Adrian Young, a tax partner at accounting and business advisory firm HURST gives us his thoughts ahead of Friday’s mini-budget.
North west business leaders will be watching this Friday’s mini-Budget very closely. It will be the first chance for newly-minted prime minister Liz Truss and her new chancellor Kwasi Kwarteng to show how they intend to deliver on the tax-cutting pledges made in the leadership campaign.
There are two stand-out tax measures that I fully expect to be addressed.
The first is the reversal of the recent hike in national insurance contributions, the so-call Health and Social Care Levy. In the view of many, this was the wrong tax at the wrong time, and Truss set herself in direct opposition to its architect Rishi Sunak, in her leadership bid. So it’s hard to see her stepping back from this promise now. Businesses and families alike will welcome this move.
The second measure I think we will see confirmed on Friday is the cancellation of the proposed increase in corporation tax rate from 19 to 25 per cent in April 2023. This should help maintain the UK’s position as a competitive tax landscape for businesses and, again, local leaders will be relieved to see this increase scrapped.
These two changes alone will go some way towards reversing the tax burden from where it stands now – at the highest level in 70 years or so. But I would not be surprised if Truss and Kwarteng go further on Friday. Talk has been growing about bringing forward the one per cent reduction in the rate of income tax that was previously hinted at by Sunak.
This would be a significant move. Reducing income tax would be expensive in terms of tax revenues for the government, particularly at a time when the UK economy faces difficult times. However, Truss will certainly have one eye on the 2024 general election and so bringing forward a welcome and headline-grabbing income tax reduction could be politically expedient, and perhaps too tempting for her to ignore.
That said, whereas the reversal of the Health and Social Care Levy and the cancellation of the rise in corporation tax are likely to feature strongly on Friday, a reduction in income tax may have slightly longer odds of making an appearance. But there is another significant tax-reducing measure which may also feature. This is the potential drop in the headline rate of VAT from 20 per cent to something like 15 per cent. This would be a major boost to struggling families, not least because of its impact at the petrol pump.
Overall, Friday will be an opportunity for the new occupants of 10 and 11 Downing Street to mark a definitive break from the high tax regime of Johnson and Sunak. I think businesses and families alike will welcome this change. It is of course difficult to predict their macro-economic consequences, particularly the impact on people’s spending power, and therefore on inflation – which is already a concern. Longer term, it will be interesting to see how Truss and Kwarteng manage the competing objectives of reducing taxes while managing the wider economic fall-out.
