This year’s Budget, to be delivered by Chancellor Rishi Sunak on 3 March, promises to be momentous.
Much of the economy remains paralysed by coronavirus. Despite talk of restrictions being eased over the coming weeks and months, government support continues to prop up thousands of businesses and pay the wages of millions of employees via the furlough scheme.
But with furlough due to end on 30 April, expectations are high that the Chancellor will either extend it or provide details of an alternative.
Businesses will also be watching closely for news on how government loans granted during the crisis will be treated, whether new capital will be forthcoming, and whether business rate holidays will be extended beyond the current deadline of 31 March.
And there will be keen interest in news of broader support measures for sectors such as hospitality and travel, including the aviation industry.
Another entry in the Chancellor’s diary is the end of the current stamp duty holiday (and its equivalent in Wales and Scotland) on 31 March. Will he consider extending this also to help sustain the housing market?
Here we look at measures said to be under consideration by the Chancellor and round up some of the submissions that will be choking his in-box…
Resolution Foundation seeks road-map out of furlough
Think tank the Resolution Foundation is calling on the Chancellor to prevent the country from becoming dependent on the Job Retention Scheme furlough scheme by:
- setting out a road map for it to be phased out that recognises the varying impacts across different sectors
- keeping the full scheme active for several months after public health restrictions are lifted to give employers time to bring people back to normal working patterns
- maintaining the scheme for longer for sectors subject to legal restrictions, such as leisure and hospitality
- extending the end-of-year deadline of the Kickstart Scheme, launched last September to enable employers to obtain funding towards providing work placements to 16-24-year-olds receiving Universal Credit
- introducing a wage subsidy scheme to maximise employment in hard-hit sectors, or raising the National Insurance threshold on new starters, and investing directly in employment opportunities in areas such as social care.
Chris Bowles at business advisor Old Mill commented: “We’ve learned this week that unemployment has risen to its highest level for five years, which places increasing pressure on the government to extend the furlough support period well beyond the recovery roadmap that’s been laid out.
“Cash reserves are running low for many businesses and it’s crucial that the government doesn’t abandon them at this most critical juncture. Clearly, the prospect of redundancy is still a real threat for many workers so, in order to protect jobs, the Chancellor has a delicate balancing act to perform to keep these firms going.
“With loan guarantees, the business rates holiday and the furlough scheme all coming to an end, he must provide certainty to beleaguered business owners.”
Income tax personal allowance freeze?
Everyone has an income tax personal allowance – this tax year (2020/2021), it’s £12,500, meaning you can earn that much during the year before you start paying tax.
In most previous years – the 2019/2020 tax year was an exception – the allowance has been increased, meaning people could earn more before they started to pay tax (at 20%).
If someone’s income reaches £50,000 a year, they start paying 40% tax on anything they earn above that amount. Again, in previous years, this threshold has been increased (for example, it was £46,350 in 2018/19, with the personal allowance standing at £11,850).
Before Covid-19 struck, the current government’s stated aim was to increase the personal allowance and the higher rate tax threshold, meaning a reduction in tax bills. The upward changes would also mean more people would not pay any income tax at all because their earnings were below the level of the new personal allowance amount.
For similar reasons, some people would cease paying higher rate tax as the threshold moved above their earnings total, while some would pay less tax at the higher rate.
There is an increasing expectation that the Chancellor will freeze both the personal allowance (at £12,500) and the higher rate tax threshold (at £50,000), meaning expected tax savings will no longer arrive.
Will crypto currencies face a Budget day of reckoning?
According to accountants Hillier Hopkins, the Chancellor has crypto assets in his sights for this Budget.
Crypto currencies such as Bitcoin have been in the spotlight recently, with steep increases in value (Bitcoin broke through the US$50,000 mark in recent days, although its value tends to fluctuate wildly).
HMRC actually views crypto currencies as investment assets for taxation purposes, meaning they are subject to capital gains tax (CGT). It already requires Coinbase, the trading platform, to share details of investments and trades over £5,000 from individuals, and investors are already receiving notifications from HMRC.
Thomas Gibbs at Hillier Hopkins said: “The huge increases in Bitcoin in recent weeks will see HMRC take a keen interest where investors choose to cash-in on that growth.
“Crypto assets are assumed by many investors to be easily hidden, but are increasingly traded via online platforms and marketplaces, such as Coinbase. Coinbase has, since October 2020, shared details of all trades over £5,000 by UK nationals with HMRC, and HMRC is already writing to investors seeking tax on traded crypto assets.”
There has been speculation that the Budget will see an increase in CGT rates to match income tax. Someone who currently pays 10% CGT would thus pay 20%, while a 20% CGT-payer would henceforth pay 40%.
