ICAEW responds to 2021 Budget

Reacting to the Chancellor’s Budget, Michael Izza, ICAEW Chief Executive, said:

“This Budget was an opportunity for the Chancellor to build a bridge to economic recovery. To a significant extent, the extension to the furlough scheme and to other financial support measures did that, and this will enable companies to plan effectively over the next six months. In the longer term, the incentives for investment, such as the super deduction, will help to make the UK competitive in the post-crisis global economy, perhaps offsetting the effect of the planned increase in corporation tax. However, businesses will be wondering why there was very little on post-Brexit trade.

“We previously heard that recovery will come from consumers spending the savings they have accumulated during the lockdowns, but there wasn’t much in the Budget to kickstart this. On growth, the best estimate is that in five years’ time the economy will be 3% smaller than it would have been without the pandemic. The impact of COVID-19 will be with us for a decade.”

Commenting on business-related measures, Iain Wright, ICAEW Director for Business and Industrial Strategy, said:

“For most of the post-war period business investment in the UK has been low relative to our economic rivals. The super-deduction on capital expenditure for businesses could therefore be a game-changer which helps ensure our recovery from the biggest economic shock in the past 300 years is business-led, and helps improves our productivity performance and competitiveness.

“However, the Treasury’s Red Book shows that business investment over the lifetime of this Parliament will be reduced overall. Exports are also expected to be subdued, with forecast rising trade deficits and international trade acting as a drag on economic growth for the medium term. With the national tax burden at its highest since the late 1960s, it’s clear both consumers and businesses will have to pay for the recovery – and this still might not be enough to ensure sustained recovery and get public finances and the national debt, forecast to reach £2.8 trillion by 2025, back on track.”

Commenting on tax measures, Frank Haskew, ICAEW Head of Tax, said:

 “This Budget was unlikely to bring major tax changes, as the Chancellor’s hands are tied by the ‘triple tax lock’ which undertook not to raise income tax, national insurance or VAT. However, the Chancellor has taken the opportunity to freeze personal tax allowances between 2022 and 2026, which will bring in about £10bn.

“We were disappointed that there wasn’t more announced on helping to simplify the tax system, to decrease the administrative burdens on businesses and taxpayers. This is an important measure and we hope long-term plans for this will be provided with tax legislation later this month.”

Commenting on public sector measures, Alison Ring, ICAEW Director, Public Sector, said:

 “While the deficit for the current financial year will come in £39bn below what was previously expected, this is forecast to be offset by an increase to the deficit of £70bn in 2021-22. This increase reflects both the continuation of support schemes for people and businesses, as well as sizeable stimulus measures to support economic recovery. The additional resources being provided to HMRC to tackle fraud will be needed to provide proper scrutiny of claims for the Help To Grow and super-deduction schemes in particular.

“While the Chancellor did take action to restrain the growth in debt over the next five years, he did not fully address how he plans to deliver sustainable public finances in the longer-term. The Chancellor chose to focus on an alternative metric of 'underlying debt' in his speech, rather than the official measure for public sector net debt which is predicted to peak at close to 110% of GDP in 2024. Whichever measure is used, further difficult choices will be needed in future Budgets to address the fundamental challenges facing the public finances.”

Commenting on the recommendations on UK Listing made by Lord Hill, also announced today, David Petrie, ICAEW Head of Corporate Finance, said:

On dual class shares

“Companies with dual classes of share were not eligible for Premium listing in London, which kept them out of the main FTSE indices and meant that a lot of institutions wouldn’t buy this stock. The recommendations by Lord Hill should change that and make these shares more appealing to funds.

“Founders of companies with dual class shares are typically strong, enigmatic characters looking to retain significant control over what they still regard as their business, so investors will need to keep a close eye on its strategy, to ensure they are comfortable with its direction.”

On the free float rule

“The 25% free float rule is somewhat out of date. Provided a company is big enough, a lower percentage free float should be fine, as long as it is large enough to ensure liquidity. If so, the share price will be a fair reflection of company value.”

On SPACs

“Good companies ought to be able to list at full value without doing so via a SPAC. 

“Investors in SPACs are asked to believe companies’ value can be transformed into something much higher, but this is big ask, particularly because SPACs will often be competing with other listed companies or private equity for acquisition targets.”