It’s safe to say that pretty much everyone is feeling the pinch at the moment so we could do with some good news in this week’s Budget – but do we think we’ll get any?
For the economy to grow, we need more people back in work to earn money to spend on products and services thus enabling those producers and service providers to employ more people so the circle can continue – aka Trickle-Down Economics, a phrase almost turned into a swear word by Liz Truss’s Government.
Many businesses are still in recovery from the pandemic, whilst also having to navigate the current cost of living crisis. The impending increase in Corporation Tax from 19% to 25% for businesses with profits over £50,000 (albeit with some marginal relief for those with profits of between £50,000 and £250,000) will be another blow.
Much discussion has been had as to whether the Government will put this increase on hold but, given that Jeremy Hunt overturned Kwazi Kwarteng’s decision to do just that, it seems unlikely. Perhaps an increase in the corporation tax lower profit level of £50,000 would be a starting point, allowing more smaller businesses to reinvest the tax saving in their business? An extension to the Employers Allowance would also help and maybe a small employer’s relief to enable them to take on more staff.
Following the freezing of the annual tax-free personal allowance and the continued squeezing of the basic rate tax band, more middle earners will find themselves paying higher rate tax from April. So how could the Government help to soften that blow?
One obvious area is help with childcare costs, currently proving a huge barrier to many who would like to go back to work – or to work more hours than they currently are. There was much discussion about this last week, highlighted no doubt by it being the week of International Women’s Day. When the cost of childcare pretty much cancels out the employee’s monthly wage, it makes it very difficult for a whole swathe of talented employees to get back to the workplace.
There have been hints that the Government is planning to do something in the Budget to increase childcare support for those claiming Universal Credit and, whilst this is welcomed, comments Jeremy Hunt has made recently suggest it is unlikely he will extend childcare support to those not claiming Universal Credit. There surely must be more that can be done to assist middle earners with their childcare costs – for example, being able to pay childcare via salary sacrifice. It does, after all, seem a slightly out of balance tax system where you can use this route to purchase an electric car, but not to fund childcare!
Continuing the theme of the Government wanting to encourage more people back into the workplace, there are rumours that raising the state pension age to 68, which was due to come in from 2044, may be brought in earlier, effectively meaning that those born in the 1970s may end up having to work for longer.
The current restrictions on how much higher earners can invest into their pension each year and on the total value of their pension pot seems at odds with the Government wanting everyone to save towards retirement. If those that earn more are able to contribute more to their personal pension, perhaps that would free up state pension monies to pass to those who earn less?
The higher rate pension charge has caused issues for those in jobs where they have no control over what is paid into their pension (such as doctors), resulting in tax penalties if they over-contribute. Many are restricting the hours they work as a result which, in the case of the medical profession, has the knock-on effect of less doctors being available to see patients. It would be good to see the Government recognising and addressing this issue in the Budget.
Capital Gains Tax
There have been mutterings for some years that the Government are likely to increase the current capital gains tax rates so that they are in line with income tax rates. So far, nothing has happened and the general consensus seems to be that nothing will happen to the rates this year either. The annual exemption is reducing from its current level of £12,300 to £6,000 from next month and to £3,000 from April 2024 so maybe the Government feel that will be all that is needed to collect in enough extra capital gains tax?
Finally, the Green Economy is always a hot topic and we hope there may be something in the Budget to encourage more businesses to invest in green technologies. Equally, individuals want to do their bit, but for many this is currently prohibitively expensive. We’d like to see this addressed in the Budget, perhaps by providing more financial incentives to both individuals and businesses that will help us all preserve the planet in the long term.
Jane Hodge CTA