The chancellor should deliver a radical Budget to underline the coalition’s economic policy and drive growth as this is the last meaningful Budget before the next general election, according to Richard Rose, tax partner at BDO
Rose is hoping for a ‘radical Budget’ to include key measures such as cutting the higher rate tax relief on pension contributions which would raise around £5bn and a number of measures to support business, including the extension of the annual investment allowance which is due to be cut at the end of 2014.
‘The Budget will either be really boring or very radical. I don’t think there’s going to be any middle ground,’ said Rose. ‘We may see the Conservatives putting a flag up to say we are backing business.
‘They are trying to up the rhetoric about the UK as an exporter. If they put all eggs on exporting, they need to do something to support it. They need to endorse Lord Livingstone’s work with UK Trade & Industry.
‘Extending the annual investment allowance on plant and machinery would be another option as it is ending this year and it has a timing benefit over seven years,’ says Rose.
A quick win would be to reintroduce tax relief on investment in factories, which was phased out in 2011. ‘UK companies should be encouraged to invest in new factories or extend or improve existing ones,’ he said. ‘These reliefs exist in France and Germany, and their removal leaves UK business at a disadvantage against competitors and undermines the government’s policy on encouraging inward investment.’
Another radical suggestion is to cut the higher rate tax rate by 1% to 39%, but the government has ruled this out as it plans to extend the personal allowance to £10,500.
In a survey of 800 BDO clients and contacts, almost half (49%) called for an increase in the personal allowance to £10,500, while three out of ten wanted to see the 45% tax rate scrapped. There was little support for a reduction in the 40% tax rate, with only 7% supporting this idea.
From a business perspective, the priority is a review of business tax rates, supported by 46% of respondents. ‘Business rates do not fit the needs of modern retail in the high street and are a barrier to creating new businesses,’ said Rose. ‘There needs to be a more equitable way of calculating business rates based on business performance. We are expecting a consultation on business rates in the next parliament’.
‘I have a gut feeling that the Budget will be a very big statement, a commitment to growth. If not they risk being labelled as a “zombie” government,’ said Rose.
The Budget will be held on 19 March 2014.