The 2016 UK Budget will be announced on Wednesday 16th March. In the run up to the European Union (EU) Referendum, what announcements can we expect? What could the implications be for UK companies? Industry experts take a look at the top three topics we predict will be addressed in tomorrow’s Budget Statement.
Industry and market commentators are expecting a carefully political Budget, designed to raise revenues wherever possible in order to plug the deficit that George Osborne has committed to getting under control in the previous Budget and Autumn Statements.
“We generally see some currency market movement in response to key announcements like the UK Budget, and economic announcements of this nature are one of the risk factors we highlight when designing and implementing corporate risk and currency hedging strategies,” comments Carl Hasty, Director at Smart Currency Business.
“With global markets in a cautious mode and currency markets already volatile in the run up to the EU Referendum – in addition to shock responses to the myriad economic events taking place worldwide – currency markets may react to any UK Budget announcements that flag warning signs for the UK economy. Sterling’s exchange rate against its key currency pairings, the euro and US dollar, could take a hit, so UK companies need to ensure they are prepared for what lies ahead.”
1. The EU Referendum
With this being the last Budget before the UK’s crucial vote on whether to stay in or leave the EU, something would be amiss if the Referendum is not mentioned in the Chancellor’s Statement. The implications for UK business, the UK and European economies as a whole and the anticipated effects on currency markets are still being hotly debated.
Opinion is also divided across UK businesses, both large and small, as to whether a Brexit would be the best move for the future of UK companies and their prosperity. The Government – and indeed the Chancellor – must have something to say on this in relation to economic and fiscal policies, and would be expected to be able to include some thinking on how the country is attempting to prepare itself economically for the outcome of the vote in June.
2. Tax – in all its forms
There are likely to be a number of important tax announcements in this Budget, not least to follow up on measures mooted previously, such as integrating Inheritance Tax (IHT) and Capital Gains Tax, but also in attempts to raise funds across the board at this important time in the economy’s development. Yet, the Chancellor is unlikely to want to rock the boat too much at this stage by making any fundamental changes to major tax policies, such as Income Tax, National Insurance Contributions (NIC), or Value Added Tax (VAT), which could have negative political repercussions. That being said, the result of the referendum, if the final vote is to leave the EU, will make a significant difference to the UK’s taxation policies. How will the Chancellor tackle this uncertainty when addressing future tax changes?
Laurence Field, Head of Corporate at accountancy firm, Crowe Clark Whitehill, suggests that “Osborne could be tempted to implement “company-friendly” tax measures to attract more business to the UK – in the event that Britain does leave the EU, as any red tape from Brussels over UK tax rulings would be removed.”
What form could any additional changes to tax policy take? “We would certainly expect to hear mention of the Apprenticeship Levy that is due to come into force in 2017, and was previously raised in the 2015 Autumn Statement; this move will affect many businesses and is a key money raising initiative, so we may potentially get some answers to ongoing questions from the business community about how this will fit with changes to bring together National Insurance and Income Taxes, as well as how it will be implemented in practice,” observes Carl Hasty, Director at Smart Currency Business.
Tax avoidance, still hitting the news headlines almost as regularly as the Referendum, is also likely to rear its head again in this Budget, following a commitment announced by the Chancellor in previous Statements to take the necessary steps to stamp out both individual and corporate tax avoidance on a national level.
Pensions have been a thorny subject in recent years and the subject of considerable policy changes. They are bound to come up in discussion during the Statement, but we do not expect any surprise announcements in this area.
“While we would expect there to be further clarification on the country’s pension reforms set out in the previous Budget and Autumn Statements, we would not anticipate any big changes to UK pensions to be announced this time around, following what can only be described as an eventful few years,” comments Charles Purdy, CEO of Smart Currency Exchange.
“It will be interesting to see if any steps are taken to simplify the amended pensions policies, such as the changes to allowances, as well as any pension tax reliefs available.”
We will report on any important implications for UK companies following the Budget announcement tomorrow afternoon and continue to monitor the currency markets carefully for their response to unfolding economic events. Watch this space…