Expect big changes in the budget, says Lancashire tax expert

Individuals and businesses should expect to see a major shake up of the tax system when the government announces the budget later this month, according to a leading regional advisor.

Tony Medcalf, tax partner at accountancy and business advisory firm at MHA, believes changes to inheritance tax, capital gains tax and fuel duty are all possible when chancellor Rachel Reeves delivers her first budget on October 30.

Tony, who has advised businesses and individuals on tax matters for 30 years, 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.

“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. 

“With an increase corporation tax rate also seemingly ruled out in the manifesto, what’s likely to happen is a lot of smaller changes to the tax system. While Labour says it won’t increase employee national insurance contributions, raising employer contributions is an option that remains open to them.” 

Talking about some of the measures that could be introduced in the budget, Tony added: “We know Labour plans to impose VAT on private school fees and close the ‘non-dom’ tax loophole and I’m sure we’ll get more detail on these measures. It looks likely that the chancellor may also propose reducing tax relief on pension contributions for higher earners. 

“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.

“We also know the chancellor is planning to make assets held in offshore trusts liable for inheritance tax. Changes are also proposed for the taxation of carried interest on private equity deals, which is currently taxed at the lower capital gains tax rates, rather than income tax rates. 

“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.”

As well as changes to tax, the government is also expected to use the budget to outline how it intends to stimulate economic growth.

Tony added: “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. 

“It’s as yet unclear what support there may be for SMEs in the budget. Owner-managed businesses are the lifeblood of the economy in terms of output and employment, so I would like to see something that encourages enterprise and investment. Hopefully, Labour won’t tinker with the current full expensing on capital allowances.

"As a tax advisor, I’m curious to see what the government will announce this time as there has been very little in the way of major tax changes over the last few years. What we can expect is a fundamental shift in this budget.

“The thing that businesses crave most of all is certainty, so I believe that once everyone knows what the landscape will be, people will start making decisions and investing again.”