Budget day expectations are usually highly anticipated with much speculation in the weeks leading up to it. This year however we are witnessing an absolute clamour for information from a Treasury under pressure for a sustained, rapid response, to continually unfolding events. So here is what to expect on budget day.
Support packages will remain a hot topic. Last year’s budget on 11 March 2020, was dubbed ‘the coronavirus budget’, as the emerging pandemic took prominence over the budget day expectations for the ‘levelling up’ agenda the Conservatives promoted on the 2019 campaign trail.
There was little idea that the economy would still be feeling such intense pressure twelve months on.
It seems like so much history has been made since this time last year, when Rishi Sunak was not yet a household name. He replaced Sajid Javid as Chancellor in a last-minute reshuffle just weeks before the 2020 Budget. One year on, with the pandemic still hampering business and financial affairs, Mr Sunak already has one budget, two financial statements and several televised pandemic briefings under his belt, all of which has made him one of the most recognisable faces in British politics. During this time the question of How Will Her Majesty’s Government Manage to £300bn Deficit has remained prominent, after record borrowing to fund Coronavirus support packages for failing businesses, and furloughed workers and those falling into unemployment as a result of the virus. Unprecedented government spending to combat the coronavirus has sent the accumulated borrowing for the first five months of the fiscal year to almost £174bn. The highest level for the period since the Office for National Statistics records began in 1993 and overtakes the total borrowed in an entire year at the peak of the financial crisis. Britain’s national debt rose above £2tn, or more than 100% of GDP, as spending has soared and tax receipts have collapsed dramatically.
The planned autumn Budget was cancelled in September and replaced by the government’s Plan for Jobs in an awaited ‘fiscal event’. This included extensions to the SEISS and Coronavirus Job Retention Scheme (CJRS) also known as the furlough scheme. As well as the announcement of the Kickstart Scheme to support young people, who are most at risk from unemployment, with government supported, temporary work placements. Temporary reduced VAT for the hospitality industry and deferred VAT to let businesses pay their VAT bill in 11 interest free instalments.
Tax reform is one of the main areas where the government can focus with the aim of boosting the economy in the long term. Implementing sustainable improvements to the tax system should attract new International business and investment, encourage domestic entrepreneurship and productivity and eliminate costs that stifle growth. Tax reform is not the only course of action, but it is one of the most impactful the government has under its control. Tax reform could provide the Treasury respite from mounting cost of government schemes helping Britons through the worst recession in more than three centuries. In August 2020 the UKs economy officially entered the largest recession on record, threatening the prospects of UK economic growth in 2021. Since the outbreak of Covid19 the total number of unemployed has more than doubled, rising to 2.7 million since March and is rising at a faster pace than in the wake of the 2008 financial crisis, according to the ONS. As we draw closer to 2021, we are starting to see more of what we can expect, in the new economic climate, from postponed tax law enforcement, to full blown tax reform.
Tax Rises Speculated
Mr Sunak may seek to replace council tax and stamp duty with a new property tax as part of budget day expectations. The media has speculated that a rise in corporation tax could be expected on budget day, in a first step towards reducing the deficit. However Treasury minister Jesse Norman has said taxes may not rise if the UK’s vaccination programme leads to an economic boom. Whilst certain an initial “bounce back” of economic growth will follow any safe removal of COVID-19 restrictions, the Treasury’s goal of ensuring robust, long-term, and sustainable economic growth will require much work and good policy choices.
Budget day expectations could include measures such as increasing Class 4 National Insurance, raising fuel duty, cutting pension tax relief and changing capital gains tax have all been rumoured at various points, although so far nothing official has materialised.
