The next UK Budget is scheduled to take place on Wednesday 3 March. Described by the Chancellor, Rishi Sunak, as setting out ‘the next phase of the plan to tackle the virus and protect jobs’, it is long-anticipated following the decision to scrap last autumn’s budget due to the pandemic.
A lot of water has flowed under the bridge since March 2020. When the Chancellor made his last budget speech, the seriousness of the coronavirus was beginning to become known and a number of emergency measures were being put in place. Since then, of course, we’ve had three national lockdowns and the introduction of a whole raft of support for businesses and individuals, including the furlough scheme, tax breaks and discretionary grant funds.
Although most commentators agree that these measures were necessary – the consequences of doing nothing would have been far worse – they come with a huge price tag. How much they will cost will not be known until after the crisis is over, but the Office for Budget Responsibility estimated in November 2020 that Government borrowing would amount to £394 billion for the year April 2020 – April 2021. That’s the highest figure ever seen outside of wartime.
So, what can we expect when the Chancellor gets up from his seat to deliver his 2021 budget speech?
In particular, will he try and recoup some of the costs of COVID through taxation?
There certainly have been many rumours. However, tax rises are always awkward for a Conservative government. This is particularly the case with the current administration that made an explicit pledge in its 2019 Election Manifesto not to raise the three biggest taxes: Income Tax, National Insurance, and VAT.
But that was pre-COVID, since when the country’s economic situation has changed immeasurably.
The consensus appears to be that the Government will keep to its Manifesto pledge not to raise the ‘big three’. However, recent rumours suggest that tax thresholds may be frozen, which in effect would represent an increase in real terms.
Increases to other taxes are widely predicted. For example, The Times and The Express newspapers have reportedly both suggested that the Chancellor will raise Corporation Tax in the budget. There are also predictions of increases to Capital Gains Tax (CGT). As outlined in our earlier blog this would involve CGT rates being brought into closer alignment with Income Tax rates, resulting in a significant boost to the Chancellor’s coffers.
Other tax rises being suggested include Stamp Duty and Council Tax, as well as a harmonisation in the way that self-employed people trading as limited companies are taxed compared with those who are employed, and a new online sales tax.
There are also rumours of changes to the tax incentives offered for pension savings. Having said that, we think the Government will still want to encourage people to save for their retirement rather than relying on the State.
Watch this space!
Tax rises are always hugely political and will always be leapt on by opposition politicians as an opportunity to condemn Government policies. Which, if any, taxes will rise in 2021 can only be known once the Chancellor decides to tell us. By all accounts, we may not have to wait until the Budget to find out everything as it is widely predicted that Mr Sunak will announce a ‘Recovery Plan’ alongside the Prime Minister in his ‘Roadmap’ to recovery on 22 February.
So, it’s ‘watch this space’. We will provide updates as we hear them. In the meantime, whether or not the rumour mill proves correct, please do contact your Brunsdon Financial Adviser for help with all aspects of your financial planning.