Published: 15 March 2023
For the uninitiated, budget day can be minefield to navigate. In an established tradition, the Chancellor of the Exchequer delivers a speech, and is then roundly applauded by the opposition. The Scots Nats. then give their thoughts, who most usually suggest dispensing with discussing finances and propose that all live happily together. I thinks that’s it?
Lesser know is an established tradition that the CoE (Chancellor of the Exchequer rather than the more common ecclesiastical abbreviation) asks me if I would do a short video to give my opinion on events.
It’s a gig that I am happy to do, although now having balanced the budget with the deduction of a Liz and Kwasi, I am pleased it needs to be done once rather than several times.
As I am a mere support act for the day, Saffron’s gymnastics being on a Wednesday fell beneath the radar this year. The CoE has therefore accepted that a few written notes is acceptable this year, given the imbalance of post gymnastic cooking, and another watching of Harry Potter with recording a video.
Whilst its something I am happy to do, a budget statement should be a movement on the tiller or turn of the steering wheel and so should be relatively neutral. It is in essence a political statement as much as an economic intervention: there is a limit to how much can be done and afforded. Hence an amount of ‘beige’ should be expected.
The risk though of me commenting on a political statement is that my comments are perceived as being political too, and so I risk offending half of the readers of this article. With that in mind I would like to apologise in advance to both of you and hope one of you enjoys the read.
There is also the risk that a former minister might have accidentally splurged his WhatsApp history, to, I don’t know, the Daily Telegraph perhaps, and newsworthy events could already be known.
Finally the Devil is always in the detail as they say, and so the little Devils in this case are the tax accountants who with fine toothcombs in hand can advise on the operative aspects behind the gloss of the announcement earlier in the day.
This can leave me with a dearth of what to say. I am sure you would not thank me for giving you a rehash of what the CoE said, and the opinions of all and sundry on TV, Online and Wireless 4.
Our preference is therefore to present a view tonight, more detailed commentary over the coming days, tax card of course, and one to one advice for anyone who would like.
Accordingly, for now, I offer my thoughts.
Support for parents
I am thoroughly pleased with the outline of what will be put in place. We are a family orientated firm, and lots of us have young families. As we grow, that will always be the case so anything that makes it easier for parents to work will be helpful.
I never agreed with the cuts in lifetime allowance. I am delighted for the IFA’s who this evening will be reaching into the depths of their cellars tonight for a better vintage port to celebrate, rather than their usual tipple. It does make sense though that business owners can contribute into pensions beyond the levels they are currently restricted to. But surely there should have been some lesser upper limit – and if it was truly intended to be targeted at doctors… why wasn’t it made just for doctors?
Corporation tax and mitigation
Not thrilled about the increase in corporation tax, as many of us are not, I had a pricked ear about mitigation.
So, we are all on the same page, the rate is going up to a headline of 25% from 19%. However, you can save tax by investing… let’s explore that.
The UK economy is weighted 80% to the service sector: the service sector includes things such as banking, retail, travel, hospitality, and yours truly.
The other 20% includes activities like agriculture and manufacturing.
Investment in CAPEX is now all deducted from profit. Is that a good thing?
Well let’s start Timmy. For reference there are some consonants and vowels in the wrong places in his name with others subtracted and added. Timmy farms and if truth be told, he does it rather well. He loves a John Deere, although he finds the numbers of steps up to the cab seem to be getting higher: and that’s just a ‘run of the mill’ 6215 – which means it is 6 series and 215hp. I am trying to think what the car equivalent would be… perhaps a 520d BMW? But for Ferrari or Aston Martin money and with better off-road capability.
Farming equipment is expensive, and you can soon spend a lot of money… you don’t even want to know about the cost of a Combine… but since you ask it can easily be £350k and will spend a awfully long part of the year ‘parked’ in a barn.
Manufacturing can need a few big-ticket items too… and the bigger the business the more it might need. So, the budget benefit is geared to larger companies.
Going back to the service sector the opportunities to invest are a little lower; perhaps, big retail aside.
Louise would throttle me if she pulled into the office car park to see a shiny new tractor outside our office. Granted the lawns do need a cut, but the tax tail wagging the dog would be pointed out to me, and I don’t want to be sent out for the day, contracting: Agricultural machinery is noted for being unsafe in the hands of accountants, and so not one for us.
Deciding to accelerate the upgrade some CNC machines may be great in a manufacturing business. But, he finest CNC machine will leave productivity in our office, solidly, unaltered.
What I am trying to say here is even in our most lavish of years of CAPEX we will never trouble the scorers when it comes to breaching the annual investment allowance of £1m. So, do I feel any better off for the changes? No, of course I don’t.
And that has to be the same for all the 10’s of thousands of privately owned firms that fall into the 80% of the economy sector.
Go on then, whilst we are talking about mitigating corporation tax…
Since the late 13th Century / early 14th there has been something called double entry bookkeeping. There may well be an R&D tax credit professional somewhere that is utterly confident of us having innovated ahead of all other accountants, and the tax claim proposed is safe as houses… Perhaps… maybe. No okay, it won’t be, so let’s put that to one side too.
So, the 80% of the economy will not be able to invest on our own to achieve benefits. This leaves us reliant on infrastructural investment; the stuff we cannot do, but the state could… well if it could if it was actually any good at doing so.
With good timing there was a question during PMQ’s as to why Japan didn’t come first in a world war but did manage to get a 200mph bullet train working so soon afterwards… and then with that in mind what on earth is going on with HS2.
Japan is not a great example perhaps of productivity since they do not rank highly within the G7 for productivity. We sneak in between France and Italy, in 4th. Our productivity has been poorer than it used to be for the last 14 years. But this time doing the same old thing really might work.
In my view we need to address productivity… but the only way is through proper investment: nuclear, proper, rather than pretend levelling up; sensible IT, communications and broadband outside of cities; and transport that works.
I may of course be wrong, and I am happy to stand corrected on the Glasgow to London train with an espresso to discuss if you would like to: at 200mph I am definitely not going to risk anything bigger than an espresso on our train lines! Although I will probably have retired by the time such a thing exists.
As always please let us know if there is anything you would like to discuss.