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Johnston Carmichael experts reveal business predictions for 2021

After an eventful start to 2021, which has already seen the completion of Brexit, new lockdown measures and the acceleration of the COVID-19 vaccination programme, experts from Johnston Carmichael, have revealed their top business predictions for the remainder of the year.

They speculate that climate change will come to the fore as Glasgow prepares to host COP26. Increased investment in technology to tackle global warming, growth in offshore wind and greater focus on carbon capture are also likely to be in the offing.

Other trends established as part of the pandemic, they say, will continue, including growth in convenience retailing, demand for food that promotes health and wellbeing, and the ongoing digitisation of financial services; contributing to the decline of cash.

Tax will also be subject to change as the Chancellor seeks to recoup the cost of bailing out businesses and jobs.

Andrew Walker, CEO, said: “Despite the continued uncertain economic outlook, the positive is that businesses have shown they can be highly flexible and deal with disruption in an agile way.

“As we move into 2021, the innovation that picked up pace to in response to the pandemic will continue to accelerate and create opportunity for some businesses.

“The challenge for them will be to ensure they have sufficient headroom to finance the shifts required to adapt to ever changing circumstances and enable them to capitalise on growth opportunities. It’s going to be a stop-start kind of year given the uncertainty brought about by COVID-19 coupled with Brexit.”

Shaun Millican, Partner and Head of Technology & Life Sciences

The turbulence of 2020 is likely to continue into 2021 due to the lingering effects of the pandemic, Brexit and the wider economic fall-out. It may have taken a backseat because of the pandemic, but climate change remains our most significant immediate and long-term challenge and I expect to see increasing investment in solutions in this area. Green energy, food security or mileage, carbon capture and the wider circular economy are all areas set to explode.

Brexit has brought the issue of food transportation to the fore and alternative food production methods such as Intelligent Growth Solutions' vertical farming solution will be increasingly deployed in our food supply chain.

Risks and challenges to growth include access to funding, securing talent and global competition.

Adam Hardie, Partner and Head of Food & Drink

Consumers are increasingly focusing on their personal wellbeing throughout COVID-19, seeking out healthier, local produce and this has extended to an increased demand for sustainability: for example, producers making a positive impact on the environment with their packaging. Continuing the focus on local, there has also been an increased demand in convenience retail shopping. Direct to Consumer has gone ballistic through lockdown, so no surprise that Planet Organic, the UK’s leading healthy food and drink retailer launched an online business last November. With regard to our demand for a healthier lifestyle, the significant growth of low and no alcohol drinks will continue. With substantial change there is always opportunities for collaboration and consolidation across food and drink that will undoubtedly continue into 2021.

Mark Stewart, Partner and Head of Infrastructure & Renewable Energy

The year ahead promises further growth in the renewable energy sector underpinned by the UK Government’s Green Policy Agenda as set out in the Ten-Point Plan for a Green Industrial Revolution and the Energy White Paper: powering our net zero future. Key sectors in the UK to watch will be offshore wind – including floating, decarbonising transport, driving the growth of low carbon hydrogen, the circular economy and waste and accelerating the shift to zero emission vehicles. The UK cannot work in isolation to deliver the ambition and it will be important that the COP26 meeting in November drives a unified approach to delivering on the 1.5°C limit set out in 2015 Paris Agreement.

We should also expect to see more businesses adopting the independent Science Based Targets initiative (“SBTi”) - which champions paths to net zero emissions - as carbon reduction becomes a high priority on the board agenda of enlightened corporate leaders. More than 1,000 companies are already acting, and this trend will continue.

Graham Alexander, Partner and Head of Oil & Gas

Companies throughout the oilfield sector are acutely aware of the urgent need to address their role in the transition to sustainable and clean energy, which has been propelled at far greater speed by the coronavirus pandemic. The barriers to change in oil and gas are lower than ever.

Businesses now need to act quickly as the coming decade will become one during which huge change occurs in the energy mix we rely on, covering everything from transport to power and the products we use

Mergers and acquisitions activity will play a role in the transition, providing the funds for the infrastructure and innovation needed by businesses to deliver our future energy needs.

Creative deal making and financial structures will be required, and we are well placed to support oilfield service companies build for this future.

