Tax and regulation policy briefing

A new year, new government and a Budget

January brought confirmation that a Budget will take place this Spring (11 March) under the stewardship of new Chancellor, Rishi Sunak. Over January the CBI has produced a submission to the Treasury packed with ideas for the new government across four key areas: People, Climate, Innovation, and Investment and Infrastructure. Check out the CBI’s full budget submission (including a map showing how the submission benefits each region of the UK) here.

In the absence of a Budget in 2019, the first Budget and Finance Bill of this new parliament is likely to deliver on two areas:

1. It will deliver on previous planned policies that were delayed due to the political turbulence last year
2. It will deliver on conservative manifesto commitments, in particular the government’s pledge to level up areas of the UK that have been left behind.

The CBI will be monitoring the Budget rumour mill throughout February to bring you the latest intelligence direct to My CBI. For all Budget related content simply search ‘Budget’ on My CBI.

Throughout January, the CBI has renewed its engagement with the Treasury following the general election. Treasury officials are clearly in Budget preparation mode and there has been substantial appetite for business intelligence this month. In total the CBI team was in the Treasury seven times during January with plenty more engagement planned throughout February as well. Topics discussed at these meetings ranged from business rates and our call to government to initiate a wide-ranging review at this Budget, to the Treasury's net zero review, transport taxes and the R&D tax credit. For more information about the CBI’s engagement with the Treasury get in touch.

Movement on IR35 review

Following a commitment made in the Conservative manifesto, the Chancellor, launched a review into the implementation of the upcoming reforms of the off-payroll working rules (IR35). As part of the review, HMRC held several roundtables with stakeholders affected by the upcoming reform to the rules. The CBI liaised with HMRC to make sure that over 16 CBI members were represented at these roundtables so that the business voice was well and truly heard. The CBI was also invited to a meeting with Financial Secretary to the Treasury, Jesse Norman MP to discuss member concerns with the implementation of these reforms.

At the start of February HMRC released a revised version of the Employment Status Manual to reflect the upcoming reforms. The guidance provides details on the use of reasonable care, status determination statements, the client-disagreement process and outsourced services. The government also announced that the reforms to IR35 will now only apply to payments made for services provided on or after 6 April 2020. This is reflected in the updated guidance and has been announced early to give businesses certainty. This reflected feedback from business and the CBI, each recommending this course of action. This comes as welcome news to businesses concerned about the potentially retrospective nature of this legislation.

Addressing the tax challenges arising from the digitalisation of the economy: a chink of light through the curtains

At the start of 2020 we heard news that the U.S. and France have agreed a truce over the ongoing U.S. Trade Representative inquiry into the French Digital Tax (as first reported in November’s update). France has agreed to delay collection of the tax until the end of 2020 to allow the OECD time to reach a consensus solution. This was in return for the U.S. rescinding previous suggestions that any reform to the international tax rules agreed at the OECD level should be optional for companies.

The spotlight from the U.S. has now turned to its opposition to the UK’s own Digital Services Tax, with the OECD’s Secretary-General Angel Gurria also warning against such unilateral measures. However, throughout this debate both the Prime Minister and Chancellor have remained firm that the UK will continue to implement the UK Digital Services Tax from April 2020.

At the OECD level, early December saw an exchange of letters between the United States Secretary of the Treasury Steven Mnuchin and OECD Secretary-General Angel Gurria. The US expressed “serious concerns” over Pillar One of the OECD work (which focuses on how the current rules which allocate taxing rights between jurisdictions might be amended to take account of digitalisation) – a development which raised wider concerns of where the project would go if US support dwindles. Since then, the OECD has issued a statement reaffirming its commitment to the project. Importantly, this confirmed continuation of discussions on the Pillar 1 proposals by all 137 countries.

This is positive news; the CBI has always argued that the challenges to the tax system posed by increasing digitalisation can only be solved through international cooperation. A full summary of the OECD statement and what it means for business can be found here.

CBI members agree financial services tax position paper

Financial services matter, both for the whole economy, and in their own right. From helping risks to be managed, wages to be paid, and payments to be made, financial services is an essential enabling industry.

