A tax advisor has predicted big changes in Labour’s first budget.
Tony Medcalf, a tax partner at the accountancy and business advisory firm MHA in Kendal, shared his thoughts on the potential shifts in tax and spending policy.
Mr Medcalf said: “The biggest shifts on tax and spending policy are generally taken in a new government’s first budget and Labour has been setting the scene for tax rises in recent weeks.”
However, he pointed out the challenges facing the new prime minister and chancellor.
He said: “There’s definitely a tricky balancing act for the new prime minister and chancellor to make changes without jeopardising business and consumer confidence.
“They may have boxed themselves into a corner on tax rises because of pre-election manifesto pledges not to increase the headline rates for income tax, employee national insurance, and VAT.”
He noted that an increase in the corporation tax rate also seems off the table according to the manifesto, indicating the likelihood of several smaller changes to the tax system.
Mr Medcalf said: “While Labour says it won’t increase employee national insurance contributions, raising employer contributions is an option that remains open to them.”
He also mentioned some potential measures that might be introduced.
These include more detail on imposing VAT on private school fees, closing the ‘non-dom’ tax loophole, and reducing tax relief on pension contributions for higher earners.
Mr Medcalf added: “A reversal of the Conservatives’ previous 5p cut to fuel duty seems almost inevitable.
“It’s been 14 years since there was an increase to fuel duty, but with petrol prices having fallen in recent months now may be an opportune time for Labour to do it.”
As for the chancellor’s plans, Mr Medcalf suggested making assets held in offshore trusts liable for inheritance tax and changes to the taxation of carried interest on private equity deals.
He said: “But these measures aren’t going to be enough on their own to close such a big shortfall in the public finances, which is why I think there’s a possibility of something more fundamental on both inheritance and capital gains tax.”
Mr Medcalf also anticipates the budget will provide Labour with an opportunity to show how it will stimulate economic growth.
He said: “It looks like the government wants to have more state-managed instruments overseeing investment in infrastructure.
“It’s a strategy that involves bringing in the private sector to invest public money, but with government remaining in control of how that money is spent.
“The plan to create GB Energy is an example of this.”
He expressed uncertainty about the support for SMEs in the budget, but hopes for encouragement of enterprise and investment.
As a tax advisor, Mr Medcalf is keen to see what the government will announce.
He believes businesses long for certainty, and once the landscape is clear, people will start making decisions and investing again.
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