Budget likely to be more giveaway than takeaway as economy struggles

PM Boris Johnson’ has promised not to increase income tax, national insurance or VAT

Rishi Sunak

All eyes on Wednesday will be on UK Chancellor of the Exchequer Rishi Sunak as he steps up to the dispatch for his second Spring Budget.

Few envy his task.

On one hand, he has to meet demands from desperate businesses to maintain the financial life support that has kept many of them alive during the Covid-19 pandemic.  

On the other is the growing reality that at some point the money being poured into the economy will have to be paid back.

UK government borrowing has rocketed to £271bn already this fiscal year, with an annual rise to at least £350bn predicted and economists see Sunak having a shortfall of at least £60bn to make up.

The national debt is £2.1trn and rising, figures not seen since the two world wars

The Chancellor is also hamstrung by PM Boris Johnson’s promises in the election of 2019 not to increase income tax, national insurance or VAT.

Unemployment is a ticking timebomb according to many, with only the furlough and government-backed Covid-19 stopping a wave of redundancies as firms grapple with Brexit on top of the effects of the pandemic.

Small wonder, that despite the cost many reports are already reporting the Chancellor’s focus will be to maintain support measures, keeping people in work and priming the economy for the hoped-for re-opening in July.

So what can he do?

Though some might think it is necessary, now is not the time for tax changes is the message that seems to be the message leaking out of Number 11.

The usually well-informed Sun today suggested Sunak will unveil a £30bn support package that will continue the furlough scheme, business rate relief and the £20 universal credit boost with the housing stamp duty holiday extended until June.

But it might not all be handing out. Despite all of the problems that the pandemic has caused, there is no doubt that more than a few businesses have done very well out of Covid-19 and tapping some of their good fortune might be hard to resist.

Higher corporation tax is one change that has been widely flagged. Currently 19%, a rise to 23% is almost a given according to some newspapers.

That would raise an extra £12bn if imposed all at once, but more likely is a staggered increase of 1p per year over the remaining life of this government.

Suggestions that corporation tax might rise as high as 28% have been played down by sources close to the government, with Sunak said to see 23% as his ceiling.

How to get more tax from tech online, eCommerce and social media companies has been something that countries everywhere have been wrestling with.

Sunak has already introduced a 2% digital services levy, but with profits of online groups going through the roof due to people being locked indoors for the best part of a year the temptation to tinker again might be irresistible.

That kind of tax rise is also one of the few likely to earn voter brownie points, which is not the case for another widely reported rise on the way.

Fuel tax might also be allowed to rise again after a ten-year freeze but this would upset hauliers and also drivers. 

Wealthy pensioners though are likely to have their lifetime allowance frozen in a well-trodden stealth tax path though talk of paring pension relief back to just the basic level of income tax seems to have been ruled out for now.

Of course, the big imponderable is how fast the economy does recover and how quickly this will refill the government’s tax coffers.

Given that, and the need to keep the country at least ticking over, perhaps not doing much on Wednesday might be the best option.

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