The question being asked of yesterday's budget was tax and spend or just more spend? It was mostly the latter, with tax decisions made but largely deferred. Here are views from across the sector on what the Chancellor's budget delivered.

Wealth managers reacted yesterday to UK finance minister (aka Chancellor of the Exchequer) Rishi Sunak's Budget measures that included a sharp hike in the corporate tax rate from 19 per cent to 25 per cent, beginning in 2023 - probably the most surprising measure. The UK has enjoyed some of the lowest corporate taxes among wealthy nations - albeit with relatively few allowances - and, as the US is on track to raise its rate to 28 per cent, the UK should remain the lowest in the G7 club of nations. Even so, the UK is less competitive than it was, business leaders warned. Economists estimate that each percentage rise in corporation tax will net the Treasury an extra £3 billion ($4.18 billion) annually, and go some way to plugging the big hole in national finances.

Sunak added a further £65 billion to government spending to take the total spend since the start of the pandemic to £407 billion, or 18 per cent of GDP. The Office for Budget Responsibility's downward revision of the deficit from £394 billion in November to £355 billion was welcome news.

Also welcome was no appetite (yet) to raise the rate of capital gains tax. But managers expect that higher tax bills for UK companies will lead to reduced dividends to shareholders. They are waiting with interest to see how this plays out for investors, both in the level of investors’ income and on valuations generally.

The mechanics of yesterday were laying out a ‘three-part plan’ to lead the country out of the pandemic and into recovery. Foremost were committments to protect jobs and businesses, and help the worst hit sectors such as hospitality and retail by extending furlough, grants, business rates and VAT reductions.

To the relief of the wealth sector, the Chancellor has no immediate need for a wealth tax and opted instead for measures that would stimulate growth through investment.

Managers were also relieved that there weren't the sharp teeth some had feared. “There was no mention of a wealth tax, no wholesale reform to the inheritance tax regime, no sign of the increases in capital gains tax that were thought inevitable and an extension to the SDLT holiday," Tim Snaith, partner at Winckworth Sherwood said. "That is not to say that the door has now closed on these changes; in fact, we think it remains wide open and that the Chancellor will turn his attention to some of them in due course."

Paul Falvey, tax partner at BDO said the budget provided certainty for individuals and businesses coming out of lockdown. “From a personal tax perspective, there were no kneejerk reactions, with no fundamental changes introduced in haste. He was open and straightforward about the much-mooted “stealth” increases which was refreshing. Those who sold or transferred assets on the eve of budget day may feel they were bitten by the dog that didn’t bark, with “tax day” on 23 March likely to reveal long-term tax policy,” he said.

He thought introducing a ‘super deduction’ worth an estimated £29 billion over the next four years was squarely aimed at spurring investment. "This will likely benefit industries such as infrastructure, manufacturing, utilities and construction. It will be interesting to see to what extent this encourages short-term investment for sectors that generally take a longer term view of investment decisions. The Chancellor will hope it encourages them to take a less cautious view of their medium[-term] economic prospects."

Falvey was suprised there was no mention of taxation of digital Big Techs. "Whilst the corporation tax increase will ensure that profitable businesses will pay more – an estimated £48 billion extra over the four year period to 2025/26 – many digital organisations have flourished during COVID-19. This gap needs to be bridged."

The OBR has calculated that the super reduction would lift business investment by 10 per cent. According to AXA IM's David Page, it is by far "the costliest of the longer-term support measures" and a greater giveaway than the total expected gains from removing threshold indexing, he said.

Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank, also found the ‘super deduction’ notable. “The 130 per cent reduction in costs for companies that invest is quite unheard of for a UK government. It could boost capital expenditure and perhaps also lift growth more structurally over the longer term.”

There was no real news for private clients as the Chancellor stuck to his triple tax lock. "Although the freezing of personal allowances and higher-rate tax brackets at 2021/22 rates (£12,570 and £50,270) will increase the tax take," Rebecca Durrant, head of private clients at Crowe said.

