With just over a week to go the Budget, just what can we expect from the Chancellor?
Will there be tax rises or cuts or a mixture of both? asks Robin Hall, managing director of Newport-based Kymin financial planners.
The 2021 Budget may have more of an impact on all our finances than any other budget for many many years.
It seems possible that Chancellor Rishi Sunak will do everything he can to avoid moves which will have a negative affect on consumer spending.
The Conservative manifesto, for the 2019 General Election, promised no rises in income tax, VAT and National Insurance. However the coronavirus pandemic and the huge amount that the country has had to borrow so far may give the Chancellor headroom to move in certain areas.
There have been rumours that the Treasury is looking at a rise in corporation tax from its current rate of 19 per cent perhaps not straight away but from the autumn with further rises in subsequent years up to a maximum of 23 per cent. Even with these rises, it would mean that the UK still has the lowest rate of business taxes in the G7 group of the world’s richest nations.
It seems likely that the VAT cut to five per cent for tourism and hospitality will continue for the rest of 2021 and in to 2022, thus giving these sectors a boost when they are finally able to re-open.
The current furlough scheme is due to expire at the end of March and with the UK likely to be in some form of lockdown after this, the Chancellor will need to extend the scheme for longer to stave off mass unemployment – perhaps until the end of August.
Boosting business investment will be key to a post Covid-19 recovery so there will possibly be increases in capital allowances for businesses. There have been talks of ‘freeports’ as well as new enterprise zones in some of the hardest hit areas.
Aligning Capital Gains Tax, currently charged at 20 per cent or 28 per cent, could be an area where the treasury could raise more cash if it was to increase to match other taxes such as income tax.
The current Stamp Duty holiday, which was introduced last year is due to end on March 31. There have been calls for the chancellor to extend this, even if the extension was for a short period of time, to allow those people in the middle of purchasing properties to complete and benefit from the payment holiday.
Proposals to reform pension tax relief have been talked about for several years where the Chancellor may align the tax relief at 25 per cent or 30 per cent. It is currently 20 per cent for a basic rate taxpayer and 40 per cent for a higher rate taxpayer. Whether he looks at this now or leaves it until a possible second budget in the autumn remains to be seen.
We have already seen a huge rise in levels of unemployment over the last 10 months or so and this will continue for some time to come.
The Chancellor will undoubtedly announce funding for getting people back to work through re-training and adult education. Direct grants and other support schemes to boost employment of younger workers have been beneficial throughout the pandemic. It is thought that the Chancellor will revive some of these and extend others for the rest of 2021 to boost youth employment, the main age group that has most likely lost their job because of the lockdowns.
The Budget is on Wednesday, March 3, 2021