The Spring budget 2021, what can we expect?

This Wednesday Rishi Sunak will deliver his key Spring Budget speech to Parliament, as the UK faces one of the most significant economic challenges post WWII.

We understand the chancellor will outline the continuing support from the Treasury during the pandemic, whilst keeping our growing public debt in check.

Our Regional Tax partners Terri Halstead and Rachel Davies outline their personal thoughts and predictions looking ahead to Wednesday.

Income tax, VAT and National Insurance rises

This is unlikely as they affect everyone and discourage spending and go against the 2019 Conservative Party manifesto. That is unless the chancellor decides to increase taxes for those on higher incomes by increasing the 45% rate back up to 50% as we had from 2010 to 2013, however at the time the higher rate was judged not to raise any more for the treasury than a 45% rate due to individuals undertaking tax planning to keep out of the 50% band.  

Capital gains tax

This is a more likely candidate for change, if not now (and this is looking less likely than a few weeks ago) then in the next budget for effect from April 2022. It is possible that he may abolish business asset taper relief (formerly Entrepreneurs’ Relief) or increase rates to be more in line with income tax rates. This will both raise revenue and remove the need for many of the anti-avoidance measures introduced to counteract planning to turn income into capital.  

Pension tax relief cuts

This goes against a strategy in more recent years of promoting saving for retirement, for example with the introduction of auto-enrolment in 2012. But, the current annual allowance of £40,000 a year is more than the average UK salary (it was £36,611 for 2019 per ONS) and therefore far more than the average worker could ever hope to put into a pension scheme in one year. Quite how much this would raise in revenue remains to be seen. Potentially we may see the relief being restricted to basic rate – if not in this budget then possibly 2022 – this has been rumoured for a number of years, which may cause some concern to the pension industry.  

Public spending cuts

Actual cuts to public sector salaries aren’t likely but in real terms a pay freeze is seen as a cut in the public sector.  

Corporation tax

An increase to corporation tax rates seems like a good option, it’s easy to legislate for and despite the justifiable U-turn from a reduction to 17% at 19% our rates are still so low that even a rumoured 4% increase would keep us below most of the rest of Europe, Northern America and Asia. The push to try and encourage growth within the economy may mean that again, particularly in light of the opposition coming out against tax increases, we think the chancellor will leave this open until at least he undertakes the spending review in the Autumn.  There are calls for a one-off tax on businesses who have excelled in lockdown, though quite how he could achieve this we are very unsure.  

Abolishing council tax and stamp duty

Removing council tax seems too radical for the current times especially as it affects local service funding and brings new complications such as valuation. A government spokesman is reported as saying that there are no plans to introduce a new annual property tax. Conversely extending to the Stamp Duty Land Tax holiday is surely an easy decision and is looking increasingly likely based on media reports. Without this, he risks the property market slowing to a stop which means not only no SDLT but has a knock-on effect on businesses such as estate agents, lawyers, removals etc. SDLT isn’t a big revenue raiser but this would be a good news story for a lot of people many of whom will spend their money saved on other things anyway.  

Online sales tax

We already have the Digital Services Tax which was introduced in 2020 but this is not tax directly imposed on sales to UK customers. Any sort of direct online sales tax would be a cost to consumers when they want us to spend to get the economy back on its feet. It would presumably help the high street but given that non-essential shops remain shut and confidence in how safe going to the shops is will take time to rebuild, now is perhaps not the time to look at increasing the costs of shopping online.  

Self-employed support

The details for the 4^th round of support are expected as part of the budget announcements.  

Furlough

An extension to the furlough scheme is expected. A more targeted approach towards certain sectors would be good but he’s resisted this so far.  

Universal Credit

The sort of area for a U-turn by the Conservatives so he might say no change, only to change his mind in a fortnight.