Commenting on potential future tax rises, Dean Moore, managing director, head of wealth planning at RBC Wealth Mangement said: “From a private client perspective, fiscal drag on personal allowances and IHT thresholds will have a limited impact, with the key areas of pension tax relief, annual and lifetime allowances, IHT rates and continuing ability to make substantial gifts and CGT remaining unchanged.

“This was essentially a “feel-good” budget while the UK economy remains in recovery mode, but there’s no getting away from the debt that COVID has created. It was clearly positioned that with a projected £2.1 trillion UK public sector net debt burden, there will be tax rises to come, and the areas previously flagged as being a focus of tax increases are still in play.

He said the budget reinforces the need for investors to get their house in order and to make use of the current gifting allowances and CGT rates, especially when considering legacy and next generation planning.

Moore added that it was important to "remain forward looking and vigilant in regards to the tax rises" that the bank believes are coming.

Dean Turner, economist at UBS Global Wealth Management thought OBR figures showing that the economy will be back to pre-pandemic levels by mid-2022 were encouraging. "Although the sting in the tail was warning that the economy will still be 3 per cent below the pre-pandemic trend five years from now."

Turner thought the deferred rise in corporation tax was at the top end of expectations but eased by the Chancellor “offering companies an extremely large tax cut linked to investment for the next two years.”

None of yesterday's measures are likely to have a material impact on the economy in the short term, he said. “Instead, the easing of lockdown restrictions will be the more important factor in boosting GDP from 2Q onwards. Sterling will also benefit, he said, and “we continue to see the pound higher as the economic recovery builds.”

Green agenda
Many responded to outlines for boosting green finance and sustainability and creating new leading roles for the City after Brexit. The government has pledged £12 billion in investment capital and £10 billion in state backed loans as part of a new infrastructure bank based in Leeds.

James Purcell, group head of ESG, sustainable, and impact investing at Quintet Private Bank, said that while the EU has led in green finance and sustainability, "Britain can credibly compete” now. “We can’t get to net-zero without taking carbon out of the atmosphere. Carbon offsets are a critical part of the toolkit – scaling credible offsets is hugely important, and the City of London now has the opportunity to be the world leader.”

Mazars’ chief economist George Lagarias said the budget showed a material shift in the UK’s economic landscape, where the UK economy was in a unique position in a “bout of global economic de-synchronisation.”

“On the one hand, it is en route to becoming the first G7 country to take advantage of vaccinations and turn the corner in returning to a post-COVID-19 “normality”. On the other, it is now facing a much grimmer economic landscape than in December 2019.

"Growth conditions are tepid and the economy might find itself countering the “pending” unemployment, assured job losses, which may not manifest until the furlough scheme ends in September. A confluence of post-lockdown rising demand and supply chain breakdowns could further burden the economy with transitory inflation, at least in 2021. This is also true of a “hard Brexit,” Lagarias said, which is putting additional pressure on sensitive industries and exports.

This could be further constrained by ballooning debt which may rise above 115 per cent of annual GDP in the next few years, he said.

In his view, the budget reflected the UK’s need for a quick rebound, with investing incentives such as the “super-deduction” and VAT cut extensions that would be balanced in the future by a higher corporation tax.

“From a broader perspective, what is important in this budget is the government’s push to decentralise the economy, both in geographical terms and in industry support terms. The scope is much broader than targeting the most afflicted industries or groups. This budget could be the beginning of a material shift in the UK’s economic landscape, a strategic goal for the post-Brexit economy.”

Coinciding with Wednesday's budget, the Chancellor raised the review of UK listings rules to make the City more competitive. The review was led by EU financial services commissioner, Lord Jonathan Hill, amid concern that the UK risks losing out to Amsterdam, New York and Hong Kong in attracting fast-growing technology firms and other knowledge businesses to grow and list here.

Sunak also announced the locations of eight new so-called freeports at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames, and Teesside.