Chancellor’s Budget Speech – Positive for Business

I listened to Rishi Sunak’s budget speech today and here is a summary of some parts of it with some comments from me.

He said that £280 billion of support had been provided, but the damage to our economy despite this has been acute. However our response to the coronavirus epidemic is working. Employment support schemes are being extended and business rates holidays also. The OBR is now forecasting a swifter recovery but the economy won’t be back to normal until the middle of next year. Unemployment is expected to rise to 6.5% but that is less than previously forecast.

There will be another £65 billion of support for the economy when we have borrowed £355 billion this year which will be a record amount.

The stamp duty holiday is extended to September. That should please my oldest son as he is trying to move house at present and delays are happening in the chain because of local authorities not responding to inquiries. There will also be a new mortgage guarantee scheme which as Keir Starmer pointed out may simply encourage a rise in house prices – OK if you already have one but not otherwise. Fuel duty will be frozen as will beer, wine and spirit duties.

Now the bad news: personal allowance tax thresholds will be frozen at the end of the next tax year until April 2026. That effectively implies a rise in tax equivalent to inflation over that period. Inheritance tax thresholds will be maintained at their current levels until April 2026 and the adult ISA annual subscription limit for 2021-22 will remain unchanged at £20,000. There is no mention of changes to capital gains tax as widely rumoured and the pension Lifetime Allowance will be maintained at its current level of £1,073,100 until April 2026 when it really should be increased to match inflation (high earners already have problems with the current limit).

Corporation tax will rise to 25%, but there will be a taper for larger companies. Only 10% of companies will pay a higher rate. Comment: that will still be a competitive rate.

The Chancellor said we need an investment led recovery. Therefore for the next 2 years companies can reduce their tax bill by 130% of the cost of capital expenditure. This is the biggest business tax cut in history he claimed.

There will be a new UK infrastructure bank and a new handout for small businesses to fund IT investment and obtain management support (see https://helptogrow.campaign.gov.uk/ for details). He also mentioned a review of R&D tax reliefs which are quite generous at present. It is planned to cap the amount of SME payable R&D tax credit that a business can receive in any one year at £20,000 (plus three times the company’s total PAYE and NICs liability), but a review is also mentioned.

There are a number of hand-outs for greening of the economy, as one might expect, but there are also more hand-outs to protect jobs and to support Covid-19 vaccination roll-out and research projects.

The FCA will be consulting on Lord Hill’s review to encourage companies to list in UK markets.

There will be more Freeports with 8 locations already identified.

In summary, this budget should be good for business but small software companies may be concerned about the changes to R&D tax credits.

More details of the Chancellors speech here: https://www.gov.uk/government/news/budget-2021-sets-path-for-recovery

Postscript: Reaction to yesterday’s budget was generally negative, but nobody likes higher taxes. The general view is that the Chancellor has just kicked the bucket down the road. More borrowing in the short term to finance the recovery and keep people in employment, but much higher taxes later. I think the budget is a reasonable attempt to keep the economy afloat and could have been a lot more damaging for business if he had taken a tougher line.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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No Budget Surprises from Rishi Sunak

Budget box 3

Chancellor Rishi Sunak just delivered his first budget speech. Bearing in mind how short a time he has had in the job, it’s perhaps not odd that there are no great surprises or revolutions in it.

There are a number of short term measures to counter the economic impact of the coronavirus epidemic on top of the recently announced cut in bank base rate from 0.75% to 0.25% which is surely more of a political gesture than anything because such changes take time to have any impact on the real economy.

There will be a long-term review of business rates but there will be short-term relief for retail and leisure businesses to counter the epidemic impact. The Chancellor is also committing £175 billion to improve economic growth.

The National Insurance threshold will be raised to help the low paid and the planned increase in spirit duty has been cancelled. Fuel duty will remain frozen, when many people expected it to be raised. However red diesel tax relief will be abolished for most sectors other than farmers (it’s news to me that anyone else could use it legally).

Entrepreneurs tax relief will be reformed as widely forecast as it costs the exchequer £2 billion. The lifetime limit will be reduced from £10 million to £1 million. Will that deter entrepreneurs from setting up new businesses? I doubt it.

Twenty-two thousand civil servants will be moved out of London with new Treasury offices in the regions. That will come as a shock to many. Will the Chancellor come under attack from his civil servants like Priti Patel one wonders? But it is surely a positive move to offset the excessive London-centric nature of the economy and the pressure on housing in the South-East.

Some £27 billion will be invested in the strategic road network, including on the A303 that passes Stonehenge.

VAT on digital publications will be abolished so you’ll be able to buy my book “Business Perspective Investing” even cheaper from Amazon – but it’s damn cheap already so I think this may have limited impact except to some educational publishers. It is sensible reform though to align it with paper books.

There is more funding for housing which may help housebuilders and their suppliers and a more general reform of the planning system is forecast. There will be a stamp duty surcharge though for non-UK residents which might affect expensive homes in London but that was widely tipped as something the Chancellor was expected to implement.

For those only aspiring to afford such homes, HMRC is being given more funding to tackle tax avoidance. But the pension tax relief taper relief limit will be raised to £200,000 which may assist many high earners such as NHS consultants. More money is also being given to the NHS although it is not clear whether that and the promise of 40 new hospitals were new commitments or the old ones rehashed.

A closer study of the red book which covers the budget details is required to see if there are any surprises in the small print (see https://www.gov.uk/government/topical-events/budget-2020 ).

Postscript: One announcement snuck in behind the budget is a consultation on changes to the calculation of RPI by the UK Statistics Authority – see https://www.statisticsauthority.gov.uk/consultation-on-the-reform-to-retail-prices-index-rpi-methodology-2/ .

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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