Media: Press Releases | 03 March 2021
London, 3 March 2021 – Commentary on: business environment, economic recovery, employment, ESG, infrastructure, tax and technology M&A.
Penny Angell, Hogan Lovells UK Managing Partner: “This Budget comes at a crucial time for the UK, signalling to the nation and markets how the Government will support its “re-opening roadmap” with measures that shift the balance from protection and survival to growth and investment. This financial stimulus will be vital in ensuring UK’s economic recovery in a post-Brexit and post-COVID environment.
“The measures outlined today by the Chancellor in his three-point plan, including an additional £65 billion in support through to 2022, low-carbon investment, and technological upskilling recognise that economic recovery, ESG and digitalisation will be key to shaping our future business environment and global competitiveness. However, for those sectors and businesses hit hardest by the pandemic, it will continue to be a long road to recovery.
“Through our unrivalled legal and regulatory understanding combined with tremendous strength and depth across all our practices and sectors we have helped our clients navigate the risks and challenges (and for some, the opportunities), presented by Brexit and a global pandemic. We will continue to harness our expertise and experience to support them as they look to respond to the challenges and opportunities of the next decade.”
Matthew Cottis, Finance Managing Partner of Hogan Lovells global Corporate & Finance practice: “At Hogan Lovells we have a huge focus on our strength and experience globally advising at the interface of business and government, that’s a massive part of who we are. Right now we are working intensely with major businesses and with HM Government on what the UK’s optimum regulatory approach going forward to 2030 should be – optimum not only for those that are regulated, but for the whole nation.
“Regulatory change will be the vital ingredient in determining whether the Chancellor’s ambitions announced today for the freeports, the new growth regions in Scotland and Wales and the 45 “new towns” are to be achieved, and whether the UK can succeed in becoming a scientific superpower. Along with tax policy, skilful regulation is how the Government can move the needle.”
Nicola Evans, corporate partner: “Despite a turbulent 2020 and start to 2021, business and investors have remained focussed on strategies directed at achieving long term sustainable growth. We continue to see clients from all sectors pledging ambitious targets for carbon reduction, taking responsibility for all aspects of their supply chain, and committing to more transparent reporting on environmental and social performance.
“Measures announced in today’s budget make clear the Government’s ambitions to not only bring about a green industrial revolution but also to bring about social equality across the UK. Various measures, including the establishment of green retail savings products and a new UK Infrastructure Bank based in Leeds make clear the Government’s commitment to delivering a green economy. Additionally, the Chancellor has vowed to both protect and create much needed jobs across the UK.
“These measures together with others announced in today’s budget are aligned with the ESG agenda being pursued by business and investors.”
Robert Gardener, Director of Government Affairs: “The environment in which the law and regulation operate has changed irreversibly over the past year. The effects of the pandemic, climate change, racial justice and digitisation have all set the agenda for the 2020s, against a backdrop of increased regulatory flexibility afforded by the UK’s new relationship with the EU and the rest of the world. Unless business embraces the interaction of the law and public policy in addressing this agenda, it is going to be left behind. Today’s Budget fires the starting pistol for the Government’s unprecedented level of engagement in business over the coming years. Business needs to understand this, engage with it, and act now.”
Philip Harle, tax partner: “Chancellor Rishi came up with a brilliant way of boosting economic activity – starting a rumour about capital gains tax increases. Lots of deals signed on Tuesday so it was job done! With a second budget planned for the Autumn perhaps he can keep M&A going based on the same rumour for a bit longer – the planned increase in corporation tax together with the commitment not to increase the income tax, VAT and national insurance rates mean CGT is one of the few available candidates to squeeze.
“The combination of a 130% super-deduction and increased future tax rates will give companies a cashflow advantage but at the same time increase the tax take in the long term. The deferred tax liability this creates will be something to keep an eye out for on M&A transactions.”
Stefan Martin, employment partner: “The Chancellor’s decision to extend the Coronavirus Job Retention Scheme until the end of September recognises that it will not be “business as usual” in many sectors for several months yet.
“Sticking with the structure of the current furlough scheme makes sense. The requirement for employers to make an increased contribution to wage costs from July onwards reflects how the scheme operated over the summer last year. It would have been an additional business burden if the Chancellor had tried to revert to the less generous Job Support Scheme that was originally intended to replace furlough.
