The UK budget this week will be the first delivered since 2018, the first of a Boris Johnson government, and the first for new Chancellor Rishi Sunak. Expectations have been high, especially from the business community.
The Conservatives, who style themselves as the party of business, promoted an extensive wish list at the ballot box back in December 2019. Now is the time to start putting those commitments into action. Nevertheless, it remains to be seen how far-reaching and emboldened the Treasury can be, having lost its previous Chancellor just a few weeks ago and a potential national health emergency knocking on the door.
We should expect the budget to be a toned-down version from what was promised at the election, largely as a result of saving funds to combat the spread of the Coronavirus. Whether an epidemic or pandemic, the disease is more than likely going to impact economic growth in 2020, both in the UK and globally. As a result, we expect this budget to be one of stimulating growth for business, rather than grand announcements. However, the latter will likely come in a later budget in the autumn after the spending review.
Still, this budget will allow the Johnson government to set its stall out for the next five years. As such, our Head of Insights, Shaun Dawson is keeping a keen eye on the detail. Some of the policy measures we would hope to see to support the sector and market resilience are listed below:
1) Business rates – the time is nigh for change
The government needs to reform the business rates system that is suffocating businesses, especially retailers. The property-based tax raised approximately £31bn last year.
The Conservatives pledged a fundamental review of the system as part of their election manifesto. The speed at which this will now happen is in question and any relief may come too late for some who face crippling bills. The March budget is a perfect opportunity to outline a review.
2) Entrepreneurs’ tax relief – to scrap or not to scrap
Entrepreneurs’ tax relief was established in 2008, enabling company owners and directors who sell their business to do so at a reduced tax liability of 10%. The current level of relief for individuals is £10 million. The scheme initially generated £427 million worth of relief in 2008. Ten years on, this has now risen to £2.7 billion in 2019. This not so insignificant chunk of cash is seen to be prime for the taking to be redirected into the wider government coffers. A manifesto pledge by the Conservatives at the election suggested a review to either limit or scrap the scheme. Doing the latter could upset both business leaders and the ruling party’s backbenchers.
3) Corporation tax – business confidence boost
Corporation tax was not a political football during the election – does this render it fair play to meddle with? Possibly not, as the rate for corporation tax is set in legislation and therefore an act of parliament would be needed to change the rate. Johnson had previously pledged that the planned reduction from 19% to 17% on 1st April 2020 would-be-put-on hold if he won the election. Budget spending is expected to be high. The Chancellor will need to be able to fund a myriad of government election pledges as well as the new battle against COVID-19.
Borrowing more money will not be the only route and therefore Chancellor Sunak will need to raise some taxes to meet the government’s spending plans. We could therefore expect to hear an announcement regarding legislation being brought forward to amend the corporation tax rate.
4) COVID-19 – a reaction to sudden strain
COVID-19, commonly known as Coronavirus, is now spreading in significant numbers across the UK and the globe. As a result, it is highly likely that the upcoming budget will include a significant boost for the UK’s public services – and the NHS in particular. Improved capacity and resources is crucial for the government’s ability to handle the anticipated crisis.
Recent events mean that we cannot help but consider the possibility of a resulting recession and reduction in GDP growth. Accordingly, the UK government may yet plan to revise its current fiscal rules and adjust its areas of spending in order to keep the country’s economy afloat.
As a general note, the impact of COVID-19 is likely to profoundly change the professional lives of the British public and their relationship with their workspaces. Flexible or remote working options have long been a growing trend and are likely to become yet more popular as we revise how safe “fixed” office hours and set locations are when faced with an outbreak of this kind. As a result, instances of remote or home-working and flexi-space may grow significantly.
5) Income tax – spend, spend, spend
In a period of slow economic growth, the government will look to stimulate activity by trying to get consumers buying. One way in which this could be achieved is by giving a cut in the level of income that is taxable. Income tax is a devolved tax system with Scotland and Wales having control of their own rate. In England and Northern Ireland, the allowance before taxation has increased incrementally over the past five years. We would expect to see this continue in the upcoming budget. However, the Chancellor could surprise us and introduce a new system that does away with the current basic and high rate tax bands.
6) The regions – making good on past promises
Following the collapse of major regional airline Flybe, it is increasingly likely that the government will decide to endow further funding on regional infrastructure.
Additionally, more major UK organisations than ever before are now seeking to shift some operational elements outside of London. This will allow them to make the most of the comparatively low-cost commercial renting opportunities, the additional access to talent, and the improved quality of life for members of the workforce that can be afforded by the creation of regional offices.
“Regional connectivity” is something that Johnson’s government has been promising for some time, so these latest developments may prove a catalyst for action on this matter.
7) Environmental tax – funding for our futures
The government will want to be seen that from the outset of this budget it is committed to carbon neutrality and a supporter of ‘green’ measures. We therefore expect to see a number of announcements to support it. Yet, funding requirement elsewhere could well disappoint environmental groups who will be looking for some bold steps and increased levels of funding. What moves could the government make? It has already been suggested that the freeze on fuel duty will come to an end in order to meet its climate change commitments. In addition, subsidies on diesel for certain industries could also end. This would be designed to nudge the consumer in the direction of more sustainable powered vehicles by increasing the costs of petrol and diesel. Tax incentives for research and development firms in the ‘green industry’ could also be a possibility, as well as the setting up of new funds for businesses to tap into. Nevertheless, an increase in taxation is likely to be announced to fund any environmental led strategy.
The extent to which Chancellor Sunak’s first budget will provide a chance to forward the government’s agenda as opposed to purely responding to the COVID-19 outbreak will soon be unveiled. If you want to understand how the budget and recent sector trends will affect your commercial property strategy, get in touch.
