What a Budget and Spending Review this promises to be! When the Chancellor last stood at the Despatch Box to present a Budget, we were only days from the first lockdown. What a momentous 18 months we’ve seen since then.
This statement on Wednesday will be a combination of a Spending Review (quite a bit of which has already been announced/leaked) and a Budget for 2022/23. But expect some changes to happen immediately, with some probably affecting transactions carried out on or after Budget Day itself.
Putting aside the details of the Spending Review, it’s clear that this has to be a tax-raising Budget. No Chancellor could be taken seriously if it wasn’t. But where will the taxes come from?
We already know about the NHS levy, so I would be surprised if there were any further changes to income tax and national insurance, other than a possible change to NI for the self-employed to align it more with the regime for the employed (the Chancellor has hinted at this on several occasions, especially when he introduced the Covid-19 help for the self-employed).
So where might the tax increases come from?
VAT: this would be the easiest, and quickest change to implement. The tax take would hit the government’s coffers almost immediately and there would be very little incremental cost to collecting it. Politically, it is an easier “sell” than raising taxes on income, as it can be portrayed as a tax on spending, and therefore discretionary. The pill can be sweetened by maintaining (or even lowering now that we are not in the EU) the lower rate of tax on things like energy and maintaining the zero-rating of things like food and children’s clothing.
Capital gains tax (CGT): A change here is almost certain. The problem is, though, that the actual tax it would raise is not huge. Aligning the taxation of capital gains with the taxation of income in its entirety would raise about £10billion; it sounds a lot, but in the whole scheme of things it isn’t. Nevertheless, I do expect there to be some move towards this. If there is an increase in CGT, I would like to see the re-introduction of some form of Business Asset Taper Relief so that longer-term gains on entrepreneurial activity are taxed at a lower rate than speculative gains and property gains.
Inheritance/wealth tax: I can’t see inheritance tax rates increasing from the current 40%, but I wonder whether the taper period for potentially exempt transfers (PETs) might be increased. A long shot, but a wealth tax based on the value of a person’s overall assets is not out of the question. I wouldn’t be surprised to see something similar to the 10-year charge on certain trusts being extended to include personally owned assets. This would probably only apply to people with total wealth above a certain threshold (say £2 million) and could either be a one-off charge or maybe a 10-yearly charge akin to trusts.
Stamp taxes: Surely there can’t be any more artificial intervention in what an over-heated domestic housing market is already. So, no changes to SDLT unless, possibly, there’s a modest increase in rates. And how about raising the rate of normal Stamp Duty from 0.5% to 1.0%?
International/cross-border taxation: This is not an area where I would expect to see any immediate changes, but I would not be at all surprised to see a number of areas ear-marked for consultation and legislation in due course.
By about 2pm on Wednesday we will know. However, I expect this Budget to be light on detail with a lot of technical detail either hidden in the small print of the Press Releases or to be announced in the coming days leading up to the publication of the Finance Bill. I will be posting further blogs as and when I know the detail.
