What to listen out for on Budget day

19 March 2013

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Chris Sanger, global head of tax policy at EY, comments on what we should be listening out for in the Chancellor’s Budget speech on Wednesday 20 March:

“With the loss of the UK’s AAA status, prospect of a triple dip recession, and rising public and political scrutiny over what constitutes fair taxation, the Chancellor faces one of his most difficult balancing acts to date. How does he stimulate growth without adding to the burden on Treasury coffers or risk damaging the UK’s attractiveness as a place to do business?

 

Rabbits out of the hat – a thing of the past?

 

“Rabbits out of the hat, or more accurately the red box, should be a thing of the past. Much of the Finance Bill has already been published and consulted upon, although we are waiting to see whether any ‘tweaks’ or additional details are released on Budget day in relation to the General Anti Abuse Rule (GAAR) and other pre-announced policies such as the R&D tax credit.

 

Tackling tax avoidance

 

“The recent focus on fair taxation has reinforced the need for the Chancellor to demonstrate that his existing policies for tackling tax avoidance are starting to have an impact. He will be doing this against a backdrop of an international debate around how countries tax cross border trade.

“Given the UK’s role in the G8, it seems likely that he will want to continue these discussions at an international level. However, when faced with so much discussion at home, he may feel the need do something in the meantime for a quick win. We could hear:

  • Further discussion on the codes of conduct for multinational companies, perhaps building on the Banking Code introduced by his predecessor.
  • Comments on the Labour Party’s proposals for the disclosure of tax payments made in the UK.

“It is also possible, although considered unlikely, that he would seek to pre-empt any of the actions considered by the OECD, with a domestic measure of his own.

 

Supporting growth

 

“Faced with the need to support the UK’s fragile recovery, the Chancellor may follow his predecessors and seek further changes to the tax system to incentivise small businesses and entrepreneurs.

  • The Chancellor may decide to add a National Insurance Contribution exemption to his proposals for owner-employee share schemes, or consider extending these reliefs to other forms of incentives for small businesses.
  • There is also growing political pressure to raise the personal allowance beyond £10,000, up to the level of an individual in full time employment receiving the minimum wage.

“Changes to the personal allowance may make it difficult for the Chancellor to balance the books as it is particularly costly. While it’s unlikely to be announced with immediate effect, he could signal his intention to increase these measures in the future.

 

Tax hikes?

 

“Given the continuing need to raise revenue, further tax rises cannot be rules out. Although an additional VAT hike would be very unpopular and may be politically difficult.

“Speculation around whether the Government will potentially abolish its plans for a 45p minimum price per unit of alcohol may herald an increase in duty. The Chancellor may look to this and other duties, to help swell his dwindling coffers.

“Wealth taxes are also a perennial possibility. But applying taxes to a relatively small population would require a high tax rate in order to generate any meaningful revenues, which could risk undermining the UK’s competitiveness.”