Crowe UK LLP Budget Reaction

General comment: Rebecca Durrant, Partner, National Head of Private Clients, Crowe UK

While no complete backtrack on the restriction to the Universal Tax Credit the Chancellor did announce a reduction to the taper rate against earnings of 8% which allegedly will save workers on average £1,200 per year. Co-incidentally this compares almost exactly to the £20 per week withdrawal of credit – a U-turn by another name?

New investment of £300 million was promised for parenting programmes to support working families. This would seem to be a reincarnation of Gordon Brown’s Sure Start programs introduced in 1998 and while welcome, is not likely to help these families get through the coming winter months.

Northern angle

Levelling up. The £5.7billion promised for transport to include Greater Manchester is welcome, particularly as the Northern Powerhouse funding promise has gone incredibly quiet since the pandemic. Focusing on good, safe and affordable transport links for Greater Manchester and the regions has to be a priority to boost the labour market and it is good to see this support forthcoming.

Business

Tax by stealth on national insurance contributions and dividends. The 1,25% increase will impact workers, businesses and SMEs drawing dividends in the main, many of whom will have struggled over the last 18 months as they did not qualify for COVID-19 support. The increase in national living wage while welcome will put additional costs and pressure on businesses but may go some way to help the labour shortage in some of the more badly hit sectors such as care workers and hospitality.

This combined with the freezing of allowances and tax rates will increase the income tax take. Tax from earning and spending represents around 70% of the tax revenue. Those expecting any fundamental shake up to the tax system will have to wait a while yet.

The increase in dividend tax goes some way to balancing the perceived inequality between the employed individual and the company director as this increase combined with the increase to corporation tax will mean that the decision to take salary, bonus or dividend will become very much a personal decision rather than the historic ‘default dividend’. Tax accountants all over the country will be crunching numbers as we speak.

Private Wealth comment

Once again, no change to Capital Gains Tax rates. In my view this should (and perhaps is likely) to be combined with a complete overhaul of capital taxes including Inheritance Tax (IHT).

Seen as the most unfair tax only 4% of the country actually pay IHT at the moment. Amongst the OECD countries the UK is in the minority that taxes the estate of the deceased rather than the recipients. There is a perceived double tax charge with IHT in that many people feel they have been taxed already on the income they earn to buy the asset they want to pass on to loved ones. That said, given the way in which property prices in the UK particularly have rocketed it can be difficult to balance why the wealthiest in our society should not contribute more from growth they have done little to earn, instead of increasing tax on earnings for the lower paid.

The OTS released a report on suggested reforms to IHT in 2019. One of the most radical suggestions was the removal of business relief which exempts the value of a business from IHT. This would predominately affect wealthy family business, many of whom are politically aligned with the government. The changes suggested would be the biggest overhaul to the tax regime in years. It is difficult to see how a Conservative Chancellor would implement these changes with only just over two years left in parliament – the cynic in me would suggest that it is unlikely now we will see any change till after the next election.