Financial support to save jobs and keep businesses afloat during the pandemic has come at huge cost. Government borrowings already exceed £270billion (ONS). A record high. Now, with the Covid-19 vaccination programme in full swing, is it time to balance the books? Will there be tax rises in the Budget 2021?
Concerned Tory backbenchers believe that tax rises in the Budget 2021 would be counter-productive. In the current climate, they advocate promoting productivity not stifling it. One thing is in the Government’s favour. Interest rates are at record low levels. Consequently, paying back the nation’s debt is manageable.
Tax rises in the Budget 2021?
Without doubt, the key questions are around taxation. The Conservative Party’s 2019 Election manifesto contains a clear pledge. It’s unlikely the Chancellor will abandon this. We don’t therefore anticipate increases in income tax, National Insurance or VAT rates. So, what are his options?
Businesses and tax
In last year’s Budget the Chancellor said Corporation Tax rates would remain unchanged. However, we envisage a modest increase in the basic rate.
Internet sales tax
Sadly, the pandemic is highlighting the High Street’s fragility. Many equate an increase in online shopping with the closure of well-known chains. Even as the economy recovers, this change in habit could persist. Therefore, an internet sales tax would come as no surprise.
Hopefully, the additional tax revenue can be channelled towards local councils. Retailers would welcome its use as business rates relief. Towns and cities would have a chance to reinvent themselves. Ultimately, they could become an economic success once again.
In some areas employment prospects look bleak. Of course, the Government is committed to saving as many jobs as possible. Therefore, whilst the economy gathers strength, we expect no rise in employment costs.
With the end of lockdown in sight, the Chancellor may revise the furlough scheme. We think he will extend it until the end of May. He may also resurrect the Job Retention Bonus Scheme.
Support for self-employed workers
The Self Employment Income Support Scheme has helped sole traders. Very likely, it’s made the difference between survival and collapse. In unveiling the grants the Chancellor cited changes to taxation. Specifically, equality of taxes paid by employed and self-employed workers. Should the self-employed expect tax rises in the Budget 2021? We think so. Changes to NI Class 2 and 4 rates and thresholds are likely.
Fuel duty rise?
We are all making lifestyle changes because of Covid-19. Some of these could become the new norm. Currently, fuel duty tax is 57.9p per litre. The rate remains unchanged since 2010. Prior to the pandemic the Treasury raised £28billion per year via this tax. Now, as we stay at home, this revenue will be considerably lower.
Happily, less traffic on the roads results in environmental benefits. The Government is committed to a greener future. No new petrol or diesel cars by 2035. Drivers must switch to hybrid and pure electric vehicles. Yet, this will impact fuel duty revenue even further. Consequently, we anticipate a rise in fuel duty.
Stamp duty change
During 2020 house prices rose by more than 7%. The reduction in stamp duty is significant. Indeed, it proved to be an overwhelming success. Under current rules, it ends on March 31. We think there could be an extension. Homebuyers who have agreed contracts but not concluded their property sale by the March 31 deadline will benefit. We expect no rule change for first time buyers.
Allowances and limits
Of course, raising taxes is only part of the equation. There are other ways Mr Sunak can increase revenue. A freeze on personal Income Tax allowances is one possibility. Alternatively, he could trim reliefs or revise limits.
Tax relief on pension contributions is a hot potato. Rumours of a reduction abounded prior to the Budget 2020. However, coronavirus put a stop to potential scaling back. Any changes would have impacted the NHS severely. Hopefully, in terms of the virus, the worst is over for the NHS. Yet, when it comes to reducing waiting lists, doctors and nurses have a huge task ahead. Accordingly, we predict no changes to pension relief this year.
Capital Gains Tax
Treasury officials are mulling over revisions to Capital Gains Tax. Most likely, the Chancellor will reduce the threshold and amend the rates. The Government is committed to ‘levelling up’. As such, rates will probably match income tax. It means CGT will rise from 10% to 20% for basic rate taxpayers and 20% to 40% for higher rate taxpayers.
So, will there be tax rises in the Budget 2021? We wait to see. Will there be another ‘rabbit in the hat’ moment following the latest announcements of the routes out of lockdown?
Here, we are highlighting key areas that could see change. Next, we will review the Budget 2021 and its impact on taxpayers and businesses.