What were the key themes of this year's Budget?
This Budget strengthened our commitment to building a stronger economy that supports aspiration and keeps costs down for businesses and households. Increasing the personal allowance, providing help with childcare costs, cancelling the planned September fuel duty rise, cutting the main rate of corporation tax and introducing the employment allowance are all measures that will benefit businesses and households.
We want to help people who want to work hard and get on; creating a fairer society, creating the most competitive tax system in the world and equipping us to compete in the global race.
What’s been the reaction you've received so far from the tax profession?
I have attended a couple of post-Budget events now and also made phone calls on the day. The response I have been getting from the profession is very positive with particular praise for some measures, such as the employment allowance.
The government will be publishing a number of consultations following the Budget and I look forward to further engaging with the industry in seeking their views, which are always welcomed.
The further reduction in the main corporation tax rate to 20% from April 2015 has been well received by big business. But do you fear an international ‘race to the bottom’?
This government believes in fair, open tax competition. And we believe that our tax system should be an asset for the UK, supporting business investment and growth. Cutting the main rate of corporation tax to 20% from April 2015 will mean that the UK has the joint lowest rate in the G20.
By 2015/16, we will have reduced the tax burden on businesses by around £7bn per year, creating an attractive environment for inward investment and sending a clear signal that Britain is open for business. The steps we have taken to reduce the main rate of corporation tax has stemmed the flow of businesses leaving the UK and encouraged companies to come back, such as WPP, or to move here for the first time, such as Aon, Seadrill, Ensco, Lancashire and Rowan.
Our approach is further supported by the recent KPMG survey, ‘Annual Survey of Tax competitiveness’. This looked at six key competitor economies and in three years, the UK has moved from second last to the number one spot. We will continue to raise substantial sums from corporation tax but it is in our interests to have a competitive rate.
On UK tax competitiveness, we’re starting to hear concerns that some overseas businesses might be put off by the uncertainty created by the ‘fair tax’ debate in the national media. Does that worry you?
Our aim is for a tax system that’s simpler to understand and easier to comply with, based on the principles of transparency and accountability. We also want a fairer and competitive tax system which attracts global investment and where everyone pays their fair share. As a result, this Budget we announced a significant clamp down on evasion and avoidance on a number of fronts.
While we are taking action domestically, the changing nature of business means there is also a need for the international rules to be updated to ensure international cooperation and to strengthen international tax standards. We, along with France and Germany have provided additional funding to the OECD to progress work in this area and this goes hand in hand with our competitiveness agenda and we will engage with business when developing the necessary multilateral solutions to address issues with the international tax rules. This is the right way to respond to the debate about the amount of tax paid by multinationals.
Some critics of last year’s Budget thought it benefited big businesses more than smaller ones. Was the announcement about the ‘employment allowance’ a deliberate attempt to restore the balance?
The government’s ambition is for the UK to be the best place in Europe to start, finance and grow a business. We want to create a level playing field for all businesses regardless of size, only intervening when there are genuine market failures. We are committed to supporting aspiration and helping all UK businesses, big and small, to create jobs while keeping costs down.
Last year, we introduced a number of measures to support small businesses including the cash basis for accounting and doubling the small business rate relief. We also introduced the seed enterprise investment scheme and published ‘Making tax easier, quicker and simpler for small business’ detailing ways to improve how HMRC works with small businesses.
The employment allowance will be available to all businesses, charities and community amateur sports clubs. Every business and charity in the UK will be entitled to a £2,000 reduction in their employer NICs bill each year. Up to 1.25 million businesses will benefit, with around 450,000 of these taken out of paying employer NICs altogether – that’s one third of all employers.
We want the employment allowance to be used by as many businesses as possible however; it will be of greater benefit to small businesses, as it will reduce their NICs bill by a greater proportion of the total. Over 90% of the benefit of this allowance goes to small businesses with fewer than 50 employees.
On personal tax, the announcement of the increased personal allowance to £10k is good news for many. At the other end of the scale, is the 45p rate of income tax here to stay for good?
Increasing the personal allowance to £10,000 from April 2014 will benefit 24.5 million, 257,000 of which will pay no income tax at all. It also means that this government will meet its commitment of a £10,000 personal allowance a year ahead of schedule.
We want to reward work and improve incentives to enter employment, while supporting those on low and middle incomes. It’s about putting more money into the pockets of ordinary taxpayers.
At the other end, we will be reducing the top rate of income tax from 50% to 45%. HMRC has evaluated the exchequer impact of having a 50% rate of income tax; the results showed that the increase from the previous rate of 40% raised much less than was expected.
