Retired tax partner AC Mole & Sons
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A Budget of the unexpected

Paul Aplin was struck by Chancellor Sunak’s reference to Roald Dahl in his speech yesterday as this was, by any measure, a Budget of the unexpected.

12th Mar 2020
Retired tax partner AC Mole & Sons
In association with
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Budget

Sunak had no choice but to react decisively to an unexpected event: the coronavirus pandemic. He did, however, have a choice about the balance he struck between taxation, spending and borrowing and, while the choice he made was perhaps not wholly unexpected given recent comments from ministers, it was a complete reversal of the approach taken by George Osborne and Philip Hammond.

Number crunching

Public sector net debt as a percentage of GDP stands at 79.5% for 2019/20 and is predicted to fall to 75.2% in 2024/25, actual borrowing will, however, increase.

In the 2019 Spring Statement, the deficit was forecast to be £47.6 billion in 2019/20, £40.2 billion in 2020/21, £37.6 billion in 2021/22, £35.4 billion in 2022/23 and £33.3 billion in 2023/24. Those figures are now £47.4 billion, £54.8 billion, £66.7 billion, £61.5 billion and £60.2 billion respectively. The national debt is forecast to increase from £1.8 trillion to just over £2 trillion. So why have the fiscal taps that Chancellors Osborne and Hammond were at pains to tighten, now been opened so wide?

Partly because interest rates are low and partly to drive the government’s ambition to improve public services, level up economic opportunity, strengthen the UK’s place in the world and reach net-zero carbon emissions by 2050.

While Coronavirus and Brexit are the two obvious current challenges, the Red book highlights another: low productivity, an issue that has dogged the economy since the 1960s.

Tax measures

There was a package of measures to help small businesses through the coronavirus pandemic: refunding of up to 14 days SSP, increasing the business rates retail discount and extending it to the leisure and hospitality sectors, and increasing the discount for pubs with a rateable value below £100,000. Living in rural Somerset and having acted for many small and micro-businesses, I know how slender a financial thread some hang by, so these measures will be welcomed.

The announcement on Entrepreneurs Relief was no surprise at all and while a change to the pension taper rules was not unexpected, the size of the relaxation perhaps was.

I welcome the ambitious targets for R&D expenditure, the announcement or a consultation on the business rates system and the focus on reducing carbon emissions to net-zero by 2050.

The only announcement on MTD was that HMRC would be assessing progress to date. I certainly think we have reached the point where a joint assessment by HMRC and stakeholders of where we are and how we can best harness the power of technology for business as well as for tax administration is due.

Other barriers

In rural Somerset broadband connectivity is also an issue, so the announcements on gigabit-capable broadband and the shared rural network were welcome too (as indeed was the funding to fill 50 million potholes).

There was a commitment to “reduce regulatory barriers for businesses and ensure that regulation is sensible and proportionate”, by launching the reforming regulation initiative. Over-engineered regulation is a burden on business and a drag on efficiency and productivity, so any initiative to reduce it must be a good thing: but to be effective it must bold.

Encourage exporting

In the post-Brexit world, the government has to increase support for businesses seeking to export as well as encouraging investment in the UK. Having had many conversations with the professional and business communities in Singapore, Malaysia, Australia and China over the last year or two, I am glad to see the announcement of a pilot DIT/DCMS Digital Trade Network in the Asia Pacific region.

DIT will also establish local champions based overseas to support exporters from the UK regions and increase the number of international trade advisers outside London. This increased regional focus is welcome and personally I would like to see a greater number of smaller businesses encouraged to think about exporting.

Tax advisers

I note there will be a “call for evidence in the spring on raising standards for tax advice [which] will seek evidence about providers of tax advice, current standards upheld by tax advisers, and the effectiveness of the government’s efforts to support those standards, in order to give taxpayers more assurance that the advice they are receiving is reliable.”

Conclusion

This was an ambitious Budget. We heard a lot about levelling up in terms of opportunity and regions; my guess is that in future Budgets we will hear more about levelling up through the tax system. But who knows? Expecting the unexpected is the new normal.  

Budget

Replies (3)

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Tornado
By Tornado
13th Mar 2020 16:11

"The only announcement on MTD was that HMRC would be assessing progress to date. I certainly think we have reached the point where a joint assessment by HMRC and stakeholders of where we are and how we can best harness the power of technology for business as well as for tax administration is due."

I think this statement sums up the current situation very well.

It is all very well trying to harness the power of technology but you can only do that successfully when the basics are working properly. For anything out of the ordinary, HMRC are practically impossible to deal with. I have enquires to HMRC going back as far as early December 2019 that I have not even received an acknowledgment for, let alone a reply, and we are still generally unable to deal with HMRC by email.

How can there be talk of harnessing technology when HMRC are still living in the dark ages and are pathetically out of touch with reality.

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By bobsto12
16th Mar 2020 10:28

All that debt and it scarcely seems to matter these days.
I don't know why but I suspect that one day there will be a sovereign debt crisis it will matter a great deal.

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By chronus
16th Mar 2020 16:03

The government is about to have a lesson on "harnessing the power of technology". Especially as it is that very technology that seems to have shrunk the world and brought us all to the very precipice where we now stand.
No amount of Budgeting and fiddling around crunching endless numbers on the latest whizzo computers will help to deal with the reality of major business failures.
So futile as it may be, let HMRC do all the assessing that they must. The truth is that they have been given so many things to do all on their whizzo computer and now they are all reluctant to touch their keyboards in case they pick up one of these corona virus things , and have the ideal excuse to go home,self confine, dig their veg plots and plant loo rolls.

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