Halloween Budget could still give businesses a fright in the night

The Budget was not as shocking as some were expecting, but a few things could still go bump in the night, says Tim Sarson

Today saw the delivery of one of the most hotly anticipated Budgets in living memory. After 14 years in opposition and an election manifesto with relatively muted tax rises, it must have been a bittersweet moment for the Chancellor, as she had to navigate the tensions of delivering a pro-investment message while ‘fixing the foundations’ with tax rises.

The positioning ahead of this budget was all about tough political choices with a claimed black hole of £22bn and public services in need of vital support. In the final analysis the chancellor announced tax rises of £40bn.

As anticipated, a 1.2 per cent increase to Employers National Insurance together with a cut to the starting threshold, raising £25bn is expected to do most of the heavy lifting.

Pundits will talk about whether a manifesto commitment was breached. But with the other main tax revenue raisers – income tax, VAT, and employee’s national insurance – left untouched, the Chancellor needed to find other sources of cash. In the end, we saw a proliferation of smaller tax rises largely in line with expectations.

On Inheritance Tax the Chancellor opted to include defined contribution pension pots within the scope of the tax. She also announced a reform to the Inheritance Tax reliefs for business and agricultural property by maintaining 100 per cent relief for the first £1m of assets and 50 per cent relief thereafter. There were also tweaks to Capital Gains Tax and Business Asset Disposal Relief.
There were also confirmations of manifesto announcements on the non-dom regime, carried interest, private schools and Stamp Duty (in England) on some property acquisitions by overseas individuals. Tax collection featured reasonably heavily with confirmation of measures to close the tax gap through digitalisation of the tax system and more HMRC staff with 12 separate measures included in the policy costings.

The surprises were in what the Chancellor didn’t do

Perhaps the surprises were in what the Chancellor chose not to do, with fuel duty one notable area where rises were expected. Instead, she extended the 5p per litre ‘temporary relief’ and announced a further freeze to the fuel duty escalator – at a cost of some £3bn next year. She also decided not to extend the freeze of personal tax thresholds which had been widely anticipated.
We did see some good news on aspects of business tax. Wanting to be the government of investment, the Chancellor unveiled the long anticipated Corporate Tax Roadmap confirming that the headline corporation tax rate would be capped at 25 per cent and that the main reliefs would remain at their current levels. The roadmap also sets out a number of planned consultations, including ways of improving tax certainty for investments.

For those operating in the UK oil and gas sector the three per cent increase to the Energy Profits Levy and its extension to 2030 was confirmed today, raising £2.3bn.

After months of speculation, businesses will now have more clarity on what they have to face into for the next 12 months. Having presided over one of the largest tax raising Budgets in living memory, the government will be hard-pressed to ask for much more from taxpayers this parliament. The Treasury will be dependent upon the Chancellor’s investment plans generating sufficient growth and tax receipts to meet the longer term burgeoning demands of increased defence spending, the green transition and an ageing demographic.

The Budget was not as shocking for businesses as some had predicted this Halloween. It instead left businesses with some grounds for optimism alongside, potentially, a few bumps in the night as they look ahead.

Tim Sarson is head of tax policy at KPMG