First came the great Valentine’s cabinet reshuffle of 2020. Then, Prime Minister Boris Johnson was blindsided by the resignation of the Chancellor, Sajid Javid. It happened less than a month before the first non-EU budget in more than 40 years. Step up Rishi Sunak. This rookie minister had spent just six months as Chief Secretary to the Treasury before being given the keys to 11 Downing Street.
Some thought the Budget might be postponed while the new Chancellor settled into his new role. However, Mr Sunak has since confirmed it will go ahead as planned on 11 March. The budget may be the most important of recent years. The combination of Boris Johnson’s desire to influence its outcome and Sunak’s eagerness to make his mark also make it an unpredictable one.
We shall, however, attempt to make predictions about what it might contain, although we think it’s likely it will also throw up several surprises.
Removing the North vs South divide
Many Labour voters in the Midlands and north of the country switched allegiances to vote Conservative in the last election, with some swayed by Tory promises to reduce the economic inequality between the North vs South divide.
The government is likely to allocate a substantial amount of money for this initiative. There is also talk of moving some decision-making bodies to locations further north.
Expect to see some serious repercussions if the Chancellor doesn’t follow through on these election pledges.
An increased threshold for National insurance (NI)
On the campaign trail for the Tory leadership, Boris Johnson promised to cut tax for high earners. The idea was soon dispensed with as December’s general election loomed. In its place is the possibility of raising of the NI threshold to £12,500 over the next few years. Lowest-paid workers can expect to save around £100 annually if the Chancellor delivers on the Prime Minister’s promise.
The Queen got on the reform bandwagon during her Queen’s Speech following the general election. This led us to believe that first-time homebuyers will receive a discount to help them get on the property ladder.
Known as the First Homes scheme, those who buy new-builds will benefit from the discount if they buy in their local area. The scheme will also ensure future purchasers benefit as the properties have to be sold with a 30% discount on their market value.
If the chancellor decides to try and boost the housing market further, he may introduce a cut to the rate of stamp duty for lower-threshold properties. Again, this would help first-time buyers and those on lower incomes.
Social care reform
The Queen dropped another hint at what could come in the Budget during her speech. She said the Government would look to work with other parties on social care reform – in particular, ensuring people don’t need to sell their homes if they have to go into a care home. The Chancellor is likely to allocate a larger budget to revamp the social care system. However, councils can sneak in a 2% rise in Council Tax to pay for it.
The previous Chancellor had mooted the possibility of giving company owners a tax break in the form of a cut in Entrepreneurs’ Relief. However, it’s debatable whether Sunak will continue with this following criticism that it wouldn’t meet its aim of encouraging business investment, and that it would only benefit already-wealthy business owners. One possibility is that Sunak adapts the plans and directs the relief towards small and medium-size businesses only.
Pension tax relief
There may be some pension reforms on the horizon. However, those in the know have already dismissed the possibility of the current higher-rate relief being scrapped and replaced by a flat rate. Instead, some commentators believe the Chancellor may reduce the amount that can be paid into a pension per year. He may also opt to get rid of tapering rules which limit the amount higher-rate taxpayers can pay in.
Most people are expecting more environmentally friendly measures to be introduced on 11 March. A staple of any budget, we can anticipate a rise in fuel duty.
Other measures the Chancellor may be considering are additional charges for single-use plastics and investment in greener technologies. For example, measures to encourage the use of low-carbon vehicles and changes to the National Infrastructure Plan to improve sustainable development.
The budget looks likely to bring much-needed reforms in several areas. Reforms come at a cost, however. Rather than borrowing to fund them, economists are arguing that the Chancellor will cut tax reliefs as a way of raising the money.
This budget is further complicated by the Government’s obligations to satisfy several disparate groups. From defecting Labour supporters who gave Boris Johnson his 80-seat majority, to traditional Conservative Remain voters expecting immigration reforms, it is unlikely that everyone’s expectations will be satisfied.
If you’re concerned about how the budget may affect you and your business, talk it through with one of our tax and accountancy specialists today.
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