Mr Gibbs said: “Crypto investors should not ignore any letters from HMRC and should seek specialist advice. Paying capital gains tax now at, say, the 20% rate will be preferable to a potential rate of 40%.”
Eat Out To Help Out – anyone for seconds?
The hospitality sector has been among the hardest hit by the Covid-19 restrictions, prompting calls for a reintroduction of a scheme designed to encourage people to dine out once it is permissible to do so.
The original Eat Out To Help Out scheme gave diners 50% off sit-in meals, up to a limit of £10 per person, between Monday and Wednesday during August last year. Alcoholic drinks were not included.
Such a move would be controversial since some critics suggested the rise in cornoavirus infections in the autumn could be traced back in part to the increased social mixing in the summer, with eating out seen as a contributory factor.
The Chancellor may also be mulling the expected splurge in spending which is expected anyway once restrictions are eased, and wondering if any additional incentive, paid for out of the public purse, would really be necessary.
Extension of Stamp Duty Land Tax (and equivalents) holiday
Such is the importance of the housing sector to the UK economy that the Chancellor, along with his counterparts in the devolved authorities in Scotland and Wales, took radical steps to protect it from the ravages of coronavirus.
Stamp duty holidays were introduced in July that entitle homebuyers to a tax exemption on the first £500,000 of any residential property transaction in England and Northern Ireland, saving them up to £15,000. In Scotland and Wales, the exemption applies to the first £250,000 of the property value.
The ending of these holidays is slated for 31 March 2021 but, given the length of time needed to complete a transaction, the potential savings are no longer realistically available to anyone who is not already deep into the process. Even then, there are fears that many buyers will be hit with a hefty tax bill because they miss the deadline.
Some commentators are attributing an easing of demand in the housing market to the approaching reintroduction of the full duties.
The latest reports (24 February) are that the Chancellor will announce an extension of the stamp duty holiday until the end of June 2021 in next week’s Budget.
Robert Gardner at Nationwide said: “The slowdown probably reflects a tapering of demand ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase.
“While the holiday is not due to expire until the end of March, activity would be expected to weaken well before that, given that the purchase process typically takes several months.”
This is why the Chancellor maybe pondering an extension to the holiday – a move that could well be mirrored in Scotland and Wales.
Fuel duty freeze to thaw?
Fuel duty accounts for around half of the price of a litre of petrol or diesel at today’s pump prices. At 57.95 pence per litre (of petrol, diesel, biodiesel and bioethanol), it is one of the most hated of duties (in an admittedly crowded field).
This is why successive governments have not increased it for a decade. But these are extraordinary times, and the Chancellor may see drivers as a relatively soft target, especially as vehicle usage bounces back to pre-pandemic levels once restrictions on travel are lifted.
He would also be able to sell the increase as a ‘green’ measure intended to deter the use of carbon fuels and accelerate the uptake of eco-friendlier alternatives, such as liquid petroleum gas (where duty is 31.61 per kg), biogas (24.70 pence per kg) and electricity, which does not attract duty.
However, the Chancellor would have to take into account the response of the road haulage lobby, which is already feeling bruised because of potential disruption to some trade routes with Europe following Brexit.
It’s a sin – so tax it?
The so-called sin taxes – the duties imposed on alcohol, tobacco and gambling – have proved a popular hunting ground for Chancellors in the past. But the howls of outrage if Mr Sunak (who is teetotal) went after beer, wine, cider and spirits given the travails of the hospitality industry of late would likely be deafening.
Might he look to increase duties paid on alcohol bought in supermarkets and off-licences? That could be one way to attempt to redress the perceived imbalance that has seen off-sales of alcohol soar in recent months as people have drunk more at home.
Lobby group Wine Drinkers UK is urging the Chancellor to:
- cut excise duty on wine, arguing that it is taxed more heavily than other alcoholic drinks (tax on wine has risen by 39% in the last decade, compared to 16% on beer and 27% on spirits)
- extend the temporary VAT cut for hospitality businesses to March 2022
- broaden the VAT cut to include sales of alcoholic drinks.
Master of Wine Jancis Robinson said: “Successive governments continue to act as though wine is still the elitist drink it was 60 years ago, they fail to realise that it is the drink of choice for the majority of the electorate.”
Tobacco could be a less controversial target given the health issues associated with smoking. With the number of smokers reducing steadily, the Chancellor would be chasing a limited financial return, but the evil weed is routinely clobbered in Budgets and has been for years, so we can be fairly confident it will be again in 2021.
Gambling taxes might also attract the Chancellor’s attention, but again there are complications as increased levies would be seen as damaging to sectors of the economy, such as horse-racing, which have struggled during the pandemic.
Time for IPT?