“Hopefully as the economy begins to reopen from lockdown, the requirement to contribute 10% to furlough wage costs in July and 20% in August and September will be manageable even for businesses that are currently closed.”
Scott Tindall, infrastructure, energy, resources and projects partner: “The economic challenges faced by Chancellor Rishi Sunak in his second budget today could not be more different to those that he faced in his first budget, this time last year. His 2020 budget was effectively undermined within hours of him presenting it to Parliament by the rapid emergence of the coronavirus pandemic in the UK.
“The government has previously indicated that infrastructure will play a central role in the government’s plan for growth. The government is committed to transforming the UK’s infrastructure to support its ambitions on tackling climate change, strengthening our economy across the UK, and helping the country to build back better from the pandemic.
“However, with all of those challenges, it is perhaps not surprising that today’s budget included very few announcements regarding specific measures designed to support infrastructure development and investment.
“Although the Chancellor reiterated previous statements about the need for the government to take advantage of low interest rates to invest in capital projects and drive future economic growth through investment in infrastructure, the most significant infrastructure-related announcement concerned the creation of the new UK National Infrastructure Bank, to be based in Leeds, which was announced last November as part of the Government’s Spending Review.
“The new bank, which will have an initial capital of £12 billion, is part of the Government’s plans to “build back better, fairer and greener.” Its core objectives are to help tackle climate change, particularly meeting the country’s net zero emissions target by 2050 and support regional and local economic growth through better connectedness, opportunities for new jobs and higher levels of productivity.
“Another key announcement made today concerned the Government’s plans to create eight new freeports, in eight regions in England. These freeports are, the Chancellor confirmed, intended to allow for increased international trade, lower customs, more favourable tariffs and lower taxes, with new tax breaks to encourage construction and job creation. A streamlined planning process to assist their development is expected.
“Plans to support the development of carbon offset markets were also mentioned, although few details were given.”
Peter Watts, corporate partner: “Many of the budget announcements aim to contribute to the UK’s drive to become a leading centre for high-tech industries – a central theme of the Government’s manifesto.
“The UK has some real advantages as a business destination including the pragmatic flexibility of its common law and of its approach to regulation. During 2020 the Government began to look to leverage the additional flexibility afforded by Brexit in an effort to make the most of those advantages. Our experience, working with a number of clients, is that as the year went on the UK started to hit its stride, particularly in relation to life sciences – a key focus given the pandemic. Businesses which work astutely with UK Government across its policy and investment initiatives have started to realise opportunities.
“Today’s announcements reinforce that trend, suggesting an increasing range of UK opportunities for businesses and investors in high skill industries who can turn the UK direction of travel to their advantage.”
Rupert Shiers, head of tax disputes in the UK and Europe: “As so often, you need to look at the numbers. The headline is that additional compliance action by HMRC is projected to raise an additional £2.2 billion between now and 2025-26. The legislative changes planned are familiar and unsurprising. Investments of some £300 million are also announced. But the £2.2 billion equates to the additional compliance yield projected specifically for 2023-2026. Even allowing for this investment, the figures show a £650 million reduction in compliance yield across 2021/2 and 2022/3.
“The reason for this is stated to be “reprioritisation (including to respond to COVID-19)”. HMRC compliance work has been disrupted by COVID-19. The creation of a task force of over 1000 HMRC staff to combat fraud within COVID-19 support packages will have a further material effect. As such it seems likely that a significant part of the £2.2 billion is simply tax which would normally have been collected in the next two years, but for which HMRC’s processes will now be delayed. Taxpayers will be waiting longer for certainty.
“On the other hand, HMRC’s programme to review the tax administration framework is recognised in the Red Book. There’s a commitment to engage with large business on how far HMRC gives early certainty, resolves disputes efficiently, and promotes a collaborative and constructive approach to tax compliance. Business will almost certainly be pleased to engage. But they will also look for that engagement to lead to concrete changes.
“Finally, Mr Sunak announced a well-trailed amendment to the rules on penalties for late filing of tax returns, and late payment of tax. This, and “harmonisation” of interest, is projected to raise an additional £400m in 2023-2026. This seems a surprisingly high yield for a relatively technical change to compliance processes. The detail will be interesting.”