Lizzie Murray, partner at Top 20 accountancy firm Saffery Champness, shares her thoughts on this morning’s Budget announcements as regards the general direction of travel change, plus impact of the major tax changes, fiscal drag etc.
“Badging this as a mini-budget was clearly a misnomer. With an estimated £45bn in cuts and swingeing reforms, the most significant in decades, this was a grandstanding start from the new Chancellor, with the new government seeking to mark a clean break with the former regime. The economic proof will be in the pudding of course.
“The underlying hope will be that by cutting taxes, including rolling back on recent increases and fast-tracking planned cuts already in the pipeline, the economy will be boosted by the new-found cash burning a hole in people’s, and companies’, pockets.
“This is ‘Laffer-nomics’ pure and simple. Incentivising growth, the argument goes, will pay for itself through increased revenues, with the Chancellor’s mission seemingly being to find that elusive tipping point where reducing taxes increases the Treasury’s tax take overall through additional economic activity – spending, investing, transacting. Of course, the counterargument is that giving people back more money will fuel inflation still further. Without the OBR’s analysis, we will simply have to wait and see whether the government’s plans stack up, let alone actually deliver growth.
“Despite so many of the announcements being presaged on the campaign trail and leaked in the run up to today the Chancellor still managed some real surprises. Frankly, it is absolutely extraordinary that something as big as the 45% additional tax rate being abolished wasn’t leaked beforehand!
“The Chancellor has also left room for further manoeuvre. We could still see a thaw to some of the allowance freezes that have been put in place in recent years, addressing the prevailing issue of fiscal drag which, coupled with inflation, continues to drag mid-level earners into higher tax brackets and liabilities – a stealth tax in all but name. Scrapping the additional rate will, though, go some way towards easing this.
“Meanwhile cuts to stamp duty will always play well with the electorate and may well incentivise those who have been putting off making big life decisions given cost of living and inflationary pressures. The challenge though is that recent history suggests that cutting stamp duty risks pushing up property prices, with buyers seeing little real terms benefit, or facing increased competition.
“But the principle of many of the announcements will likely win broad favourability: reversing the much criticised NIC increase, which increased the financial burden for working people on top of prevailing cost of living issues, will doubtless be welcomed – although of course there will need to be a longer-term strategy for replacing the funding for health and social care.
“The immediate tax cuts will have the intention of removing the friction to spending and investing, but friction may emerge elsewhere. So many changes in a short space of time will inevitably lead to complexity, with businesses and individuals having to carefully apply various rates across the year for their tax returns. Watch this space – but HMRC may see a higher than ever volume of queries and problems come tax return season, at a time when it itself is creaking under increasing workloads.”
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Also, be sure to read our update right here on IFA Magazine.