It is over 200 years since the country last endured a whole year with no Budget. Even before this recent 12-month hiatus, the last few years had only offered slim pickings from a tax policy perspective, hemmed in as the Chancellor was by Brexit uncertainty. Not that businesses minded – they tend to prefer a light-touch grazing approach to tax policy making rather than an ‘all you can eat’ bonanza.

Nevertheless, a certain expectation has been growing over what this budget might offer, especially with a fat conservative majority providing a certain amount of freedom to the government. The last minute change of the head chef from Sajid Javid to Rishi Sunak made some think the event would be delayed with the Budget needing a bit more time before the juices ran clear. Instead the new Chancellor is pushing ahead with the original timetable, which may indicate that the Budget was more oven-ready than we had thought.

• Entrepreneur’s relief – A review and reform were promised in the Conservative party manifesto. One criticism of the relief is that it rewards situations where there is no or limited entrepreneurial activity. Whilst we consider it unlikely that the relief will be completely abolished, the cap may be reduced to incentivise small starts up and we may see a narrowing to focus it more towards the behaviours the government wants to incentivise.
• Employment taxes – The Conservative manifesto included a promise that the National Insurance threshold would be increased and that there would be no increases to income tax. However, a review was promised of the planned extension of off-payroll working reforms to the private sector. The off-payroll changes are slated to come into force in April and businesses are already involving significant resource preparing for them. The value of a review this late in the game is questionable but substantial concerns remain around the compliance burdens the changes will bring for employers, even though most recognise that some levelling up of the treatment of employers and those that operate through personal service companies may be required. Fundamental concerns also remain regarding whether the taxation of labour adequately reflects modern ways of working although any reforms are likely to be part of a longer term agenda.
• Business rates review and Corporation tax (CT) rates – The government previously announced that CT rate will not reduce to 17 percent and will instead remain at 19 percent. Businesses were relatively relaxed about this announcement. The UK already offers a highly competitive headline rate. If businesses want anything it is simplicity rather than rate cuts. However, the promised business rates review will be welcomed, especially by property rich businesses such as the retail sector, although the most substantial benefit is expected to be given to smaller businesses.

Other ingredients which could add more spice to the flavour combination are:

• Pensions tax relief – pensions tax relief costs the government significant amounts in tax. In 2017/2018 it cost an eye-watering £37.2 billion. As such it is a pot of potential revenue that must leave any Chancellor salivating. Media outlets are already reporting that substantial changes are being considered including reducing tax relief to 20 percent. Concerns over the impact the current pensions system is having on the National Health Service (NHS) makes some form of pensions change a high priority item. But to deliver relief for the NHS the Chancellor must relax the rules on the clawback and not tighten them. But like any good roux sauce, views are split on how to solve the pensions conundrum. The current system is complicated and needs simplifying so that everybody can understand it, not just highly qualified financiers. But nobody quite knows how and radically reducing the level of tax relief could be a political gamble.
• Inheritance tax (IHT) review – In July 2019, at the request of the government, the Office of Tax Simplification issued their second report on Inheritance Tax looking at simplifying this area of the tax code. More recently an All Party Parliamentary Group has issued a paper recommending a number of reforms which broadly aim to lower the rate of inheritance tax but also reduce the reliefs available. No specific plans have been announced by the government but this goose looks like it may be ripe for some plucking. It is to be hoped that a thorough consultation process will be undertaken before sweeping reforms are brought in.
• Environmental taxes – With the government’s credentials on climate change regularly questioned in the media, could we see the introduction of some environmental taxes? It currently seems unlikely although it would help to demonstrate an administration in step with younger voters, a demographic the current government traditionally polls less well with. Over time we might see tax rates for businesses linked somehow to environmentally and socially responsible behaviour. This would resonate with today’s voters although it runs the risk of being fiendishly complicated to implement.
• Digital Services Tax (DST) - Internationally, there is a growing pressure from the US for countries who have announced to unilaterally tax the digital sector to halt or reverse their position. France, recently announced that it would defer collection of the tax in 2020. The Government so far has not succumbed to this pressure. Keen to obtain a slice of the profit pie they perceive is being generated from UK citizens, the digital services tax remains firmly on the Government’s agenda and is due to come into force in April 2020. We are seeing a flurry of positive messages from the OECD since the US reached an agreement with France. In the light of this, the tax is likely to still be on the menu but we do wonder if the pie filling will be tweaked a bit.

With this being the first budget of the new Government, there will be pressure to deliver on key election promises – particularly in terms of rejuvenating the regions and investing in the NHS. However, this will need to be balanced against other factors such as the Bank of England’s reduced growth rate forecasts.

Businesses, generally fans of a more simple fare, will want stability and certainty. However, given the need to balance the scales, the Chancellor may reach for more imaginative ingredients. Which probably means that the wait for stability in the tax code continues. Where change is envisaged, we would encourage the Government to enter into early and comprehensive consultation with stakeholders.

And let us not forget that the Chancellor’s offering will also be closely watched by those with a more international palette. European Union (EU) jurisdictions will be seeking to get a sense for the Government’s post-Brexit strategy.

There will be spending, the core question of this budget is whether the Government raises taxes or borrows to fill the gaps. We eagerly await to see what the Chancellor cooks ups.