The chancellor proclaimed “Growth up! Jobs up! Debt down!”. His speech then laid out numerous spending initiatives to help boost the economy and fund public shortfalls. His message was clear: the government will not be there to lean on for big spending going forward.
The chancellor is betting on future economic growth to fund his spending plans and suggesting the UK’s citizens get ‘stuck in’ to enable this growth.
It was announced pre-Budget that the health and social care levy and dividend tax rate increases of 1.25 per cent respectively will be brought in to help fund the NHS and social care, costing the UK taxpayer more in taxes (along with the income tax rate freezes through to 2026 announced in March).
This announcement dwarfed all other measures in yesterday’s Budget and, as expected, Rishi’s speech was light on tax headlines. But, as ever, there is some devil in the detail and some winners and losers.
This Budget had an appreciation that we are still not clear of the pandemic, as evidenced by the absence of Labour leader Sir Keir Starmer who is self-isolating.
The cost of living and inflation are also increasing, with the latter likely to average 4 per cent over next year. Both of which will particularly hit bricks and mortar business like retail, leisure, and hospitality.
The announcement of a new 50 per cent business rates discount up to a maximum of £110,000, should help.
However, the widely called for overhaul of business rates was kicked down the road like so many times before.
On the same theme there were some wins for Britain’s lower income families: the Universal Credit tapering rate was decreased, increasing the amounts received by workers (although it was a lot of fanfare for an 8 per cent cut), and the national living wage will increase to £9.50 an hour.
There were also measures to promote post-Covid business investment and innovation, including an extension to the temporary annual investment allowance of £1,000,000 until March 31 2023, and a consultation on reforming research and development incentives was announced, which are among the most widely used and valuable corporation tax reliefs in the UK. The latter made possible since Brexit.
Winners also include pubs with many alcohol duties frozen and a new, lower rate of duty on draught beer and cider, along with museums and galleries, that will welcome news that their tax relief will be extended for two years to March 2024.
Surprisingly, with COP26 just around the corner (at time of speech), motorists and air travellers also benefited from duty freezes on fuel and cuts to air passenger duty.
Another winner on the day was the UK investment management industry. Firstly, the introduction of a favourable new tax regime for qualifying asset holding companies, which have long been a fixture of investment structuring used by funds, promoting the UK’s competitiveness as an investment hub.
Secondly, the lack of any announcements in relation to capital gains tax and specifically carried interest.
It appears the biggest losers will be large residential property developers with the introduction of a new tax on company profits from April 2022.
The tax will be charged at 4 per cent on profits exceeding an annual allowance of £25m to help create a £5bn fund to remove unsafe cladding. Big banks also took a hit with a 3 per cent surcharge when they pass an annual allowance of £100m in profits, up from £25m.
Following windfall taxes on big property and big banks we suspect that the dog that is yet to bark is big tech, and the chancellor also announced a consultation into an online sales tax, so watch this space.
Adapted from an Article on the FT Adviser by Lewis Tompkins and Chris Down