08 March 2023
The Early Days of Budget Day
Many years ago, budget day was the day that all accountants looked forward to with excitement and trepidation. They eagerly awaited the incumbent government's plans, wondering who would be hit the hardest or treated the nicest. They would analyse the government's plans, looking for changes and implications that would affect individuals and businesses alike. The Chancellor's speeches would be analysed for the number of times he mentioned the word "tax," and the cost of a pint of beer in the future.
Seminars and gatherings were arranged, and accountants would give immediate feedback to attendees on their thoughts and the implications of any changes. These events were exciting until successive governments began to announce major changes well in advance of budget day, making the day itself less exciting.
The Routine Budget Day
As time went by, budget day became more routine. The government's announcements became less surprising, and the major changes were announced well in advance of the day itself. Seminars and gatherings disappeared, as there was no guarantee of anything to talk about.
Although other matters were covered in the budget, such as the balance of payments and government debt, these were at a macro level and did not impact individuals or businesses' decision-making. However, this changed six months ago when a budget under a new Prime Minister came along that was absolutely insane. The budget reduced taxes for everyone gave away more money and enhanced allowances. Importantly, it also cancelled planned hikes to duty rates on beer.
Unfortunately, the budget did not last long, with the markets reacting immediately, reminding the government that they were not entirely in control. Another rapidly arranged budget followed, reversing most of what had just been announced.
The Future of Budget Day
Where does this leave us now? Will we revert to relatively few announcements, or will we run another mad budget in line with the last couple?
Expectations are that the session's focus will be to avoid upsetting the markets in any way to show that the government is in control of what is happening. The Chancellor may feel that he has a little to work with, given that we did not drop into a technical recession after the December quarter, higher than ever income tax receipts in January, inflation coming down, and energy prices reducing. However, he still must deal with striking public sector workers wanting pay rises above what has been offered to date.
Several quarters are encouraging the Chancellor to cancel the planned increase in corporation tax rates, which would be a significant positive to all such entities and those working within them. However, the difficulty here is that this policy was announced initially by Rishi Sunak while he was Chancellor. A reversal would be against both his and the current Chancellor's views and most companies will not pay the higher rate anyway.
The income tax bands have already been announced to be coming down, leading to higher taxes for those earning above £125,140 and via dividends. It seems unlikely that this policy will change, but will the additional rate of income tax stay at 45%, or will there be an opportunity to increase it to 50%, where it was about ten years ago?
In conclusion, while the decisions made during the 2023 budget may not be as exciting as they once were, they are no less important. The government will be focused on minimizing how the markets react given the already precarious economic situation. Whatever the decisions made, they will impact individuals and businesses alike, and we will all be watching closely.