Spring Budget 2021: What can we expect from Rishi Sunak
- Chancellor Rishi Sunak expected to adopt a cautious approach during the March Budget announcement
- Insights and predictions from professional advisers on what to expect from Chancellor Rishi Sunak
- Cuts to pension tax relief, tax hikes and reforms are being hotly debated
- Changes to VAT will be unlikely, predicts KPMG
- The budget proposal will likely include measures that encourage business investment and revive employment
Chancellor Rishi Sunak will deliver his highly anticipated March Budget on Wednesday, March 3rd, where he will plot the UK economy’s course out of the Coronavirus pandemic.
While the UK appears to be emerging out of the coronavirus crisis, government borrowing has surged to its highest peacetime levels on record, with UK debt hitting 98% of national income – the highest levels since the early 1960s.
Although official data from the Office for National Statistics (ONS) revealed that public sector finances are better than feared, recent rhetoric from Chancellor Rishi Sunak has remained cautious.
What date and time is the Spring Budget?
Rishi Sunak will deliver the Spring Budget on Wednesday, March 3rd 2021.
The Chancellor is expected to deliver the statement in parliament at approximately 12.30 PM – following the Prime Minister’s Questions (PMQs).
What information should we expect to receive from Rishi Sunak?
Following the Autumn Budget postponement, which was called off due to the second wave of COVID-19, expectations for the Chancellor to announce tax hikes and projects that will turbocharge investments have increased due to the deplete public finances.
During his November spending review, Mr Sunak said that coronavirus support schemes and bumper borrowing were only possible because the UK entered the pandemic with strong public finances.
Rishi Sunak said that once the UK economy recovers, we must return public finances to a sustainable fiscal position.
The Chancellor made it clear that the March Budget will cover “the next stage” of the UK’s response to the crisis, which has become more severe due to the impact of the third national lockdown.
While Britain’s rapid vaccine rollout is fuelling expectations for an earlier easing of lockdown measures, the economic scars left by the pandemic will remain.
The UK government must decide whether to tolerate the high debt burden or introduce initiatives and measures to reduce the ballooning debt. While a pick-up in economic activity will help lower debt levels by boosting output, more extreme measures will be needed to ease the strain on public finances.
The Institute for Fiscal Studies (IFS) said that the Chancellor “will need to strike a balance between continuing support for jobs and businesses harmed by the national lockdowns, and weaning the economy off blanket support which will impede necessary economic adjustment.”
According to the latest rumours, the most probable outcome of the Spring Budget will be a combination of tax hikes and austerity, with the latter considered highly unfavourable.
However, in such an economically challenging time, austerity measures may be deemed necessary.
Here’s what professional advisers have to say about whether the Treasury will open the spending taps or tighten the purse strings.
Will the government raise taxes to reduce debt?
The Chancellor has a mammoth task ahead of him and will need to explore ways to boost UK gross domestic product (GDP), tackle the growing unemployment crisis and restore hope across the nation with a comprehensive, all-encompassing proposal for the future.
There has been widespread expectation that Rishi Sunak will raise taxes to help reduce UK debt and invest further into the public sector, with the proportion of funding designated to the NHS likely to increase.
However, KPMG partner Melissa Geiger and Director Sharon Baynham warn that while tax hikes will reduce public debt, they could negatively impact UK GDP and employment.
Some economists and professional advisers have insisted that tax cuts would be far more productive, as they would boost economic growth and employment by increasing consumer spending power and increasing aggregate demand.
KPMG notes that imposing tax hikes may be difficult for the Chancellor, given that the Conservative government promised to freeze income tax, NIC and VAT in their manifesto.
Chancellor ties his hands to the Tory manifesto pledge
Rishi Sunak previously agreed to adhere to the Tories’ “triple tax lock” commitments. Melissa Geiger and Sharon Baynham said that the prospect of breaking parliament commitments might be too politically unpalatable to consider.
When offering their insight into rumours over the Chancellor’s proposal, they said reports suggesting Mr Sunak will introduce an online tax seem probable given the significant shift towards a more digital world amid the pandemic.
Melissa Geiger and Sharon Baynham note that the costs will more than likely be passed onto consumers in the form of more expensive goods. However, KPMG said the Chancellor might be keen on the idea as it will make high street retailers a more attractive alternative when lockdown restrictions are lifted, which would help revive the battered retail sector.
However, they made clear that an increase in VAT was unlikely due to the UK government’s “triple tax lock” pledge and noted that raising VAT would likely hurt demand.
They said that the Chancellor could extend the period on reduced VAT rates for the hospitality and tourism sectors, which have faced increased financial hardship due to ongoing lockdown restrictions.