The government keeps all taxes under review but it is widely acknowledged that a 50% rate risks damaging growth and the UK economy at a time when we are trying to encourage entrepreneurship, support growth and improve competitiveness.
Why water down the government’s proposals on tax and procurement?
The overarching aim of public procurement will always be to achieve value for money. The majority of taxpayers pay what they owe, but at a time when the government is dealing with an unprecedented deficit it is unacceptable for others to try to avoid paying their share.
This new policy is compatible with government’s existing procurement process and will provide a framework that allows departments to promote tax compliance through the bidding process.
Responses from the consultation clearly set out that key aspects of the original proposal would create an additional burden and risk for departments and suppliers. We have listened, and made changes which preserve the effect of the measure while ensuring it is workable and can be delivered from 1 April 2013.
The government seems committed to infrastructure funding – so why did you not introduce an infrastructure tax allowance in the Budget?
Infrastructure is critical to the success of the economy; it creates jobs, growth, and the networks that allow business to flourish.
Given the current fiscal situation, the government had to make difficult decisions at the Budget about which measures to prioritise. There are a number of challenges with an infrastructure tax allowance, including significant long-term costs and major questions about what is permissible within EU rules. In the end we decided to support infrastructure through direct capital investment, where the costs and impact are more certain.
Banks could be forgiven for feeling singled out in the Budget, given the increase in the bank levy and changes to the banking code of practice, with the possibility of being ‘named and shamed’ for non-compliance. What’s your view?
The government believes that banks should make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy, and that is why we introduced the bank levy. It is an appropriate contribution from the 30 or so banking groups and building societies that pay it, balancing fairness with the competitiveness of the sector.
Increasing the rate of bank levy will offset the benefits that the sector will gain from the reductions in the main rate of corporation tax.
We are taking action to strengthen the banking code of practice, to improve transparency and ensure it remains as effective as possible in the future. 262 out of 290 banks and banking groups have adopted the code.
Although it is working well and will remain voluntary, the ability to name those banks that are not complying with their commitment to the code will provide further transparency over the banks’ decisions. In addition, a full list of all banks that have adopted the code will be published this autumn. These changes will also bring important public benefits for banks, as they will be able to point to their adoption of the strengthened code when/if they are questioned about their tax behaviour.
There were few significant VAT measures in the Budget. After last year, is VAT now too hot to handle?
Budget 2013 saw a number of VAT announcements intended to ensure VAT keeps step with developments in the cross-border supply of certain services and to simplify its administration, reducing the burden on business.
This included the implementation of changes to the place of supply rules so that VAT on intra-EU consumer goods will be payable in the Member state where the customer is located rather than where it is supplied from. Alongside this we announced the introduction on the ‘mini one stop shop’ (MOSS) which will give affected businesses the option to register and submit returns through an electronic portal operated by the UK tax authority.
Other VAT announcements included the introduction of secondary legislation in the autumn to allow manufacturers to reduce their VAT payments to take account of refunds they make directly to final consumers.
The government’s plans for employee-shareholders seem to be having a troubled birth. Why persist?
The government wants people to become employee-shareholders and to benefit from the tax relief. This is a radical policy proposal aimed at smaller and newer companies. Many entrepreneurs have endorsed it and it should be seen as one part of a wider package delivered through the Employment Law Review and Red Tape Challenge.
A problem with all Budgets is that the losers always shout louder than the winners. Has this hampered any measures you would have liked to introduce?
No. Our focus in this Budget has been to use the tax system to help deal with cost of living issues and help people and businesses get on. We have not sought to increase the tax burden on the vast majority of people. As a consequence, there are not many people shouting loudly this year!
Andrew Tyrie, chairman of the treasury select committee, feels that the Autumn Statement has increasingly taken on the role of being a second, full Budget – which perhaps means that business has to respond to two periods, not one, of change. Do you agree?
The Budget remains the single biggest event in the annual fiscal cycle. Over the past two years, turbulence and uncertainty in the global economy has led to significant revisions in the Office for Budget Responsibility’s (OBR) forecast between spring and autumn. The government, in response, took action at Autumn Statement 2011 and Autumn Statement 2012 to strengthen the economy and support growth. This avoided periods of protracted uncertainty between the OBR’s autumn forecast and the subsequent Budget.
The Chancellor joined Twitter on Budget day. Are you tempted to follow suit?
Not yet. But I will have to keep it under review!
