With the loss of the UK’s triple-A status, the growing prospect of a triple-dip recession and rising public and political scrutiny over what constitutes fair taxation, the Chancellor faces one of his most difficult balancing acts to date tomorrow (20 March).
How does he stimulate growth without adding to the burden on Treasury coffers or risk damaging the UK’s attractiveness as a place to do business?
Chris Sanger, global head of tax policy at Ernst & Young, said the chancellor may follow his predecessors and seek further changes to the tax system to incentivise small businesses and entrepreneurs.
As FTAdviser previously flagged up, this could include enterprise investment schemes as the government seeks to mitigate the risk of a regulatory ban on retail investment.
Mark Payton, managing director of Mercia Fund Management, agreed that the key issue is no longer how the deficit will be reduced but how the government plans to support growth in the UK economy, with a particular emphasis on SMEs.
Mr Payton said: “We expect the chancellor to make a commitment to continue supporting EISs to provide SMEs with investment capital for growth and for him to provide some clarity on the shape of Seed EIS post-2013/14.
“This budget must have business and economic growth at its heart, as we look to private investors to become a significant source of capital for the economic recovery.”
More broadly, the Chancellor may decide to add a national insurance contribution exemption to his proposals for owner-employee share schemes, or consider extending these reliefs to other forms of incentives for small businesses.
There is also growing political pressure to raise the personal allowance beyond £10,000 up to the level of an individual in full time employment receiving the minimum wage, Mr Sanger said.
However, Mr Sanger said: “Changes to the personal allowance may make it difficult for the Chancellor to balance the books as it is particularly costly. While it’s unlikely to be announced with immediate effect, he could signal his intention to increase these measures in the future.”
George Bull, senior tax partner at Baker Tilly, added that the Lib Dems are “well on the way” to their way to the £10,000 income tax threshold before the next general election. He added that individuals may be further helped in the current high inflationary environment by a likely postponement in planned fuel duty rises this autumn.
He said these issues were not ostensibly consistent with a focus on cutting the deficit forsaking all other imperatives, but he said that the one-year delay to when public sector borrowing would peak and begin falling had already been announced at the last Budget at that further delays were inevitable, reducing the focus on this.
He said: “Although the Chancellor made the reduction in public sector debt the be-all and end-all of the Coalition strategy, the commitment to bring public sector debt down by 2015/16 at the latest was broken last year with the extension of the target by 12 months. Now it seems inevitable that the Chancellor will have to announce another delay to 2017/18.”