3.5 minute read
So, there you have it another Spring statement and a very difficult act. Quite simply, the UK and increasingly the finances of its households are in a mess. Inflation is rife resulting in the biggest fall in disposable income since records began in the 1950s. Post-pandemic growth is being stifled and the war in Ukraine plus the associated sanctions are adding to the storm – there’s a recessionary wind so, as Chancellor, what can you do? Cut taxes to try and turbocharge the economy or hold course and hope that inflation tails off and growth kicks back in? With manoeuvres such as the 1.25% hike in National Insurance in the last budget, today’s statement announcing a 1% drop in income tax next year to 19% seems to hold course – but you have to ask what the point is? This is playing at the edges to show sympathy with householders but with no real lifelines. Even the cut in fuel duty is less than the increases, so this, in turn, means that consumer spending will slow down.
Fundamentally, for business owners the last budget was bad news all around, with the need to fund Covid recovery and raise HMRC revenue, and, at a first glance, this Spring statement seems to broadly maintain the status quo. Apart from some nice polishing to extend R&D tax credits, successful shareholder owners overall face a whopping 9% overall tax hike. That is a 6% increase in corporation tax, 1.25% in employer National Insurance contributions and a further 1.25% increase on dividend taxes. Capital Gains Tax was also changed from 10% on the first £10 million of a sale to £10% on the first £1 million, and 20% thereafter. Entrepreneurial success has been put in the frontline on tax increases – but what choice does the Treasury have? The Government’s debt burden increases with the interest rate hikes to control inflation and allowing and accepting inflation is, itself a strategy, but one we have avoided for 40 years. Inflation will also put pressure on Government departmental budgets and just meeting their spending review targets may seem like a partial return to ‘austerity’,
Therefore, the Chancellor will continue to ask those with the ‘broadest shoulders’ to contribute more. Sadly, despite lobbying to reduce taxes to boost growth after spending so much on Covid support, we can only see long-term taxes further increasing – it is just a case of when. For our clients wondering about Capital Gains Tax, the current 20% on business sale proceeds above £1 – or, if you are looking at Employee Ownership Sales the 0%, both remain but for how long? In the end, our job as leaders is to work smarter and figure out how to be more million-productive to offset these chill winds. What do they say – there is no such thing as bad weather only the wrong clothes!
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