With the Financial Services Taxation Working Group and Tax Committee, the CBI has developed a private financial services taxation working paper to be shared with key stakeholders. It highlights how vital it is that the UK retains its long-term attractiveness as a place to do business and preserves the competitiveness of financial services, which is key to the UK’s global competitiveness.

The UK’s taxation system is part of the critical infrastructure that supports the global competitiveness of the financial services sector. In terms of financial services taxation, the principles of simplicity, stability, and certainty in policymaking will provide the confidence in the future direction for UK tax policy to foster an environment where the financial services sector can thrive to the benefit of the whole economy. To find out more, please get in touch.

Future of financial services regulation

The CBI called for an agile regulatory framework in Funding our future to cope with changing technologies with smarter regulation that puts customers first. Our voice as the real economy has been instrumental in

securing the current HM Treasury Review of the Financial Services Regulatory Framework. After submitting a response to the first call for evidence on regulatory coordination, the CBI has continued active engagement with stakeholders on the review including the Bank of England. We will be facilitating a roundtable with the team managing their data reform workstream in March. If you would like to find our more, please get in touch.

LIBOR Transition – make sure you are prepared

LIBOR, the interest rate benchmark used extensively in many sorts of contracts, is being phased out and is expected to cease at the end of 2021. Make sure your business is prepared for this change and start the discussions with your financial providers about what you need to do to get ready now.

The CBI is a member of the communications sub-group of the Working Group on Sterling Risk-Free Reference Rates, whose secretariat is provided by the Bank of England. A factsheet has been produced to provide you with an overview of LIBOR transition and what it means for your business. The CBI will soon be rolling out an awareness campaign and providing online resources for members to support you through this change. If you would like to find out more, please get in touch.

Dame Carolyn Fairbairn, Director-General of the CBI, commenting on the CBI’s Budget submission:

“At the start of this new decade, firms are feeling more optimistic and want to invest. This historic Budget offers the chance to turn rising optimism into a surge in investment across the UK. Backed by a pro-enterprise Budget for skills, infrastructure and innovation, business can help kickstart a new decade of UK growth and job creation.

“And it is investment that will enable all regions of the UK to share in rising prosperity. It will put the UK on track to lead the world in innovation, clean growth and the industries of the future, from AI and robotics to agri-tech and life sciences.

“Trade policy will continue to matter, but with strong domestic policy, British firms are ready to invest and get the UK into the fast lane of global economies.”

Opportunity to join Sustainable Finance Working Group

The CBI is increasing its work around sustainable finance, particularly looking to raise awareness across sectors of the need to take into account the full ESG spectrum when making business decisions. Last year, we released our green finance position paper which attracted large interest from the industry and policymakers. We will now be looking to extend our messaging to include social and governance matters to develop our sustainable finance position.

In the lead up to November’s COP26 in Glasgow, we will be supporting the UK as the world’s most open and connected international financial centre and leading centre of sustainable finance expertise. In the run up to this we hope to release a CBI sustainable finance position paper which will focus on the importance of clear definitions regarding ESG and explore how policymakers should measure the cultural and social impact of business decisions. The CBI is setting up a virtual working group to support the development of this paper. Find out how to get involved.

Tackling the rising cost of tax and regulation

As trailed in earlier policy updates, this year the CBI is upping its activity on the critical business issue of the rising cost of tax and regulation on government. Our new campaign will receive an injection of fresh evidence later this year when we launch a business costs tracker.

The CBI is compiling evidence from businesses now on the main tax and regulatory burdens they face. If this is an issue that matters to your business or sector, get in touch to find out how you can help this campaign to have the biggest impact.

Economic regulators; the case for a renewed model

At the start of this year the CBI started a project to look at the role of economic regulation and economic regulators in the UK. This follows on from the National Infrastructure Commission’s report which called for an evolution rather than a revolution in economic regulation.

Later this year the CBI will be publishing a report setting out the business view on this issue. If you would like to get involved please get in touch