With the Budget less than a week away, regional head of business Graeme Brown talks to Midland experts about their expectations.
Growth, as ever, will be the elephant in the room when George Osborne makes his budget speech next week – but it will be tax, or the avoidance of it – that looks set to be the major political battleground.
With fears of a triple-dip recession on the horizon, businesses are crying out for a Budget to offer some competitive advantages for UK firms.
But, with a General Election two years away – and growth proving tricky – it seems the issue of tax is likely to be a central one on March 20, with the Government and opposition seeking to paint themselves as the anti-avoidance party.
Avoidance has become a populist issue, with the likes of celebrities Jimmy Carr and Chris Moyles caught up in scandals. In the past week former Labour minister Margaret Hodge claimed the Exchequer loses at least £5 billion a year because the taxman is failing to crack down on “morally wrong” schemes.
Experts say the Chancellor is likely to make the general anti-abuse rule (GAAR) – which would effectively put a blanket ban on any accounting structure that could be judged as a tax loophole – a central feature of his speech, while he might be keen to further reduce the headline rate of corporate tax, which goes down to 22 per cent from April 1.
Dan Hartland, tax partner at Grant Thornton’s Birmingham office, said: “Barely a week passes without an anti-avoidance news story so it will be no surprise to see the Chancellor wanting to reinforce the message that the Coalition is taking action. We can expect to see minor amendments to the draft general anti-abuse rule in light of the consultation that has been going on since last December.
“The GAAR takes effect from the date that the Finance Act 2013 receives Royal Assent, usually around July, so there is a window of opportunity now for those considering implementing tax planning to put this in place in the immediate future and avoid the additional layer of uncertainty that the GAAR will create.
“There are also likely to be targeted measures against known aggressive tax planning. There has been plenty of pre-Budget talk that the Government wants to turn the screw on larger corporates to cut down on offshore tax planning, but the danger here is that by acting unilaterally the UK may lose its competitive edge. International co-operation is a far stronger option and expect to see more news about how that might happen.”
The GAAR proposals aim to give the HMRC extensive new powers to judge tax liabilities and “strengthened defences” against tax avoidance.
However, they have been attacked by tax professionals who claim such a vague law would create widespread uncertainty.
Rob Gunn, tax partner at business advisory and accounting firm RSM Tenon’s Birmingham office, agreed the GAAR would be central to the speech.
He also predicted a date to be set for corporation tax to be reduced to 20 per cent and perhaps some hints about the top rate of tax coming down to 40 per cent.
He said: “Tax has dominated the news over the last few months. Almost every day brings a new story – these may make good headlines but all too often the reality of what is happening doesn’t get a look in. We are in real danger of sleepwalking into a system where tax is based on public opinion rather than what the law actually says. More than anything else I am hoping that the Chancellor will ignore the lurid headlines and give us tax reforms based on proper and rigorous analysis. Whether he will be able to do this remains to be seen.”
Richard Rose, partner and head of tax at BDO in Birmingham, agreed that 20 per cent corporation tax would not be far away.
The headline rate of corporate tax goes down to 22 per cent from April 1 this year and it is generally accepted that Mr Osborne would like to see that reduced further.
He said: “The Chancellor could announce a flat 20 per cent corporation tax rate by the end of this Parliament, which would enable the Government to demonstrate its commitment to creating one of the most competitive corporate tax systems within the G20.
“However, there is concern that the reduction in corporation tax rates is seeing R&D benefits being eroded, which Osborne might look to address. The Chancellor may announce an increase to 250 per cent deduction for SMEs; good news for West Midlands businesses carrying out R&D along with the introduction of the patent box legislation from April.”
The Chancellor is expected to freeze the nil rate band for inheritance tax at £325,000 until at least 2019.
There have been calls from some quarters for the Coalition to be more radical, for example by scrapping capital gains tax, but few are expecting such a move.
Mike Steventon, regional chairman of KPMG in the Midlands, believes increased regional powers should remain firmly on the Government’s agenda.
He said: “While I recognise that work is being undertaken to decide how best to devolve increasing powers to regional centres, there are already cities, such as Birmingham and Coventry, that can demonstrate strong leadership, game changing strategies and robust governance. It is here that I would like to see the Chancellor deliver more devolved funding on March 20.
“We have already seen how these strategies can deliver support at a grass roots level. The securing of Regional Growth Fund monies to support the advanced engineering supply chain by the Greater Birmingham and Solihull LEP is one such example of the work being carried out here in the region.”
Elsewhere, experts are predicting more misery for smokers but an easier ride for motorists on March 20.
Ann Bibby, tax partner in accountancy firm Mazars’ Birmingham office, said the annual rise in the price of a packet of cigarettes would again be delivered, but Mr Osborne is likely to resist the urge to hit drivers.
She said: “Announcements on the day that will have an immediate or almost immediate effect are likely to be confined to an above inflation jump in the duty on tobacco and an inflation increase to the duty on beer, wines and spirits.
“The Chancellor has already announced that the tax rise on petrol and diesel will be delayed until the autumn and having had to change plans so many times on fuel duty we suspect he will downplay this.
“Headline grabbing parts of the speech are likely to be of changes that will take effect a year or more in the future. We expect he will commit to increasing the income tax personal allowance for the tax year 2014/15 to an amount in excess of £10,000. It may perhaps be £10,500 – the current level for those born before April 6, 1948.”
The CBI, British Chambers of Commerce (BCC) and EEF all made submissions to the Chancellor, with suggestions on how to keep tackling the deficit while helping firms create jobs.
They all called for measures to kick-start the economy, ranging from house-building and road repairs to capping business rates.
The CBI said the March 20 Budget should be fiscally neutral but shift £2.2 billion from current spending to high-growth areas.
About £1.25 billion should be spent building 50,000 affordable homes, which would create 75,000 jobs, said the CBI. It also repeated a plea for measures to help firms access finance.
The Local Government Association (LGA) has said lifting a cap on the amount councils can borrow for house building would help boost the economy by 0.6 per cent.
It said up to 60,000 new homes could be built over five years if restrictions were removed, and claims house-building ambitions are being held back by the Government-imposed limit.