Ewen Fleming, Partner and Head of Financial Services

Demand for housing, particularly in cities, will cool, impacting property prices and the number of new residential mortgages. Investment in digitisation will continue to increase. The flipside of this is that bank branches will likely close, and ATMs may become decommissioned with the greatest impact on the most vulnerable in society, including those who are reliant on cash and those who do not have a bank account.

There’s likely to be further investment by banks in early problem management and collections and recoveries processes. Business lending operations and underwriting will require to be improved to cope with peaks associated with the refinancing of business continuity loans when the Government schemes are brought to a close.

Nigel Roberts, Director and Head of VAT

On 1 January, the UK gained full control of its own VAT legislation for the first time, giving the Treasury greater flexibility to use VAT to support UK fiscal objectives. The Treasury will of course need to balance simplification and targeted reliefs with revenue raising.

A range of zero-rates currently targeted at domestic consumption – water, construction, clothing – could possibly be in line for reform. Another area the Treasury might tackle is the registration limit for VAT. Reducing the threshold for businesses could encourage growth and raise revenue.

A simpler and broader exemption for financial services is a possibility. Will the policy makers be brave enough to tackle the almost impenetrable rules on food and could an across-the-board reduced rate be considered? The public sector, where VAT recovery rules result in public money going round in a big circle, could also be ripe for review.

We could potentially see the introduction of some new reliefs. The reduced rate reliefs given to the hospitality and cultural sectors last year, could be made permanent, to aid the post COVID recovery of these sectors – this would be hugely welcome.

If there is political appetite, the standard rate for VAT could also be increased from the current 20% to raise revenue. This would increase prices but linked to targeted reliefs could raise tax revenue with a very small collection cost. In a very difficult fiscal environment, the Treasury has some tough decisions to make.

Peter Young, Partner and Head of Private Client Tax

2021 is mostly likely going to be the year of tax. The Government has a huge budget deficit so when it comes to tax hikes it’s not a case of ‘if’, it’s a case of ‘when’.

Capital Gains Tax and Inheritance Tax are two likely areas to be reviewed. The Office of Tax Simplification recently recommended in its report to the Chancellor that Capital Gains Tax, which is currently sitting at an historically low rate, should be brought in line with Income Tax, which would see some homeowners paying up to 45% in tax on the gains made from a sale of a second property or shares, if rates were aligned with the UK additional tax rate.

Pension contributions are also ripe for targeting. Possible changes could include the removal of the tax-free lump sum. In addition, we may see restrictions in the tax advantages on making pension contributions, including the abolition of income tax relief for higher and additional rate taxpayers, or the introduction of standard “flat” rate of tax relief on pension contributions of 25% for example.

There’s also been speculation that a wealth tax may be proposed in some form, which could see the Government introducing a new tax on certain types of assets for the high-net-worth individuals who have significant wealth tied up in assets.

Lastly, Business Property Relief and Agricultural Relief, which enable trading and agricultural businesses to be passed onto the next generation without triggering a significant tax charge, could be axed. If abolished, then they could have a significant impact on family businesses and succession planning.

Time will tell what tax rises will be applied to fund the UK’s recovery as a result of the pandemic, but one thing is for certain: tax changes will be on the horizon.

Craig Hendry, Managing Director of Johnston Carmichael Wealth Ltd

Understandably the pandemic brought financial planning to the forefront of everyone’s minds, not just in terms of reassessing finances for the here and now, but also in terms of life priorities and the legacy they are leaving behind. A newfound respect for our communities and their well-being is likely to drive an increased emphasis on ethical investment opportunities - particularly those with a positive impact on the environment. This is a cultural trend we expect to continue well into the future.

As vaccines are rolled out in 2021, we can expect to see markets rally globally. However, there will always be uncertainty in the investment markets with a new US President taking the reins, the impact of the Brexit deal, and the anticipated Spring Budget in March. While there’s undoubtedly more uncertainty ahead, it’s important to keep one eye on the future and part of this involves keeping a cool head, weighing up the risks and in many cases keeping calm and carrying on. Our advice for financial planning in 2021 is: keep talking to your financial planner and keep asking questions.

For more information, please visit https://johnstoncarmichael.com/.

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