Vishal Chopra: Get ready for a Budget of plans and projects
Looking forward to next week’s budget announcement, Vishal Chopra writes on what to expect from the Spring Statement in the current economic climate.
With snow forecast to fall across the central belt this week, spring isn’t quite in the air. Indeed, the months since the Autumn Statement have felt like a continuous economic rainstorm. But recently there have been some glimpses of winter sunshine. The risk of a deep UK recession has fallen considerably, potentially undercutting earlier rainy forecasts and lower energy prices have reduced the cost of the Energy Price Guarantee, easing public finances.
With an ongoing leadership race for Holyrood’s top job, the Spring Statement will give the incoming First Minister an indication of how a new look Conservative leadership is approaching the economy. Chancellor Jeremy Hunt has reiterated that he wants to cut taxes when public finances allow. He wants business taxes to be more competitive, but the overriding message is that it is too early.
The statement is expected to be a fiscally conservative one with no significant personal tax cuts which are likely to be saved for closer to the general election. But there could be some significant reveals for business.
There has been speculation that the Chancellor might follow his predecessor’s path and u-turn on the planned increase in the headline rate of corporation tax to 25% from 1 April 2023. This is unlikely as it would leave a big hole in public finances to fill.
The UK is under pressure to set out how it will attract green investment and use the tax system to help the transition to net zero. This could mean an extension to the super-deduction and the R&D regime focussed on green investment. The challenge will be whether it will be a big enough deal to disrupt policies being rolled out in the US and EU.
Unlike Freeports, Investment Zones did make an appearance in a recent speech by Jeremy Hunt and the Spring Budget feels like the ideal opportunity to set out the UK’s strategy for levelling up. We will be watching eagerly to see what this could mean for Scotland.
Getting people back to work promises to be another key area of focus next week, one which is likely to include but not be limited to tax measures. The government is particularly concerned about the over 50s choosing to take early retirement. They could seek to make the option of staying in work more attractive. Focus could also be given to working parents and retraining incentives.
Fuel duty is expected to be frozen despite the fact this sends the wrong message on climate change. Politically it is difficult to see how the government could increase the duty that has been frozen since 2011 and was further cut by 5p in the 2022 Spring Statement for one year.
To sum up, no significant tax cuts, no tax rises but possibly a big unveil on green and levelling up, in part to compensate for the removal of the super deduction and the increase in the headline rate of corporation tax.
Vishal Chopra is head of tax for Scotland at KPMG UK