While the UK’s world-leading vaccination programme is believed to be the light at the end of the tunnel, some structural reform will inevitably be needed to steer the economy out of the pandemic.
Even if the Chancellor commits to the “triple tax lock”, other experts, including the UK accounting firm, Saffrey Champness expect Rishi Sunak to change other tax measures.
Saffrey Champness offers insight into the Chancellor’s tax agenda
Tax changes are currently at the heart of the public debate and are expected to play a significant role in driving post-COVID UK economic growth.
Recently, there have been calls for the Treasury to review and reform business rates, Capital Gains Tax (CGT), Inheritance Tax and introduce a one-off “wealth tax” to help revive Britain’s public finances.
Saffery Champness Tax Partner Zena Hanks offers insight into the Budget plan and perspective on future tax policy. According to Zena Hanks, the Chancellor will focus on three factors: productivity and growth, tax collection efficiency, and a rebalancing of the tax system.
While the Chancellor may refrain from raising taxes across the board at the upcoming Budget statement, Zena Hanks said he would more than likely “chart a course of reforms, rises and reliefs to steer the UK economy out of the deficit.”
She notes that whilst some creative thinking will be needed to combat the mounting debt, “a key aspect of Rishi Sunak’s strategy will include raising the overall tax take – and that may mean the implementation of a targeted system of reliefs.”
Chancellor could introduce initiatives that boost investment
Keeping in line with the UK’s “Build Back Better” slogan, Hanks suggests that Mr Sunak may “introduce green tax breaks to drive investments into environmentally friendly businesses and initiatives”, which would shift tax burdens onto firms with a bigger carbon footprint.
Like KPMG, she highlighted the possibility of a “profit tax” on digital businesses to increase high street footfall and a potential “tax break for the re-use and repurpose of redundant office space” to revive office culture.
According to Bank of England (BoE) Chief Economist Andy Haldane, approximately GBP 250BN has been amassed in household savings. He said that as the public are “desperate to get their lives back”, he expects pent up demand to unleash a spending boom once lockdown restrictions are lifted.
The Chancellor will also be keen to turn those accrued household savings into government revenue, making the possibility of an online levy being introduced increasingly likely.
Zena Hanks noted that the stamp duty holiday already unlocked some of this spending power, highlighting the recent surge in UK house prices.
She said the government might also revisit the idea of war bonds to facilitate economic growth and rebalance the tax system.
Historically, war bonds have received strong public support, and given the recent turbulence in stock markets, Hanks suggests “many may see the implementation of war bonds as a just cause.”
Boosting business investment will be high on the Chancellor’s agenda, and the BDO sees an increase in capital allowances and changes to tax relief as probable.
What are the BDO’s predictions on the March Budget?
The BDO said the Chancellor would likely capitalise on the UK’s post-Brexit freedoms to formulate a tax regime that encourages innovation and boosts investment while advocating the UK as a place that businesses and individuals want to stay, invest and grow.
BDO Corporate Tax Partner Jon Hickman said that Rishi Sunak could announce new grant schemes targeted at businesses in areas of the UK that have vast growth potential.
Offering his insight into the Budget proposal, he said there might be scope for the UK government to broaden R&D relief to encourage business innovation and development, which could benefit the UK economy by boosting productivity.
The Chancellor has announced several relief schemes and support packages for UK businesses throughout the pandemic, including the furlough scheme, which has prevented a tsunami of unemployment.
The BDO expects the Chancellor will introduce new initiatives to revive employment and invest further into youth employment as the country exits lockdown. The pandemic has exposed some alarming intergenerational issues with the young among some of the most severely impacted by the challenges arising from the economic crisis and lockdown restrictions.
While Rishi Sunak said he would not go back on the government’s “triple lock tax” commitments, the BDO said that as public finances are in such dire straits, changes to income tax and NIC remain a possibility.
Unlike KPMG, who said this could give way to some uproar, the BDO said that due to the economically harrowing situation, cuts to income tax and a NIC increase might receive little protest.
Jon Hickman said that if the Chancellor “ring-fenced tax policy changes for post-pandemic support and increased NIC for very high earners, the government could win public support.”
There will also be keen interest in news of support measures for battered sectors of the economy, including hospitality, nightlife and aviation.
Nonetheless, the Spring Budget, which is looking like one of the most significant budgets a British chancellor will have to deliver, promises to be momentous.
We may not even have to wait until March 3rd to receive some of the budget details as Mr Sunak could deliver a draft of the proposal in his UK Recovery Plan on February 22nd.