HK BUDGET HEADLINES

The Chancellor headlined his Budget speech (even before he stood up in the House of Commons, with TV appearances, interviews with the press and his own You Tube video), as “a Budget to protect jobs and the livelihoods of the British People.”

The majority of what was announced in the speech had already been headlined pre-Budget up to two weeks out, with only a couple of surprises, one being the “super tax deduction”, the tile given by the Chancellor to the tax relief for companies spending on capital equipment, with his building company example, and the naming of the eight freeport sites.

The speech can be summarised in three parts:

• The country’s economic performance and predictions.  The Chancellor stated no fiscal targets were being set today, but just set out the principles of how to balance the books, highlighting the high level of borrowing the country had taken on.  
  Although the Chancellor plans to begin the work of rebuilding the economy with his Budget, including measures  such as: “a new Restart Grant to help businesses reopen and get going again," his assessment shows that The Treasury is still in survival mode, continuing to provide vast sums of money to keep the economy propped up while restrictions remain in place.  The Office of Budget Responsibility (“OBR”) forecast the UK economy to return to pre-Covid levels by the middle of 2022 (six months earlier than previous projections) with annual growth set to rebound by 4% this year, followed by 7.3% growth in 2022. However, it also forecasts that over the next five years the economy will be 3% smaller than it would have been.
• The good news then came on the extended COVID-19 business support measures (extension of the Furlough Scheme, Self-employed Grants etc), the Recovery Loan Scheme (to replace Bounce Back loans and CBILS loans), “Help to Grow” grants for management and digital training grants.  As well as personal support, such as the continued enhanced Universal Credit and Working Tax Credit, claimants will get a £500 one-off payment demonstrating the Government’s continued support for businesses and families through the pandemic.
• Then came the bad news, but expected, regarding  tax rates, which can be summarised as corporation tax rate increases and personal allowances, reliefs and tax bands being frozen until 2026.  Freezing rates, allowance and tax bands effectively increases tax revenue by what is called fiscal drag, where inflation and earnings growth push more taxpayers into higher tax brackets.  All of which we predicted or indicated in advance of the Budget speech.  To soften the corporation tax increase and the re-introduction of differential corporation tax rates with the associated companies’ rules (for those who recall those rules), generous temporary loss carry back relief rules have been introduced and the “super tax deduction” for investment in new plant and machinery. However, The Chancellor was clear that his corporation tax decisions might not be "popular but they are honest and responsible".

The speech can be summarised in three parts:

• The country’s economic performance and predictions.  The Chancellor stated no fiscal targets were being set today, but just set out the principles of how to balance the books, highlighting the high level of borrowing the country had taken on.  
  Although the Chancellor plans to begin the work of rebuilding the economy with his Budget, including measures  such as: “a new Restart Grant to help businesses reopen and get going again," his assessment shows that The Treasury is still in survival mode, continuing to provide vast sums of money to keep the economy propped up while restrictions remain in place.  The Office of Budget Responsibility (“OBR”) forecast the UK economy to return to pre-Covid levels by the middle of 2022 (six months earlier than previous projections) with annual growth set to rebound by 4% this year, followed by 7.3% growth in 2022. However, it also forecasts that over the next five years the economy will be 3% smaller than it would have been.
• The good news then came on the extended COVID-19 business support measures (extension of the Furlough Scheme, Self-employed Grants etc), the Recovery Loan Scheme (to replace Bounce Back loans and CBILS loans), “Help to Grow” grants for management and digital training grants.  As well as personal support, such as the continued enhanced Universal Credit and Working Tax Credit, claimants will get a £500 one-off payment demonstrating the Government’s continued support for businesses and families through the pandemic.
• Then came the bad news, but expected, regarding  tax rates, which can be summarised as corporation tax rate increases and personal allowances, reliefs and tax bands being frozen until 2026.  Freezing rates, allowance and tax bands effectively increases tax revenue by what is called fiscal drag, where inflation and earnings growth push more taxpayers into higher tax brackets.  All of which we predicted or indicated in advance of the Budget speech.  To soften the corporation tax increase and the re-introduction of differential corporation tax rates with the associated companies’ rules (for those who recall those rules), generous temporary loss carry back relief rules have been introduced and the “super tax deduction” for investment in new plant and machinery. However, The Chancellor was clear that his corporation tax decisions might not be "popular but they are honest and responsible".

In summary, the Chancellor’s gave the country a three-point plan to protect jobs and strengthen public finances:

1. Continued funding to support businesses and families through the pandemic – extension of furlough, a fifth self-employment grant, further business grants, business rate holidays etc.
2. Investment-led recovery as UK emerges from lockdown – Recovery loans, Help to Grow grants, Freeports, Government infrastructure projects and the New UK Infrastructure Bank to be set up in Leeds.
3. Future changes to strengthen public finances - The Chancellor being honest about the need to get public finances back on track while not raising income tax, national insurance or VAT, but freezing reliefs, exemptions and bands, while increasing corporation tax.

Pretty much what was expected, particularly with some much highlighted in advance, so hopefully no real surprises.  If there is anything in the Budget announcement which you wish to discuss, please do not hesitate to contact us.

Our Budget summary can be found HERE.

If not done so already, you may also wish to take a look at our tax year-end planning checklist with actions and ideas for individuals and for businesses to be taken before 5 April.