Insurance Premium Tax (IPT) is included in the price you pay for your policy. Life insurance and income protection cover are exempt, but standard products such as car, home and pet insurance are taxed at 12%.
Related: Find Out More About Life Insurance
Certain other policies, such as travel insurance and those that cover some domestic appliances, are taxed at 20%.
Related: Compare Travel Insurance Tariffs
Critics of IPT say it imposes an unfair penalty on young drivers who, as a demographic sector, pay the highest car insurance premiums and thus fork over the greatest amounts of tax.
Nevertheless, the Chancellor may be tempted to squeeze policyholders for more revenue as IPT tends not to be seen as a direct, highly visible tax.
Related: Find Out More About Pet Insurance
New era for fintech and Open Banking?
The Chancellor may use his forthcoming Budget to announce further developments in Open Banking, which allows bank customers to share their data so it can be used across a range of products, such as online budgeting and account reconciliation tools.
Nick Cousins of Exizent, an online platform for those involved in the probate process, expects to see a greater role for financial technology (or ‘fintech’) companies: “In his first budget, almost a year ago, Mr Sunak announced the launch of an in-depth Treasury-commissioned review of the UK’s fintech sector, led by former Worldpay boss Ron Kalifa.
“Kalifa is due to deliver the report to the Chancellor before the Budget, so it is possible his recommendations will be announced in the speech next Wednesday. These are expected to include the recommendation that fintechs and banks work more closely together to ensure wider adoption of Open Banking, with funding for ‘fintech clusters’ across the UK.
“More funding and focus in the sector is absolutely to be welcomed, but unless regulation keeps pace, much of the fantastic technology out there cannot be utilised. For example, the probate process is very inefficient, with delays and admin errors making it very upsetting and stressful for those involved. Open Banking could radically improve that.
“Currently, Open Banking permissions cease when someone dies. But if it were to continue, we could harness the tech and data already out there to radically improve the process for all those involved.”
Flexible finance call for SMEs
The Chancellor is also being urged to harness the fintech sector to improve funding for small to medium-sized enterprises (SMEs).
Rob Straathof, CEO of fintech financing specialist Liberis, which provides alternative business financing to SMEs, said: “The government needs to use its full force to enable SME providers to help fill the financing gap with the flexible terms that SMEs need.
“SMEs are the backbone of the UK economy, providing our cities with creativity and character and promoting an atmosphere of innovation and entrepreneurship. While the UK remains locked down, SMEs are struggling to stay afloat. Access to finance will enable them to manage cash flow or retain staff.
“We need the government to collaborate with the fintech sector for alternative financing solutions to support SMEs, which means not only continued investment but also terms that work with their businesses.
“In the UK, 39% of SMEs operate in seasonal industries like construction, manufacturing, hospitality and retail. Businesses that see seasonal ebbs and flows in revenues should have the option to align payment terms that work with their business flow.”
TUC calls for Sunak to do ‘whatever it takes’
The Trades Union Congress is urging the Chancellor “to remain resolute in his pledge to do ‘whatever it takes’” to protect the economy.
It says measures taken to date have supported the economy and slowed a “catastrophic breakdown” in household incomes: “In the Budget the Treasury should pledge to support workers, families and businesses for as long as the pandemic continues and economic activity is disrupted.”
Specifically, the TUC is calling for:
- Job Retention Scheme (furlough) to be extended until the end of 2021
- Sick pay should be raised to £320 a week, with eligibility extended to those who do not qualify because they earn too little.
- Universal Credit to be increased to £260 a week, with no rescinding of the £20 uplift introduced last year.
Belated support for the ‘excluded’ self-employed?
The government has received sharp criticism for its perceived lack of support for large number of self-employed individuals who have not qualified for the Self-Employment Income Support Scheme (SEISS).
This scheme has paid out tranches of money to compensate individuals for loss of earnings during the pandemic. But it did not extend to limited company business owners who paid themselves in dividends, those who have only recently become self-employed, and those earning over £50,000 a year.
An estimated two million self-employed people are thought to be in these categories.
Mike Cherry at the Federation of Small Businesses, said: “Those who have been left out of income support initiatives – including directors and the newly self-employed – must now be brought into the fold. They have suffered an incredibly long, stressful 11 months.”
However, with the economy supposedly emerging from the worst effects of the Covid crisis, Mr Sunak may feel he can continue to ignore appeals for help from those who count themselves as excluded.
There have also been calls for more structural support from the government for the self-employed and ‘side hustle’ sector.
Marieke Flament, CEO of business account provider Mettle, said the Budget presents an opportunity for the government to reinforce the importance of this part of the economy: “More people than ever are choosing to start a business or side hustle of their own due to changing lifestyles, personal circumstances, such as furlough, or fulfilling a personal ambition.
