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What can we expect from the Spring Budget 2023?
20 Feb 2023
Paul Brown, Tax Partner, explains, “ The question, “what do you think will be in the Budget?” always causes my heart to sink slightly, even at the best of times. This time around, however, after the tax rollercoaster of the last few months, I have approached this piece with even greater trepidation than usual; how does one predict the entirely unpredictable?
The first caveat I’ll make is that the comments below are made assuming we will have the same Prime Minister and Chancellor, as we do at the time of publishing, come 15 March. Historically that would have seemed a safe bet, but now, given the increasingly febrile atmosphere within the Conservative party, not so much.
Budget 2023 Predictions
So, what do I think we will see on 15 March? My instincts tell me to expect a relatively quiet Budget from a tax point of view. The Chancellor has clarified that now is not the right time for tax cuts – and given the various tax changes last year (freezing or reducing rate boundaries and the like), it would represent a considerable change of direction to see some cuts this time round. I’m not sure the economic situation has changed sufficiently to justify such a change, but that has never stopped Chancellors in the past. There is undoubtedly a groundswell within the Conservative party to make some cuts, and Liz Truss and Kwasi Kwarteng have remerged after a short period of silence. Still, that sentiment seems to be somewhat more about improving electoral chances than whether it is the right thing to do.
I think the current trend to raise taxes and interest rates make little sense; to the economically illiterate, like me, inflation does not seem to be driven by demand but rather by external factors like the ludicrous nature of the UK’s energy pricing policy. Taking more money out of people’s pockets now seems counterintuitive when we need to drive economic growth. What, however, do I know?
Which taxes will be amended in the 2023 Spring Budget?
Every Budget since the Business Asset Disposal Relief and its predecessor, Entrepreneur’s Relief, were introduced has seen speculation about changes. Although this remains a valuable relief, it is worth a maximum of £100k for every person able to claim it, and most claims will be well below that. In my view, the tax impact of removing the relief would surely be negligible and amount to little more than a gesture. As someone old enough to remember retirement relief (and indeed old enough to have qualified for it back in the day), we have long had some relief for those entrepreneurs exiting their businesses. In my view, taking it away without a replacement would be a backward step. I just hope the Chancellor has better things to do.
In the same vein, I believe we will see minimal changes to CGT rates, given the coming reduction in annual exemptions and the Chancellor’s seeming preference to raise revenue by freezing or reducing thresholds rather than increasing rates.
Another old favourite is taking away higher rate tax relief on pension contributions. Again, with an ageing population and a Treasury not exactly flush with cash, why take away an incentive for people to save for retirement? The tax take will be small but the impact on retirement savings much greater. Acting on this would seem to be for the benefit of the headlines rather than for any real benefit to the economy. Like him or loather he, Mr Hunt does not seem like the sort of person who would be much into making relatively empty gestures to please the chattering classes.
On to Inheritance Tax (IHT). The government has largely ignored the Office of Tax Simplification report on reform to IHT, and I would expect that to continue. More and more estates are getting dragged into IHT by the freezing of the nil rate band – I imagine this is proving to be a nice little bonus for the Treasury, and it does not feel like the time for radical reform. Tweaks are not out of the question, but again if there are to be any, I suspect we will see consultations announced rather than any immediate measures.
One area where I think we will see further announcements is around compliance with the rules as they stand. The R&D system is one area where we see a significant upward trend in enquiries due to the deployment of large numbers of additional compliance staff. I would expect this trend to continue to be reflected more broadly. The UK tax gap (the difference between what might be collected and what is) remains a staggering £32 Billion – imagine the difference if that was reduced by 50%. Most of this relates to errors rather than evasion or avoidance, but with HMRC seemingly continuing its descent into chaos, the chances of this gap being closed any time soon seem slim at best. Most HMRC staff want to be helpful but don’t have the time or support.
As tax advisers, we need an efficient, competent and effective HMRC to do our job properly. Being able to rely on the tax authority to understand issues, discuss differences of opinion, and respond promptly and competently, are all essential when we are trying to help our clients meet their obligations and pay the right amount of tax.
My one plea to Mr Hunt – please, can we have a thorough reform of HMRC supported by investment into people and training to make everyone’s life much easier? If you do that, I suspect the impact on tax revenues would be far more significant than any historic measure put in place, which have typically had the same impact as rearranging the deckchairs on the Titanic.
Do I expect to see this in an environment of staffing cuts and pressure on public service funding? Sadly not, but then nor do I expect much of radical change on 15 March.
We predict there will still be plenty to talk about, so if you would like to hear a calmer and more rational analysis of what is announced, then please sign up to attend one of our Budget events.
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