. He will appear as part of a panel at The Herald Budget Briefing, which takes place on event platform hopin on Thursday, March 4 from 9am-11.45am. To register visit http://newsquestscotland events.com/events/budget-briefing-breakfast/