“The over-55 age group has been most significantly hit by furlough and redundancies during the pandemic yet they make up the largest portion of businesses formed since the first lockdown in March last year.
“There is a huge opportunity for the government to get behind this growing sector, which we estimate will contribute over £125bn to the UK economy this year. As the UK looks to rebound from the economic damage caused by COVID-19, it’s absolutely vital that this segment has access to the support and services it needs to thrive so it can make an even greater economic contribution.”
Chris Bowles at Old Mill added: “The Office for National Statistics has just revealed a marked drop in the number of self-employed people in the UK so it’s essential the government beefs up its support in this area, particularly for freelancers.
“There have been repeated calls to rethink its approach to IR35 or off payroll working so maybe there’s scope for another of their famous U-turns?
“The third SEISS grant ran from November 2020 to the end of January so we are also expecting news on the fourth SEISS grant, which may now plug the gaps by including those recently self-employed individuals excluded from previous grants.
“Mr Sunak appears to have a blind spot in terms of helping the directors of limited companies who will need to play an important role in driving the nation’s future growth in the recovery phase, so perhaps now is the time the bring them in from the cold?”
Business rates holiday to be extended?
Businesses in the retail, hospitality and leisure sectors in England are currently benefitting from a business rates holiday which means they will not have to pay business rates for the 2020/2021 tax year.
Similar reliefs are in place in Scotland, Wales and Northern Ireland.
The Chancellor is, along with the devolved authorities, under mounting pressure to extend this relief provision as businesses in these sectors have suffered such calamitous loss of income in the past year.
The pace and scale of the re-opening of society and the revitalisation of the economy will no doubt affect the calculations currently being made.
IFS calls for measured approach
The Institute for Fiscal Studies says large tax rises are inevitable at some point as the UK economy recovers from the ravages of the pandemic, but it says the forthcoming Budget is too soon to announce them.
However, the IFS is urging the Chancellor to extend the furlough scheme beyond the end of April, and then to phase it out when possible to avoid a cliff-edge conclusion.
It also says more targeted support for certain sectors, such as aviation, may be required for the longer term.
The IFS said: “The Budget needs to announce well-targeted extensions in emergency support to households and employers over coming months. It also needs to set out a plan for phasing them out. The economy cannot adjust and recover until most of this support has been removed.”
The Institute also says the Chancellor needs to set out plans for how to help the economy recover and adjust to a “new normal”, reacting to the triple challenges of Brexit, recovery from Covid, and the move towards net zero carbon emissions.
It added: “Sizeable net tax rises – to help meet likely demands for additional public spending and make-up for any enduring weakness in revenues, while keeping inflation low – will be needed at some point.
“But substantial tax rises should not be part of the coming Budget. Mr Sunak should only commit to permanent spending rises (or, for that matter, tax cuts) if he is sure of an appetite for larger subsequent tax rises.”
Time to go for green?
With the UK hosting the UN climate change conference (COP26) in Glasgow in November, the forthcoming Budget could have a distinctly green hue.
Jolyon Stonehouse, head of of owner-managed businesses at Old Mill, said: “Don’t be surprised if there’s a strong environmental flavour contained in Mr Sunak’s budget speech next week. We may, for example, see something around R&D aimed at supporting electric vehicle manufacturing.
“Innovation is crucial to our recovery as we rebuild so it makes sense for the government to encourage businesses to push boundaries by harnessing their R&D capabilities through a variety of government-backed tax incentives.
“There have also been calls for the Bank of England to work with the Treasury in funding a National Infrastructure Bank investing in sustainable industries so we may start to see something emerge in this area.”
Chris Jackson chairman of the UK Hydrogen and Fuel Cell Association (UKHFCA) and CEO of green hydrogen energy services company, Protium Green Solutions, expects the Budget to reiterate the Prime Minister’s commitment to the environmental Ten Point Plan.
He said: “The Chancellor may draw upon the themes from the UK Energy White Paper and focus on support for R&D as well as innovation funding for innovative uses of hydrogen and fuel cell technologies.
“These themes include aviation, rail and marine but may also include further support for hydrogen residential blending, in line with the Prime Minister’s vision of building a hydrogen heated town before 2030.”
“As the UKHFCA outlined in its recently circulated Green Hydrogen Policy Paper, which will be formally released on the 3 March after the Budget, the UK has a unique opportunity to become a world leader in green hydrogen and could develop up to 10 gigawatts capacity by 2030 and potentially as much as 80GW of green hydrogen from electrolysis and bio-energy resources by 2050.
“Such a commitment would catapult the UK to the top of the global leader board in the race to establish the new clean energy businesses of the next decade, while providing a fantastic chance to level-up across the UK and build back greener after the horrendous health, social and economic damage caused by the COVID-19 crisis.”
— to www.forbes.com