Author: Andy Milsom, Head of Partner Training & Development, BNP Paribas Leasing Solutions
Key announcements and the economic landscape
Chancellor, Jeremy Hunt, has delivered his second budget and fourth fiscal event on Wednesday 6 March. With an upcoming election likely to take place in the latter half of the year, there was enormous political pressure on Mr Hunt to deliver measures that would serve the electoral interests of his parliamentary colleagues. The prevailing mood within the ruling Conservative Party was that cuts in personal taxation would present the best chance of Tory MPs retaining their seats at the forthcoming general election.
Therefore, the big question for the Chancellor was the degree to which he could cut taxes without provoking an adverse market reaction, such as, currency devaluation and the huge increase in government borrowing costs, that followed the unfunded tax cuts announced in the Truss/Kwarteng ‘mini-budget’ of September 2022. Governments set fiscal rules in terms of how much they intend to borrow over the medium term and whilst they can change those rules, market credibility is at risk when they either miss the targets previously set or, to avoid missing them, simply change the target.
The government target in terms of borrowing, is that debt should be falling as a percentage of national income in 5 years’ time. The degree to which this target is on course to be achieved determined whether there was ‘fiscal headroom’ for tax cuts in the short-term. The Office for Budget Responsibility (OBR) is the official Treasury forecaster and as such the key arbitrator to the existence and size of any fiscal headroom.
The OBR forecast that accompanied the budget statement concluded that the recent reduction in the rate of inflation has fed through into lower spending on the portion of government debt linked to the Retail Price Index (RPI). As such, government borrowing is below the £124bn forecast by the OBR in the Autumn Statement of 2023, the OBR also revised it’s forecast for future economic growth, which looks slightly more positive. In the short-term at least, this created some fiscal headroom.
KEY TAKEAWAY FOR THE ASSET FINANCE SECTOR
The Chancellor announced that a draft legislation will be published within weeks to extend full-expensing to leased assets. This represents one of the most attractive capital allowance regimes that could drive growth within the asset finance sector.
Currently full-expensing on purchased assets has allowed the full capital allowance for qualifying plant and equipment to be claimed in the year of purchase, this effectively rewards companies with up to 25p off their tax bill for every £1 that they invest. However, leased assets to date, have been exempt from this scheme. The legislation proposed in this budget, which will come into effect after a period of consultation, now gives a similar tax break to leased assets. The Finance and Leasing Association (FLA) have long campaigned for this measure and it will be widely seen within the business world as allowing a fiscal flexibility that ensures UK businesses can keep upgrading to cutting edge and green technology without having to buy the assets required to achieve that objective.
oTHER tAKEAWAYS FOR vat, BUSINESS INVESTMENT & FUNDING
The Chancellor stressed that business investment remains critical to the long-term success of the UK economy, the other measures that were announced were:
- VAT threshold to be raised from an annual turnover of £85,000 to £90,000.
- An extension of the small business recovery loan scheme.
- An extension of regions benefitting from government business funding.
- Steps to ensure pension funds can extend their investment activities.
- Support for high tech industries, in particular those related to nuclear energy as well as the arts and life sciences.
Taking all of this into account, the flagship announcement in the budget was a reduction of 2p in the rate of National Insurance Contribution (NIC) payable on earned income by people of working age, as well as continued freezing of fuel and alcohol duty. The NIC announcement followed a similar reduction presented in the Autumn Statement of 2023 and effective from January this year. Given that public expenditure targets set last year were not to be reduced, several tax rises were also announced to help fund these measures. Such measures included the phased removal of ‘non-dom’ tax allowances, the introduction of a tax on vaping products, an increase in certain types of air travel duty and the removal of tax allowances on holiday lets.
Andy Milsom, Head of Partner Training & Development at BNP Paribas Leasing Solutions
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.
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