Steve Holden, Tax Director at Edwards Chartered Accountants, shares his perspective on the Budget, business confidence and the cumulative tax burden.
There is no shortage of speculation about what the Chancellor might announce in this month’s Budget. Capital gains tax, inheritance tax, pensions and property taxation are all attracting attention.
But while it is natural to focus on what might be announced next, I think we risk overlooking a bigger issue. Individuals and businesses are already dealing with the effects of previous tax changes, rising costs and frozen thresholds. The upcoming Budget needs to be considered in that context.
As Tax Director at Edwards Chartered Accountants, I work with individuals and businesses daily.
For me, three issues stand out are:
- The cumulative tax burden.
- Whether higher tax rates will actually raise more revenue.
- The certainty people need to plan ahead.
The cumulative tax burden is already adding up
When we talk about the Budget, it is easy to focus on individual announcements. But tax changes rarely happen in isolation, and their combined effect can be significant.
Measures announced in previous Budgets are due to take effect over the next couple of years. From April 2027, most unused pension funds are due to be brought within the inheritance tax regime. Changes to the taxation of savings and property income are also scheduled.
The impact will vary depending on individual circumstances and the decisions people have made over many years. For example, a couple who have built wealth through their home, savings, and pensions may plan to pass these assets to their children. Bringing unused pension funds into the IHT regime could increase the inheritance tax due on their estate, leaving their family with considerably less than expected.
Business owners face a similar challenge. Employment costs have increased, tax reliefs have changed, and businesses continue to deal with rising operating costs. Even if the Budget brings no further changes in these areas, the effects of measures already announced continue to work their way through the business and the economy.
I see this in everyday life and in business. An award-winning café near where I live, which used to be busy, is now struggling to make ends meet. It is a reminder that businesses can do many things right and still find themselves under pressure when customers are spending less and costs keep rising.
For a large company, an additional cost may be easier to absorb. For a smaller business operating on tighter margins, it could determine whether it recruits, invests in growth or holds back. These businesses make an important contribution to employment and local communities but often have less room to absorb rising costs.
That is why I believe the Chancellor needs to consider the cumulative impact of taxation, rather than treating each measure as a separate decision.
The question is not simply how much an individual change might raise, but what the combined effect is on those paying it.
Higher taxes don’t always mean more tax revenue
Another issue I think deserves more attention is the assumption that raising tax rates automatically brings in more money for the Treasury.
Capital Gains Tax is a good example. There has been speculation about further changes to CGT rates, particularly for people selling investments or businesses. However, as of 20 October, the Chancellor has ruled out increasing CGT in the upcoming Budget.
But the wider question remains – how people might respond if the tax cost of selling increases.
Someone considering selling a business or an investment may have some choice over when they sell. If they believe the tax cost is too high, they may delay the sale or decide not to proceed.
If fewer transactions take place, the additional revenue the Government expects to collect may not materialise as much as anticipated.
I am not suggesting that capital gains should never be taxed more heavily. The Government must raise revenue and decide how that burden is shared. But it also needs to consider how changes will influence behaviour, rather than assuming that raising a rate is a straightforward way to increase receipts.
Businesses and individuals need certainty to plan for the future
The third issue is certainty. This may sound less immediate than a change in tax rates, but it has a real effect on the decisions businesses and individuals make.
Running a business involves taking risks and making strategic decisions. Those decisions are easier when businesses have confidence in the environment in which they operate.
Constant speculation about further tax changes, alongside rising costs, falling consumer spending, and global uncertainty, can lead business owners to delay key long-term decisions.
For individuals, certainty matters too. People often make decisions about pensions, property, savings, and passing wealth to the next generation over many years. People need time to understand the rules and plan accordingly. Repeated changes, or the prospect of changes that never seem to be settled, make that more difficult.
No Government can promise that the tax system will never change, but a more stable and predictable framework would help businesses and individuals make decisions with greater confidence.
We need to make it easier for businesses to invest and employ
Aside from raising revenue, the Chancellor needs to create policies that encourage economic and business growth.
These Government decisions have consequences beyond the individual business. When employers delay recruitment, people can lose opportunities to enter the workforce and develop their skills. When businesses hold back on investment, the benefits that could have followed, including additional jobs and future tax revenue, may also be delayed.
I think the Government should look more closely at how employment costs and training incentives affect hiring decisions, particularly for younger workers. There is an opportunity to encourage businesses to hire people, invest in skills, and create opportunities.
My message ahead of the Budget?
I think we risk focusing too heavily on the largest businesses and headline tax rates while overlooking the smaller, owner-managed businesses that contribute significantly to the economy and local communities.
These businesses employ people, train young staff, invest in their premises and services, and lay the foundations for future growth. When they struggle, the consequences extend well beyond the business owner.
So, if I could give the Chancellor one message on behalf of SMEs, it would be this: Haven’t we had enough?
Before introducing further measures, I would like to see the Government take a step back and consider the combined impact of what is already in place. Think carefully about whether higher tax rates will achieve the intended result. And give businesses a more stable framework in which they can make decisions with confidence.
We need a tax system that raises the revenue the country needs without discouraging the investment, recruitment and growth that help generate it.
If you’re concerned about how the changing tax landscape could affect you or your business, our team at Edwards Chartered Accountants can help you understand your options and plan ahead.
Get in touch with our team to discuss how we can support you and your business.