Fiscal Statement for business recovery – what will the Chancellor do?
Read time: 4 minutes
Rishi Sunak has gone to some lengths to point out that his promised announcements in July will not be an ‘emergency Budget’ but instead will be a ‘Fiscal Statement’ designed to help businesses recover from the Coronavirus lockdown. So what announcements are expected on 8 July?
As is often the case with Budgets, press coverage of this Fiscal Statement has focussed on rumours of HM Treasury proposals – notably tax cuts to help businesses. It is not unusual for politicians to allow such rumours to circulate to ‘test the water’ for certain ideas – so they can give a good indication of the final announcements.
Jon Hickman - Corporate Tax Partner
Jon has many years of experience dealing with both OMB’s and large international business.
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It appears that some reduction in VAT can be expected to try to boost consumer spending. While various measures are apparently being considered, for example, zero-rating certain goods, the simplest move would be to cut the headline rate of VAT for a short period (say 12 months). This tactic was used in the last financial crisis and other EU countries (notably Germany) have already announced VAT cuts to boost their economies after Coronavirus lockdowns.
Fear of mass redundancies and high unemployment as the Coronavirus Job Retention Scheme (CJRS) winds down means that the government will want to do all it can to support employers. It is quite possible that the government will increase the NIC employment allowance (currently £4,000) that helps smaller employers pay their employer’s NIC. A large increase (for example to £20,000 a year) would be a substantial help to small businesses but would be manageable as it is not open ended (only employers with an NIC bill of up to £100,000 a year would benefit).
A wider cut to the rate of employer’s NIC would be expensive if applied across the board and potentially messy to implement in the middle of a tax year (starting this from 6 October would be simpler). NIC holidays for businesses that take on new employees could also feature – perhaps a 12 month holiday for all employees taken on before 31 December.
It is also possible that the CJRS will be wound down over a longer period: currently the 60% level of support is due to end at the end of October, but extending reduced support until the end of the year may also be possible (for example, 50% of wages in November, 40% in December).
There are likely to be a package of measures to help workers retrain for new jobs and to support on the job training. This could well include more funding for apprenticeships, perhaps a 21st century version of the ‘Youth training scheme’ as well as personal retraining grants for those seeking to switch industry. It is also possible that the Chancellor may announce major public sector recruitment drives in the NHS, care and education sectors. There is even an outside chance that the government may launch a modern UK equivalent of the US post-depression era Civilian Conservation Corps to carry out much needed work on flood defences and other environmental projects.
The Chancellor has already announced so many different exemptions and holidays to business rates that it is unlikely that any Fiscal Statement could be made without yet more reliefs being announced. It is just possible that business rates may simply be abolished to be replaced by some form of online sales levy, in our recent poll, 84% or respondents supported this idea.
Although the Chancellor is spending unprecedented amounts on supporting the economy and increasing the national debt rapidly, it is unlikely that he will announce specific tax raising measures in this Fiscal Statement. However, there may well be heavy hints that taxes will have to rise in future and possibly some indications about the types of tax announcements that will be made in the Autumn Budget (for example, on consumption/green taxes, taxes on personal wealth). Even then, it is unlikely that any tax rises will take effect before April 2021 at the earliest to minimise the risk of further damage to the economy – so there should be some time for businesses and individuals to plan for the changes.
When the Fiscal Statement takes place, you will find BDO’s commentary on the implications for businesses and individuals here.