Debapratim De, senior economist, commented: “The key announcement in this Budget will be the Government's new fiscal rules, outlining its roadmap for rebuilding public finances. With rising inflation and the growing likelihood of interest rate rises, the Chancellor will be keen to signal to markets that he is committed to setting borrowing and public expenditure on a sustainable footing.
“This seems achievable without stinging spending cuts, in the short term. With the OBR widely expected to trim its estimate for the long-term damage to the economy wrought by the pandemic, the Institute for Government calculates a potential £25bn annual windfall for the Treasury. This should give the Chancellor ample room to meet long-term fiscal targets without a dramatic readjustment in planned spending.”
Fiscal outlook
Amanda Tickel, head of tax and trade policy, commented: “This year has already seen significant tax increases announced, including freezing personal allowances, rises to corporation tax and the introduction of a new Health and Social Care Levy. This means the UK now faces its highest tax burden in decades.
“More substantive tax rises at this stage seem unlikely, even in heavily rumoured areas like Capital Gains Tax which is yet to be addressed, but where we could see a focus on simplification measures. We don’t expect tax rises on pensions or fuel duty at this stage either.
“It’s likely we will see a reduction to the bank surcharge which is levied on top of corporation tax. Reducing the current rate from 8% to 2% would continue to raise vital revenue whilst maintaining the attractiveness of the UK finance industry. We could also see new tax incentives announced to encourage private sector investment in priority areas like Levelling Up and Net Zero.
“Otherwise, this will be a far cry from a traditional Budget, with a focus on concluding some of the numerous active tax consultations in areas including the research and development regime and changing the tax year end.”
Business rates
Gerry Biddle, director of business rates, commented: “As the disruption of the pandemic has interrupted plans, it’s not expected that the Chancellor will unveil the full recommendations of the Fundamental Review of Business Rates, but we still expect to see some details announced including a move to three-year revaluations.
“The retail sector recently asked for a 30% reduction in the business rate multiplier. Given the impact of the pandemic on public finances it is unlikely that such a reduction will be announced, but we may see additional reliefs made available for this sector.
“With an increased focus on sustainability, we may still see the expected review of legislation governing the assessment of Plant and Machinery, and businesses hope that green energy plant will be exempt from paying Business Rates.
“Following 18 months of consultation and review, it’s vital for business that we see decisive conclusions made on this topic as soon as possible.”
Income tax and national insurance
Rachel McEleney, associate tax director, based in Cambridge, commented: “Given the recent 1.25% increases in national insurance rates and income tax rates on dividends, it seems unlikely that there will be further increases to income tax or national insurance.
“The national insurance primary threshold - the amount below which no national insurance is payable - is expected to rise by CPI in April 2022. However, the saving this would normally generate is likely to be dwarfed by the recently introduced 1.25% increase in national insurance rates to increase funding for health and social care, which comes into effect on 6 April 2022.”
Capital gains tax (CGT)
McEleney continued: “Capital Gains Tax has been discussed as an area for change for some time, but this would be unlikely to raise significant amounts of tax. It is typically paid by only around 275,000 taxpayers and raises less than £10bn per annum. By comparison, the new Health and Social Care Levy, together with the increase in income tax rates on dividends, is expected to raise over £12bn per annum.
“It’s likely when considering changes, the Chancellor may keep in mind that two of the main CGT reliefs - Private Residence Relief and Business Asset Disposal Relief - have already been subject to significant restrictions in recent years. The latter saw a cut in the lifetime limit in 2020 and the CGT annual exemption has been frozen at its current level until 2025/26. This means Capital Gains Tax receipts may increase without any further intervention.”
Inheritance tax (IHT)
McEleney continued: “The main rate of Inheritance tax is already quite high by international standards, at 40%, and we don’t expect this to change. The nil-rate band has been frozen at £325,000 since 2009/10, so IHT has already been increasing in real terms over time. Had inflationary adjustments not been suspended as a result, the nil-rate band would now be £417,000. Over that period, IHT receipts have more than doubled from £2.3 billion to over £5 billion with around 7,000 extra estates being subject to tax.
“Following the recent Office of Tax Simplification review and technical recommendations on the tax, we could see announcements on IHT reliefs - such as Business Property Relief and simplification of the design of IHT.”
Climate measures
Amanda Tickel, head of tax and trade policy, commented: “With COP26 around the corner, we expect the Chancellor to make some announcements in line with the government’s pledge of achieving net zero emissions by 2050. These may include incentives for individuals to install home insulation or buy electric vehicles, as well as addressing the current imbalance in energy taxation costs between electricity and gas consumption.
“For businesses, we could see an enhancement of tax incentives to encourage zero emission vehicle fleets and green capital investments. There may also be new consultations on a UK Border Carbon Adjustment mechanism or a single carbon price, extending the UK Emission Trading Scheme (ETS) system to cover all greenhouse gas emissions.
“To date, the UK Government has not announced a cohesive strategy on what role taxation can play on the road to net zero, and where tax and incentives can make a difference. Going forward, this will be vital in accelerating the UK’s progress to a more sustainable future”.