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Budget Breakfast October 2021 Report

As a result of the unusual circumstances which saw the Chancellor present two budgets in one calendar year, the LSCA organised a second Budget Breakfast, held on 29 October 2021.

November 2021

As a result of the unusual circumstances which saw the Chancellor present two budgets in one calendar year, the LSCA organised a second Budget Breakfast, held on 29 October 2021. Like the March presentation, circumstances dictated that it was held via Zoom rather than physically. Viresh Paul, the current LSCA President, gave a brief introduction and welcome and the event was chaired by Adrian Mansbridge, Chairman of the LSCA’s Taxation Committee.

Setting out the economic context and implications, Warwick Lightfoot explained that the budget and spending review were a consequence of the Covid public health crisis, plus a government committed to an agenda to respond to the political earthquake resulting from the Brexit Referendum decision. The budget and tax decisions made, suspending indexation of the income tax regime, raising the corporation tax rate and raising national insurance as part of a social care levy, reflected a cautious approach to fiscal policy giving priority to debt management over major structural tax reform.

The spending decisions whereby all departments, apart from defence, benefited from discretionary increases in spending, reflected the consequences of covid, the levelling up agenda and the practical challenges arising from budgets that had been squeezed for some fifteen years.

Warwick continued “much of the rhetoric that has greeted these tax and spending decisions suggesting a decisive break with policy over the last forty years is overwrought. In the 1980s, Conservative budgets raised taxes and the average tax burden rose, as priority was given to debt management. Likewise, there were Autumn statements – 1986, 1989,1990 and 1992 – when there were large discretionary increases in spending. Given the government’s challenges and its identified priorities, the overall story is one of realism financed in a fiscally cautious manner.”

The OBR forecast had been based on outdated national accounts data and framed on pessimistic assumptions about the trend rate of growth. These might well be too pessimistic about revenue receipts and growth and were in sharp contrast to the unrealistic forecasts that assumed a trend rate of growth of 2.75% in the budgets leading up to 2010.

Warwick concluded “politically the Chancellor has done what all chancellors need to do: offer the Prime Minister scope for tax cuts in the run up to the next election. They would be presentational cuts to taxes, merely remitting some of the fiscal drag arising from rising wages, inflation and a non-indexed income tax base, very similar to the dramatic tax cuts delivered by Conservative chancellors in the 1980s”.

Rebecca Benneyworth started her talk by saying that, on the afternoon of the budget, she had felt somewhat challenged by her task as it seemed there was not much to talk about. The Chancellor had provided little to interest tax specialists in his speech, and the budget papers offered little more in the way of detailed tax measures. However, there were some interesting little wrinkles if one was prepared to dig about and have a look.

There were of course the changes to Universal Credit, but there were also changes to business tax. It was no surprise but a little disappointing that there had been no abolition of business rates. She had found it fascinating listening to Warwick and his reference to the fact that our invisible economy was now much greater than our physical one, but for the latter, she would describe business rates as a running sore, although the Chancellor had offered some limited support. AIA remained at £1m for a further year and there was a temporary enhancement of some creative/cultural sector reliefs, which would be very welcome to those in that field. Bank surcharges had been reduced to compensate for the increased rate of corporation tax.

Rebecca continued that the Chancellor had faced the problem of not breaking election promises such as not raising income tax, etc. so had needed to look for new taxes to raise revenue. The social care levy might be regarded as a tax because pensioners were included, and for residential property developers there was a new tax to pay for cladding removal. 

She was particularly interested in the R&D changes. Data and cloud computing costs were to be allowed and there was to be a refocus on UK activity, made possible because we had left the EU. There were going to be measures to target abuse and improve compliance. As many listeners would be aware, there were ongoing problems with R&D specialist firms who pushed clients to incorrectly claim R&D for items that did not qualify.

There was to be consultation about an online sales tax to consider the points for and against, but there were questions about how it would be targeted. It would help physical sellers compete with firms like Amazon, but what about businesses with physical stores who also sold online. Basis period reform was definitely going to be implemented and would be an administrative nightmare for those required to apportion or estimate profits. There were some changes to residential CGT and to VAT. An economic crime levy was being introduced, charged on AML entities and administered jointly by HMRC, the FCA and the Gambling Commission.

Rebecca concluded that in practical terms “those advising small businesses will be gearing up to advise clients next year in the face of significant rises in the costs of labour. Increases in the rates of minimum wage (and particularly the 9.8% increase for workers aged 21 and 22), combined with a 1.25% increase in employer National Insurance contributions, plus a knock-on increase in employer pension contributions, together pose a real challenge for businesses in the sectors hardest hit by Covid”.

Report by Gay Jordan LL.M, Secretariat Consultant to the LSCA Taxation Committee.

For further details about the Committee, please contact Gay by email at gay.jordan@outlook.com