COLUMN: Job creation? Tax hikes? What can we expect from the Budget
One thing we learned from last year’s budget is that the response to Covid-19 will dominate everything.
While it was the first coronavirus support schemes which grabbed the headlines at last year’s Budget, the Chancellor also made a series of other announcements, including that infrastructure spending was to rise to its highest level in decades and a plastic packaging tax was announced for April 2022.
I would expect a similar mix of announcements this year – with news on coronavirus support schemes as well as several other spending promises (some of which may be repeated from last year) to demonstrate that 2021 won’t just be about coronavirus.
I think we can expect yet more announcements of support schemes for people and businesses as well as schemes which aim to help companies emerging from lockdown.
There is clearly a concern about unemployment, so this might include investments in job creation, training and skills with the expansion of existing schemes such as the Kickstart Scheme and other schemes to help older workers reskill.
I think there are some clues to be found in the current end-dates of some support schemes, with the final round for the self-employed income support scheme (SEISS) covering February, March and April, and the Coronavirus Job Retention Scheme (CJRS) is set to finish at the end of April. Meanwhile, the stamp duty holiday is due to end on 31st March. I expect that each of these will be extended in some form or another in this year’s budget.
Of course, politics is all about optics and presentation and the government will be eager to avoid having the Chancellor’s second Budget being seen as another ‘coronavirus budget’. For this reason, it’s possible that the Government will seek to announce the next stage for its coronavirus support schemes before the date of the Budget. By doing this, they can prevent these schemes from dominating the headlines as they did last Budget day, giving the Government a better opportunity to draw attention to some more optimistic, long-term pledges.
One of the biggest question marks is over whether we will see any increases in tax.
The Government deficit climbed to a record £270.8 billion in the first nine months of this fiscal year, but there are many who would object to a policy of higher taxes and reduced spending as it may harm our economic recovery. My prediction is that the Chancellor will opt to delay major tax rises and public spending cuts until future budgets, giving the economy more time to recover before addressing the deficit.
No longer being a member of the European Union, the Chancellor may wish to demonstrate his greater freedom to make changes to taxes such as VAT. The Conservative manifesto had promised no increases to VAT, but a reduction may be a powerful incentive to get consumers shopping again.
On the other hand, it’s possible that corporation tax will increase to as much as 23 per cent, bringing the rate more in line with other developed countries, and it’s been speculated that the chancellor may announce a consultation on a possible rise in capital gains tax which could be introduced next year.
One proposal that’s been circulating for many months is the possibility of a ‘wealth tax’ which would see the wealthiest households in the country paying a levy on the value of their assets above a certain threshold. While this would come close to making up for the £280bn spent on measures to fight the pandemic so far, it’s reported that the Chancellor has rejected the idea and that he would prefer to raise capital gains tax (CGT) as an alternative, even though it is unlikely to raise anywhere near as much money.
While tax rises may be uncertain, we can probably expect some reductions in public spending. In his spending review in November, the chancellor reduced spending on overseas development aid and froze the pay for many public sector workers. I expect that, in the absence of new tax rises, we’ll see more of these kinds of belt-tightening measures to prevent the deficit from growing too much further.