Dear Chancellor

Certainty in times of uncertainty please!

We wish you well in your new role as Chancellor of the Exchequer. We know you are working hard on preparations for your first Budget on March 11^th. We really look forward to a landmark Budget for the UK and it delivering on your party’s manifesto of ‘levelling up and unleashing the country’s potential.’

We are taking this opportunity to share with you some of the business communities wishes, hopes and aspirations in advance of the 11^th March and how after a decade weighed down by the need for austerity and years of dither and delay following the EU referendum in June 2016, the Budget provides the new parliament with the opportunity of ‘Supercharging the economy.’

We hope to see a plethora of spending announcements for investment in what we call ‘shovel-ready’ regional infrastructure to ensure that businesses across the country can operate efficiently. We are expecting this to include upgrading railways and would also want to see local road repair and building programmes announced, as this improved infrastructure provides significant economic benefit to our businesses.

During his election campaign, Mr Johnson announced that the new Government would stop the planned reduction in the UK corporation tax rate and keep it at 19%. This change on an earlier Budget announcement and enacted in FA2016 to reduce the rate to 17% from 1 April 2020 might only add £2,000 to the tax bill of a company with taxable profits of £100,000 but the extra cost could make the difference for a business looking to invest in people or technology. The change in the rate not only costs companies more in tax, but it rams home the message that companies do not have certainty, and without certainty, it is not easy to plan ahead.

However, whilst this might not seem like a business-friendly move, if the funds it releases are used to invest in infrastructure or spent on improving public services, it may end up helping to boost the economy. Significant investment in the National Health Service (NHS), including upgrading, extending and building new hospitals across the country will be welcomed by the construction industry.

Also, we would be hopeful that the proposed digital services tax on internet multinationals could raise useful funds for public investment to reinvigorate high streets.

We look forward to the Chancellor reaching out and helping struggling businesses. Short-term cuts to business rates have already been promised for smaller businesses pending a more radical long-term review of the levy and should help the struggling high street.

As well as government investment in infrastructure and the health service, now is a pragmatic time for government to encourage U.K. businesses to make a step change in their investment activities: a recent CBI survey showed that business optimism had risen by 67% from October to January.

In line with our New Economy report, we’d like to see the Annual Investment Allowance (AIA) limit rise to £3 million pounds (currently at £1 million to 31 December 2020) and due to revert to £200,000 from 1 January 2021 for at least two years to help kick start business investment and try and solve the U.K.’s productivity conundrum.

Increasing the current 2% rate of relief for the structures and building allowance (a 3% rate has been promised but higher would be better) and boosting the Research & Development (R&D) Expenditure Credit to 13% to support and boost U.K. R&D activities would also be well received by UK businesses.

However, for a quick boost to the economy, there is nothing like a vibrant property market. Cutting stamp duty land tax heavily ought to have a positive economic impact far beyond house prices and planning regulations to boost social house building would help lock this in. Also, the proposed surcharge for non-residents should be abolished to help boost the property market.

Looking at the rebalancing of the U.K. economy, creating wealth and opportunity away from London and the South East; the government has confirmed that it will allow the Northern Ireland assembly to set its own corporation tax rates and it will be interesting to see if more regional initiatives are forthcoming. We support these proposals wholeheartedly.

However, we must all hope that you and your team of advisers resists hastily creating new tax reliefs—history suggests that they usually prove more costly and less effective than planned. For example, Entrepreneurs’ Relief (ER) was created in a hurry (to replace Taper relief) and the government now says it is not a cost-effective way to encourage investment. However, ER is of great value to many business owners, so it would be much fairer to reform and refine it into a longer-term incentive than to abolish it.

Our tax system does not lend itself to long term certainty; it does not give businesses the comfort to plan ahead and invest for the future. UK tax legislation is notoriously complicated. These complexities are an inhibitor to growth and enterprise, as the rules often hit those companies and businesses that can least afford the advice needed to navigate them appropriately.

Tax simplification or, at least, restricting changes to the bare minimum, should be high on your agenda if you are serious about supporting U.K. business. Your stance on disalignment from the EU may help, as this could remove a lot of EU-based rules and regulations such as those pertaining to state aid, if allowed to through the negotiations on our future Free Trade Agreements this year.

The construction sector (whilst not the only sector to be affected) is very concerned by the proposed changes to the IR35 tax rules due to take affect to the private sector from 6 April 2020. The new changes to the off-payroll working rules will pass the responsibility for medium and large private sector businesses to them to agree the tax status of any contract worker they use. There is significant concern in the business community that the proposals as they currently stand will not achieve the Government’s objectives and they could indeed hinder innovation and productivity in the UK. Review has now concluded and not favourably.

In relation to Northern Ireland, businesses are concerned about the implications of Brexit on both sides of the Irish sea and for cross border trade on the island of Ireland. As the transition agreement works towards a deadline of 31 December 2020, it is critical for Northern Ireland businesses involved in North/South East/West trade that checks, processes and bureaucracy is kept to a minimum. Clarity of the exact implications of cross border trade for Northern Ireland businesses would be very welcome and an early decision taken on a potential expansion to the transition period.

In relation to our savers and ageing working population, we would ask that proposed plans to cut the rate of pension tax relief for higher earners from 40% to 20% be scrapped. Those retiring today might still be benefitting from generous final salary pension schemes but future generations may not be so fortunate.

In the Prime Minister’s campaign to become leader of the Conservative Party, Mr Johnson pledged to raise the threshold at which people pay tax at 40% from £50,000 to £80,000. Whilst there has been little mention of this measure since the election we would like to see the chancellor revive the proposal and announce a rise in the basic rate limit as a first step to that £80,000 target.

We also hope that you might take the opportunity to increase the threshold for paying high income benefit charge which has been set at £50,000 since it was introduced some seven years ago. This relief continues to cause no end of problems and a rise in the limit would be very welcome.

We believe that the time is now for the Government to implement policies to create a strong, balanced new economy across the entire UK if we are to ensure we have a successful exit from the EU and beyond.

To keep driving innovation, jobs and prosperity, our industry needs the Budget to deliver competitive business conditions. Long-term incentives to stimulate the market, boost uptake of new technologies, investment in infrastructure and supportive measures on taxation, business rates and energy costs, are all essential to attracting investment and helping industry unlock its full potential.

We wish you well and look forward to next month when Leontia Doran examines the Budget announcements in detail.

Malachy McLernon Director with PKF-FPM

Email: m.mclernon@pkffpm.com