Spring Budget Budget 2021 – What does it mean for the asset finance and leasing industry

Chancellor Rishi Sunak delivered his spring statement on Wednesday 23rd of March 2022, the backdrop to the statement consisted of economic data providing conflicting messages.

On the plus side, the latest figures from the Office for National Statistics showed tax receipts of £71.9 billion in February, with the total tax take so far this year £37 billion higher than that forecast by the Office for Budget Responsibility last October.

The reasonably sound state of public finances has been caused by stronger than expected recent economic growth, a high level of employment and a higher rate of inflation than forecast.

However, it is inflation which is also a factor on the other side of the equation, Britain’s borrowing is running at a much higher level than expected owing to higher debt interest payments on the significant amount of government debt, which carries interest charges indexed to prices, and with most forecasters expecting the inflation rate to stay high for months. The benefit of a higher tax take is offset by concerns about rising debt.

It is also inflation that has placed enormous political pressure on the Chancellor to shield consumers from the rapidly escalating cost of many items, particularly energy and fuel and so balancing the politics and economics was the key challenge, particularly with the shadow of Ukraine adding massive uncertainty to the global economy and the risk of a downturn in our own economy as inflation reduces the spending power of consumers.

A timely reminder of the impact of inflation was announced on the morning of the spring statement that UK prices rose by 6.2% in the 12 months to February, the fastest rate for 30 years. Much of the political pressure prior to the statement involved a demand for a cut in the taxes that are applied to fuel. Diesel and petrol prices reached record highs over recent days, leading to a rise in VAT and fuel duty revenues for the Government. There were also calls to delay or shelve the planned rise in national insurance contributions scheduled for April.

As anticipated, the announcements that will be taking effect within the next few weeks were measures to alleviate the escalating cost of living, including a 12 month reduction in fuel duty, an increased allowance before national insurance contributions are paid and tax cuts for domestic energy efficiency improvements. There was also a promise of a 1p cut in the basic rate of income tax within this parliament.

What about the prospects for business investment?

Whilst the spring statement was dominated by consumer-related issues, the Chancellor indicated that a key priority in the autumn budget will be to address the low rate of productivity within the UK economy. He indicated that this might be achieved in three areas:-

1.       Ideas
2.       People
3.       Capital

So far as ideas are concerned, promises of additional tax allowances to encourage spending on research and development (R & D) were given and similar initiatives in the form of allowances for training were offered to address the people aspect.

For those involved in the sale of capital equipment a promise was given that consideration would be given to measures that would encourage business investment. The super-deduction capital allowance will end from April 2023 and a review of it’s cost and success will influence the type allowances proposed in the autumn budget.

A statement issued by The Treasury which accompanied the spring statement suggested several measures were currently under consideration including accelerated allowances within the writing down allowance scheme and a permanent increase of the annual investment allowance from £200,000 per year to £500,000 (the temporary allowance of £1,000,000 ends in December 2022).

The Chancellor promised to consult widely before deciding on the precise measures that will be taken in the autumn and it might be that the asset finance and leasing industry will be given an opportunity to put forward a case that additional tax allowances be provided for all equipment acquired through leasing.

Disclaimer
BNP Paribas Leasing Solutions is not authorised to provide tax advice. You should consult an accountant in order to understand the tax consequences of any investment decision.