The Sensible
There were a few policies in the budget which I would put in the sensible bucket.
Reforms to facilitate pension fund consolidation, simplifying the ability of people to navigate pensions when changing jobs, and encouraging more significant investment of the country’s vast pension assets in startups, innovation and growth businesses all make sense. Maintaining a competitive tax regime for businesses also makes sense. Making the 100% full expensing deduction on capital investments permanent, simplifying and extending the R&D tax credit regime, extending EIS and VCT reliefs to 2035, and expanding the incentives on investment zones along with a few other more minor reforms means that, alongside current corporate tax rates, the Government is probably doing all it can to encourage business investment.
There is just enough truth in the Chancellors statement that the UK has one of the most attractive corporate tax regimes amongst the larger developed economies to make it stand up to scrutiny. Other sensible measures include freezing the business rates multiplier, extending the relief of retail, leisure and hospitality rates, tweaks to ISA rules, IR35, and developing current import tariff suspensions for five years and some other current tax rule clarifications. And, of course, freezing alcohol duty in pubs (although I would like to see a reduction). I was most excited by the announced £4.5bn to support an industrial strategy and investment in strategically important sectors: automotive, aerospace, life sciences, green industries and support for advanced manufacturing – the UK and Wales are in desperate need of a coherent industrial growth strategy. I was less excited when I learnt there was a catch – the £4.5bn funding will only start to be available from 2025-26.
The theoretical
The 2% drop in Employee NIC contributions was the big showstopper.
To paraphrase – what the Government taketh away, the Government giveth a bit back. Better than expected borrowing figures and forecasts have given the Government headroom to offset the fiscal drag impact of freezing the personal allowance by reducing NIC by 2%.
This could have fallen into the list of sensible announcements. However, just increasing the personal allowance would have probably made more sense. Of course, that wouldn’t have given the Government its headline-grabbing tax cut. Whilst it’s not the most egregious example of sleight of hand or tax policy dictated by headlines, this constant obfuscation is why our tax legislation is getting ever more complex (a good thing for accountants).