The idea of introducing an online sales tax first arose in July 2020, and although nothing solid has yet materialised, the idea is receiving attention again this month. The economic shockwaves that have caused the largest ever recession, resulting from the pandemic are showing curious changes in the way the public is spending. A spike in online sales was to be expected, but high streets are showing extreme variations regionally. Social distancing measures and the closure of childcare settings moved a huge percentage of the workforce over to working from home for an extended period, which has influenced changes in spending behaviour and a further shift away from the high street since 2009. Retailers with branches in a range of demographic settings are said to be experiencing extremely low sales in urban spaces that have been left devoid of office workers and tourists, whereas more ‘local’ village locations are seeing an uptick in average takings, due to workers giving up their daily commute into city centres, and instead staying home and shopping nearby. This factor impacting the largest ever recession is likely to diminish over time if schools successfully reopen and places of work can adjust to accommodate social distanced working methods. But businesses will need to take measures to weather the current economic climate, whatever our budget day expectations are.
As recently as November a government review called for a major overhaul of capital gains tax in an effort to raise revenue. The Office for Tax Simplification (OTS) report commissioned by Rishi Sunak said that cutting exemptions and doubling rates on Capital Gains Tax could raise £14 billion for the Treasury. Recommendations include a ‘tax raid’ on buy-to-let properties and other forms of wealth.
Fourth SEISS Grant Delay
The 2021 Budget is certain to include news on the fourth self-employed income support scheme (SEISS) grant, despite the Budget taking place one month after the grant period begins. A delay of the fourth SEISS grant, by opening the application portal as late as March, will leave many self-employed workers, without income in February, just after they have paid a potentially large income tax bill 31 January. This fourth SEISS grant delay is also a blow to annual fiscal planning for the self-employed, especially whilst experiencing rolling lockdown reviews, during the third official, national lockdown. Which measures were brought in following the discovery of variant strains of COVID-19 which have been causing a faster spread of the disease, thought to be chiefly responsible for the rise in cases following Christmas. It is also unknown when schools will reopen for most families, with a review expected by 8 March. Which is another challenge to the self-employed continuing to work from home.
Stamp Duty Holiday Extension
Many in the housing sector are calling for the six-month stamp duty holiday to be extended beyond its current 31 March expiry date, though the Treasury has not hinted at this so far. The assumption is that the Chancellor set that deadline without anticipating strict lockdown measures would return, meaning the tax cut could still be needed to stimulate the market.
Furlough Scheme Extension
The Coronavirus Job Retention Scheme (CJRS) aka the Furlough Scheme is due to end in April 2021. Yet if it is due to be extended again, the budget at the start of March might be the perfect compliment to budget day expectations. Throughout the pandemic, the Chancellor has repeatedly announced end dates to the coronavirus job retention scheme, only to extend it before it expires.
The Confederation of British Industry (CBI) suggested to Mr Sunak that he extend the furlough scheme and called upon the Chancellor for an emergency £7.6bn injection from the Treasury, because the economy cannot wait until budget day, due to the latest lockdown in the UK.
We have come to expect dynamic changes to policy including support scheme extensions and responding to lobbyists. On 25 January HMRC announced self-assessment customers would not be receiving a penalty for a late online tax return, if filed by 28 February. This came at the last minute after the Association of Chartered Certified Accountants (ACCA) lobbied the Chancellor to extend the deadline highlighting several areas where the pandemic has intensified familiar filing deadline difficulties, as well as introducing new ones. It has been an unprecedented year for accountants, as they have had to support clients with a wide range of entirely new measures, including the coronavirus job retention scheme (CJRS), self employed income support scheme (SEISS) and local restrictions support grant (LRSG), as well as advise those who have received no government support and try to manage the impact of the pandemic on their own staff and businesses.
Rabbit in the Hat
There will always be at least one announcement to defy budget day expectations. It is common for Chancellors to announce a surprise at the end of a Budget, nicknamed the ‘rabbit in the hat’ moment. Mr Sunak has so far been no exception, in his summer statement, for example, he announced the Eat Out to Help Out scheme. This offered a government subsidised 50% discount to customers visiting participating restaurants, cafés, bars, pubs work and school canteens. There could likely be another ‘rabbit’ on the way this year. Likely not to be hospitality based this time, however it’s hard to call after so much rapid unpredictability. There may be a nod towards the ‘levelling up’ agenda, further to the chancellor’s announcement of a new £4bn fund for ‘levelling up’, in his November spending review.
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