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It’s been almost a year since Chancellor Rishi Sunak last delivered a Budget, but in many ways, it doesn’t feel like it.
After a year of financial updates and COVID-19 support announcements, the Chancellor has become a familiar face even for those who wouldn’t usually take a strong interest in economic policy.
A week today, he’s due to make his second Budget speech, and many will be anxiously waiting to hear how he plans to manage the economic impacts of the pandemic.
According to the Office for Budget Responsibility (OBR), public spending is set to reach around £394 billion by the end of March 2021. Depending on what its new forecasts contain, that figure could be even higher.
At some point, the books will need to be balanced, and with public sector cuts likely to be out of the question, tax rises seem to be the only option.
There are rumours, however, that the Chancellor will choose not to announce any tax rises in the Spring Budget, instead focusing on extensions to COVID-19 support and economic recovery.
At a time when many businesses across the country have been hit hard by the pandemic, it’s easy to see why a series of tax hikes might be an unpopular move.
Instead, those changes might be reserved for an Autumn Budget later this year, or for spring 2022.
On the other hand, some would argue Sunak simply can’t afford to put off covering the costs any longer.
Now we have a clearer picture of the ‘roadmap’ that should take us out of lockdown, it’s easier to see how much longer businesses will need to be financially supported by the Government.
As it stands, the furlough scheme is due to come to an end in April.
It looks likely that this could be extended, however, after Prime Minister Boris Johnson promised on Monday not to “pull the rug out” with regards to support packages. He added that the Chancellor would set out further details in the Spring Budget.
It’s also been confirmed that details on the fourth self-employed income support scheme grant, which is set to cover the period from February 2021 to April 2021, will be announced on Budget Day. If furlough is being extended, it’s possible that another grant could be on the way too.
Other COVID-19 support measures could also see an extension. For example, The Times has reported the deadline for the current stamp duty holiday in England and Northern Ireland will be moved from 31 March to 30 June.
Even if the Chancellor does decide this Budget is the time to make tax changes, he won’t have a lot of room for manoeuvre if he plans to stick to the Conservative Party’s 2019 manifesto.
As part of their election promises, the party pledged not to raise the rates of income tax, national insurance contributions and VAT.
Of course, if there’s any time that calls for unusual measures it’s now, but Sunak might prefer to target other taxes first.
Corporation tax, for example, is rumoured to be a target for changes, with the Telegraph reporting the Chancellor plans to raise the UK’s main rate of corporation tax from 19% to 23%.
While this could provide the Treasury with an additional £12bn a year, it might not go down well with company directors, many of whom have already been left out of full COVID-19 support.
Business groups have also argued this would hurt businesses at a time when their investment is much needed to kickstart the economy.
Property tax might also be in line for reform, with campaigners calling for a proportional property tax to replace both council tax and stamp duty. This would be charged at a flat rate of 0.48% a year on the value of each property the taxpayer owns.
Another potential focus could be simplifying complex tax systems so they’re easier for taxpayers to navigate, with the added advantage of creating more income for the Treasury.
For example, the Office for Tax Simplification published a report last November that recommended significant changes to capital gains tax.
It said raising the rates to align them with income tax could raise an extra £14bn a year, and its other proposals included replacing the £12,300 annual tax-free allowance for capital gains tax with a lower allowance that only covers asset price increases that are equivalent to inflation.
Putting speculation aside for now, the Chancellor might take the Budget as an opportunity to announce some of the upcoming changes we know about already.
The income tax personal allowance and higher-rate thresholds are due to slightly increase in the new tax year, for example, in line with the September Consumer Prices Index (CPI) figure of 0.5%.
This means we can expect the personal allowance to increase to around £12,570, and the higher-rate threshold to rise to around £50,250 in 2021/22.
The same CPI figure will also be used to set National Insurance limits and thresholds for the tax year, as well as Class 2 and Class 3 contributions.
National living and minimum wage rates for 2021/22 have also been confirmed, with a “prudent increase” of 2.2% for the national living wage and some changes to the age groups included.
What are your Spring Budget predictions? Let us know in the comments below.