Budget preview: Businesses should expect targeted tax measures rather than set-piece revenue raiser

A series of targeted tax changes affecting North West businesses are more likely than a single major revenue-raising measure in chancellor John Healey’s first budget, according to a North West tax expert at national accountancy and advisory firm MHA.

The upcoming budget, which is due to be held on October 28, will be the government’s first major fiscal event since the appointment of Andy Burnham as prime minister in July.

Tony Medcalf, North West-based Tax Partner at MHA, the UK member firm of Baker Tilly International, said the government had already made several significant political commitments since Andy Burnham’s appointment, including to tackle the cost of living.

According to Tony, weak economic growth, rising energy prices and high borrowing costs are being exacerbated by global geopolitical tensions, meaning the government faces a difficult fiscal balancing act.

He said: “The fiscal challenge is not finding one clean revenue-raising lever but managing a difficult balance. Tax levels are already high, fiscal drag is pulling more middle and higher earners into heavier tax burdens and further increases risk adding to the strain on households already feeling squeezed.”

Tony also pointed to the government’s previously highlighted concerns about the cost of business, as well as reports that the chancellor is hoping for a ‘low-key’ budget and suggested this meant there was a relatively low chance of one key fiscal change that would impact companies.

Among the measures being discussed most frequently is aligning Capital Gains Tax (CGT) with Income Tax. This has been ruled out recently by the Chancellor, however there was no comment as to whether the rates may increase by a lower amount

“A straight increase to CGT is unlikely to raise tax revenues,” said Tony.

“However, estimates suggest £14bn could be raised by aligning CGT with Income Tax as part of a broader package of reforms which also includes introducing an investment allowance, removing the CGT uplift on death and reducing opportunities to convert income into capital gains.

“The fear is that any of the above would discourage investment in the UK at a time when such investment is so desperately needed to fuel growth. A pro-growth alternative would be to protect competitive rates while strengthening reinvestment reliefs for proceeds recycled into UK businesses, intellectual property and innovation.”

“The ultimate challenge for the chancellor at the October 28 budget is to raise the revenue he needs without making it more difficult for businesses to invest and grow.”