Spring Budget 2021 – A Gamble For Economic Recovery?

Businesses and individuals are hoping for a clear plan for economic recovery from the Chancellor’s announcement on 3rd March. Jon Meeten, Tax Partner for KPMG in the North West, argues that he may stay away from significant reform at this stage for risk of damaging confidence.

“As privately-owned businesses across the North West begin to tentatively plot their route back to business as usual, after so much upheaval and challenge, their key ask of the Chancellor will be for stability, when he delivers his Budget on 3rd March.

“Most business leaders and owners accept the Treasury will need to raise funds at some point to help pay off our national Covid-19 debts, but sweeping reforms to taxes just now risks being a little too much to ask at a time of fragile recovery.

“However, the changes to our tax system that might have been expected next month, had we not still been in pandemic territory, are surely round the Covid corner, in either the Autumn Statement or next year’s Budget. North West business owners should put the deferral to use by planning for a possible raising of the rate of Capital Gains Tax. It’s possible that we might see measures announced on the 3rd but coming into effect at a later date, once the economy shows more concrete signs of recovery.

“There could also be minor tweaks to National Insurance contributions and a freezing of personal tax allowances.

“The question of an online tax has sparked a good deal of discussion and the Chancellor may feel that such a move might help to rejuvenate the high street as an alternative to online shopping as the economy begins to reopen. However, whilst there is a clear temptation to tax those who have done well during Covid (online retailers being an obvious example), the Chancellor needs be careful about stifling the raft of new business models that have emerged during the pandemic.”

Outside of tax changes, Jon believes businesses may also see an extension to the various Government support schemes that have been in place since April 2020. He adds:

“Further assistance for businesses would be no doubt welcomed by many in the region caught in the eye of the Covid storm.

“It wouldn’t be entirely surprising if the job retention scheme was extended. The Chancellor may take an ‘in for a penny, in for a pound’ approach and invest further in the furlough scheme, rather than risk more dramatic job losses, having protected them for so long.

“There could also be additional rates holidays for retail, hospitality and leisure sectors in a bid to boost them over the coming weeks and months of restrictions easing.”

But what of actual growth stimulus to help the North West economy recover? Jennifer Lee, Office Senior Partner for Liverpool, points to the number of initiatives in the pipeline for the area that firms will be hoping to see more detail about in the Budget.

She comments: “The first Freeports could be announced and would be expected to have a significant impact on the regions behind successful bids, with the Liverpool bid potentially paving the way for more than 85,000 new jobs in the region.

“Low carbon innovation is tasked with the dual job of supporting the achievement of the government’s climate targets and driving regional economic growth, with the North West at the forefront of the latter. The Chancellor might build out the Government’s green industrial revolution plans with investment specifics.

“He may also increase tax relief for manufacturing firms and factories to help deliver on the Government’s “levelling up” agenda. Finally, we may see signs of the evolution of industrial strategy ambitions, should the government be ready to share its ‘plan for growth’.

“Above all, the light at the end of the tunnel shed by the Government’s roadmap set out this week needs to be backed up by giving North West businesses as much support as possible to aid their recovery.”