Businesses are urging the Chancellor to focus his effort in the forthcoming Budget on attracting investment into the UK, with particular focus on those incentives that will fast track the UK’s transition to a greener economy, according to EY’s Budget survey.
Top of the wish list of the 1,000-plus businesses surveyed was attracting investment into the UK, with almost two thirds of respondents saying this should be the Chancellor’s focus – consistent with the number of respondents who backed this as a priority for the Spring Budget earlier this year.
There was a strong recognition of the need to raise revenue, with over half the respondents (56%) thinking that the Chancellor should be acting now or next year on raising taxes. Of those looking at tax rises, the majority were of the view that consultation should precede tax rises which should follow next year.
Using tax as a tool of policy seems to be coming back into fashion, with 55% either wanting to use tax incentives to encourage green tech, addressing environmental issues via carbon taxes or both. Perhaps unsurprisingly, the preference was more for the use of the carrot (incentives) than the stick (carbon taxes).
Decisions, decisions – multiple challenges facing the Chancellor
Chris Sanger, EY’s head of tax policy, commented: “The views of business reflect many of the challenges facing the Chancellor in his third Budget: the need to be fiscally responsible, to attract investment into the UK to drive economic growth, and to support the transition to a green economy.
“Even with the chances of fiscal giveaways looking particularly low, there is still a distinct possibility that we may see some changes that look to encourage business investment – laying the foundation for economic future growth across the UK. The levelling up agenda still has some way to go, so he may conclude that now is the time to push ahead with this manifesto pledge with a view to announcing more support to boost the regional economies, through investment incentives.”
COP26 on the horizon – transitioning to a green economy
In advance of COP26 in Glasgow, businesses were asked which measures the Treasury should pursue to encourage a faster transition to a greener economy. Enhanced allowances for specific types of expenditure were the most popular choice, being backed by almost half of respondents. However, 39% thought that taxes should be raised in order to increase the cost of greenhouse gas emissions.
Sanger adds: “Following the recent launch of the Government’s net zero strategy, the Budget could be used as an opportunity to boost the UK’s green economy and put a stake in the ground ahead of COP26 which is only days away. Only 3% of the respondents thought that no new incentives were needed.
“To elevate Britain’s green credentials, the Chancellor could use his speech to expand on the Government’s ten-point plan and net zero strategy, to help position the UK as a global leader and an attractive destination for investment. That said, he may choose to keep his powder dry until the global climate conference has concluded, affording him the opportunity to make a bold statement of intent to further boost the UK’s green credentials.”
Businesses’ response to the Health and Social Care Levy
When asked about the impact of the introduction of the Health and Social Care Levy (HSCL) announced in September, half of respondents said that it had made them unsure of the direction that tax policy is taking in the UK. Despite this, one in three were still looking to invest, whereas one in six said that it acted as a further deterrent to investment in the UK.
Sanger adds: “The introduction of the HSCL, made outside of an official HM Treasury fiscal event, has created a level of uncertainty for business around the future direction of tax policy. Business decisions around investment, capital expenditure and investment in talent for example are often based on a certain level of predictability, but when that is eroded, those decisions can sometimes be put on hold.”
A Budget to remember?
Concluding, Sanger says: “The question on everyone’s lips is will the 27 October be a damp squib or a fiscal event to remember? In practice, given the elements of the Budget that have already been determined, the answer is unlikely to be either one extreme or the other, with the Chancellor looking to boost the economy where he can afford to but at the same time tweaking taxes in areas of the economy that he thinks can bear it.”