This Budget might be marked down in history as a “Budget for jabs and jobs”, given that the emphasis was on launching a number of high-profile initiatives to try to get the country back to work and preserve jobs, with the short-term cost of the continued employment and business support schemes being a central plank of the announcements.
Given that those were well trailed anyway, the main tax news from the Chancellor’s red briefcase was the announcement of an increase in the headline rate of corporation tax from the present rate of 19% to 25% from 2023. Whilst this was the main revenue raiser from today’s announcements this is offset by the fact that only companies with profits of £250,000 or more will pay the full rate.
We had a system of “large company” and “small company” corporation tax rates once before. It created disproportionate complexity and distorted behaviours.
The message that we are now in the pack with the competition on tax rates, even though at the lower end, seems like a less than ideal message for the UK when the opportunity to set ourselves out as a low-tax, attractive business location was very much held out as a legacy of Brexit. It is true to say that we have one of the lowest headline rates in the G20, but we also have one of the broadest tax bases (the profit which is taxed taking into account tax reliefs) which certainly places us well above the lower taxed jurisdictions when the real effective rate is considered.
Unquestionably, further political pressure looms for the Chancellor on tax. His hands are presently tied by a commitment not to raise the main rates of Income Tax, National Insurance and VAT. Even if the economy mounts the strong recovery we all hope for, his opportunities for raising the needed tax revenues without breaking those commitments seem limited, and he might be forced into breaking those rules shortly before a general election which could be damaging.