Budget 2021 – a Budget of Smoke & Mirrors

 

Post edit:  This is a long read. 

It may come across as politically influenced but I assure you that’s not the case.  So often tax and politics are intertwined and unfortunately seemingly inseparable. 

Many in my profession shy away from the political aspects of tax because they fear it could alienate clients of different political persuasion. 

Well maybe it’s time to be less vanilla as a profession? 

Maybe I’m naïve in seeking a tax system that’s simpler, more transparent, fairer and equitable, and delivers on funding society as it should? 

So much of this speech was delivered as a victorious achievement and that’s what you’ll read in the mainstream Press. The reality for small business owners and ordinary taxpayers is quite different. 

You may not agree with my analysis (which is fine) but please try and stick with it because it’s not a rant. 

It’s a call to action for all small business owners to make things more equitable and to give themselves a chance to create a more sustainable & profitable business to protect their livelihoods.

Budget 2021

After over an hour of Sunak speaking at the Dispatch Box, I was left thinking, “well that was a touch different!”.

Ok, it wasn’t quite as pleasant as that.

And as the dust settles, my opinion is that this was a Budget of smoke and mirrors.

The numerous media leaks beforehand (16 I think was the last count, up on the 10 leaked in March) as well as already setting out future tax changes in March and changes to National Insurance/Social Levy in September, left little tax content to talk about.

Instead, it had a feeling more akin to a party political broadcast than setting out a Budget and the vision of what the future holds.

It was delivered as if they had just been elected; spending reforms, announcing “new” ideas (with some old ideas cleverly rebranded) to radically turn things around.

Look, there’s no denying there’s a hole to be filled.  Yes, we’ve had COVID (more on that later) and yes we’ve had Brexit (even though he wasn’t too keen to draw attention to that, so more on that later too!).

The key questions therefore are, “does this Budget achieve it”, “does it address the real issues” and “what is the impact on taxpayers”.

“The Age of Optimism”

The Chancellor’s spending was the centre-point to his speech – “The Age Of Optimism”.

And the spending was off the scale.

£150bn!

Money for schools, family hubs, more money for police, hospitals, courts, probation services, transport projects…..something about Bury or Burnley market (I forget?)……..the list went on.

But where did this optimism to spend so heavily come from given the economic backdrop we all know is there?

Positive OBR opinion

Every Sunak decision on Wednesday was on the back of positive OBR (Office for Budget Responsibility) opinion. In itself, this flags up a few key issues:

• Successive OBR productivity forecasts since June 2010 (20 in total) have never materialized or met their projections
• The OBR stated that the long-term impact of COVID would see a 2% hit to the economy.
• The OBR stated that there was a 4% permanent hit to the economy because of Brexit. And on that point, and that point alone, Sunak said that this was only “their view”.

Brexit (a conscious decision and “oven-ready great prospect and a great deal”) will have double the impact in the long run for our company than COVID (an unforeseen, global catastrophic pandemic that brought the country to a standstill) – it’s jaw-dropping and I had to re-read it a few times to make sure I’d read it the right way round.

Positive OBR opinion has driven the Chancellor’s spending in the Budget (and associated tax rises) but where the OBR’s opinion on Brexit didn’t fit the narrative, it became “their view”.  To dismiss the impact of Brexit and not factor it in to your Budget is the ultimate in hearing what you want to hear.

The leaks served as a distraction and grabbed headlines beforehand.  The tax changes announced on the day were met with great cheer by some of the mainstream press.  But when you dig deeper, there’s a cynical part of me that sees these leaks as a master distraction technique.

Sunak may well still be on his lap of honour as you read this but independent analysis sees things quite differently.

Paul Johnson, Director for the IFS (Institute for Fiscal Studies) commented that “voters may not get much feel good factor [from this Budget].  Higher inflation, rising taxes, poor growth, still undermined more by Brexit than the pandemic will see real living standards barely rising and for many falling”.

Tax rises

And on the flip side of the spending, are the tax rises.

COVID is seemingly being used as the excuse to see tax rises to their highest levels since 1950 rather than what they’re also doing; repairing the consistent defunding of public sectors since 2010, the various wasteful aspects of the handling of the COVID response and the ills that Brexit is now delivering.

It’s gaslighting of the highest order.

The burden to repair this mess is falling on employees (rises in NI/Social Levy, fiscal drag, inflation & rising costs of living particularly price increases in energy, food and fuel costs, council tax rises which are imbedded into the Budget but weren’t openly discussed in his speech) and employers (rises in NI/Social Levy, rises in Corporation Tax, rises in the National Minimum Wage, more periodic business rates reviews).

Real wages will be lower in 2026 than in 2008 and the IFS estimates that UK households will pay £3k more in tax by 2026/27 than when Johnson became PM in 2019.

3p off a pint and 80p off a bottle of prosecco might grab a headline but unless I drink an extra 100,000 pints a year or an extra 3,750 bottle of champagne a year, I’ve not really levelled things up!  On the bright side, this Budget and the changes to tax over the last six months might mean I give it a go!

It is also key to analyse the language used by Sunak.  “There will be no rises on existing taxes until 2025.  This definitely gives the scope for increases on new taxes before then if the OBR’s projections do not materialise.  We’ve already seen announcement of the NI/Social Care levy and I wouldn’t rule out further changes.

The Chancellor opened with “only the Conservatives can be trusted with taxpayers money”.

• £37bn on Test & Trace in what the Spending Watchdog describe as “an eye-watering waste of taxpayers’ money”
• Billions of additional taxpayers’ funds to friends and Party donators to deliver on COVID contracts
• Downing Street briefing room – cost £2.6m and now rarely used
• £840 a roll wallpaper at Downing Street

Forgive me, but I wouldn’t trust them to manage my son’s piggy bank.

Why is this so critical for small business owners?

It has never been more important to run your business as tax and operationally efficiently as possible.  To know how well your business is running in real-time, where improvements can be made, to goal set and to be held to account on that progress.  To claim all legally available tax reliefs, to plan and take tax opportunities that are legally yours to grab.

This approach gives a small business owner a fighting chance to create a more sustainable, profitable and future-proofed business.  To make the high-risk of going into business worthwhile.  To protect the livelihoods of you, your family and the people you employ.

We had already planned to launch our 32 Ways to Save Tax service in the New Year but this Budget is going to give that even greater importance than it already had.  More to come on that in the next few months.

We have summarise the main tax announcements here too.

If you’ve got this far and not started on your 100,000 pint quota, I commend you!  It’s not the cheeriest of reading and a potentially grim outlook but we can only deal with what is in front of us, if we know what “it” looks like.

Please get in touch if you have any comments or would like further information.