New Chancellor Rishi Sunak is due to release his first budget on the 11th March 2020. After the success of the last election and the quick exit of former Chancellor Javid, Chancellor Sunak is likely to want to ensure his Budget Statement supports the Government’s promise to a brighter future for the UK, outside of the EU – and PM Johnson’s election pledge to cut taxes.
Like Chancellors before him, Chancellor Sunak will have to perform a difficult balancing act between tax cuts, public spending, and boosting the UK economy. This balancing act is made more difficult given the relatively precarious state of the UK economy and recent economic forecasts. The Institute for Fiscal Studies (IFS) recently commented, in the Financial Times, that the UK economy forecast produced for the budget is likely to show a worst situation for the UK economy in 2020/21 than anticipated before the election.
Chancellor Sunak also has a fiscal target of ensuring spending is no higher than tax receipts, borrowing is for investment only. So, all we can say – is good luck to the new Chancellor with all that to consider!
We already know that PM Johnson’s pre-election announcement of a cut in the Corporation Tax rate of 19% to 17% will no longer happen, so this should produce an approximate £6 billion of Corporation Tax for the public purse.
If the Chancellor has re-read the Conservative’s last manifesto, he will see a pledge to providing a National Insurance Contributions (NIC) cut for more than 30 million employees, by increasing the threshold for paying NIC. This NIC cut should save employees earning more than £12,600 around £100 per year.
There will be a need to play a game of ‘spot the tax increases’ in the Chancellor’s budget, as they are likely to be well-hidden! Tax increases will be necessary in order to pay for the Government’s promises on public spending, given their objective to match annual tax receipts to annual public spending – and to only borrow to invest in medium to long-term capital projects.
One of the big public spends will be the Government’s promise to solve the social care crisis by spending ‘an extra’ £1 billion to fund councils, so they are able to provide social care to the people in need of the care, without the need for those people to sell their homes to pay for it.
So, what taxes will Chancellor Sunak be ‘considering’ in his Budget? Well – we will likely see increases to the rates of the usual ‘stealth tax’ sources that hit indirectly (i.e. spending rather than directly on income).
For example, insurance premium tax, fuel duty, car tax, stamp duty (perhaps an SDLT surcharge on overseas buyers of UK property) and VAT – although the Government did pledge for no increase to the rates of VAT. They may also decide to raise the chargers for services used by the public, such as printing passports.
Other more visible taxes could be under consideration, such as bringing in a Wealth Tax annual charge on expensive properties particularly as these expensive properties are located mainly in London and the South East of England.
Another area favoured by previous Chancellors is changing, yet again, the Income Tax relief on pension contributions perhaps by capping the tax relief on pension contributions to 20%. It has been stated that by reducing the Income Tax relief on pension contributions from 40% to the basic rate, currently 20%, would raise an estimated £10bn extra Income Tax.
Capital Gains Tax the Entrepreneurial Relief & Inheritance Tax
Other areas of tax that the Conservatives have said needs to be reviewed and reformed include under Capital Gains Tax the Entrepreneurial Relief (CGT ER) and Inheritance Tax (IHT).
With CGT ER it is ensuring that the ability to pay just 10% CGT - when an Entrepreneur has built up their business and is looking to exit for good from that type of business - encourages entrepreneurs to start-up businesses in the UK in the first place.
CGT ER costs the Exchequer a considerable sum without any evidence that it encourages new business start-ups! Perhaps a reversion to the old ‘Retirement relief’ flat sum allowance is required in order to encourage the transition of businesses to the next generation.
When it comes to IHT, it looks to be a matter of simplifying IHT rules, as the Government believes they are currently too complicated. The Chancellor is likely to either refer to having a full IHT review in the near future or long changes such as a long-overdue increase to the £Nil rate band or increasing IHT take by discarding the main residence relief band and other reliefs – such as gifts out of income.
VAT, Income Tax & National Insurance
Finally – remember when reading the Chancellor’s Budget papers, that nobody should see a personal tax or VAT rise, as the Conservatives said that they would not raise National Insurance, Income Tax or VAT Rates. So, watch this space!