Chancellors used to be fond of keeping a proverbial rabbit on standby to pull out of a hat on Budget day and grab the headlines. Rishi Sunak’s latest speech has been so heavily trailed that there may be fewer surprises than in previous years, but there is no doubt 2021’s Budget is of huge importance.
A rapid rollout of vaccines has brought with it cautious optimism about a return to normality, meaning the announcement will give the best indication so far of this government’s vision for the UK post-pandemic.
Follow Budget 2021 live: Rishi Sunak to unveil ultra-low deposit mortgages
So what are the big things to look out for?
1. Economy and public finances
The chancellor has repeatedly asserted his wish to tame the public finances by bringing down the gap between what the government spends and what it collects in taxes. This could set the tone for the rest of this parliament.
Therefore, the latest figures from the Office for Budget Responsibility, and Sunak’s comments on these figures, will be keenly watched.
There is near-universal agreement among experts that boosting the economy remains a far more pressing priority than “balancing the books”, which would risk repeating the mistakes of the austerity years.
While the chancellor will no doubt want to paint a positive picture, any recovery remains extremely fragile. Last year the economy shrank by 9.9 per cent, the worst performance since 1709.
In this financial year the government is expected to have borrowed somewhere between £350bn and £390bn to cover the gap between tax receipts and total spending. That’s a huge sum but almost all of it has been covered by the Bank of England, which has created new money to buy the government’s debt.
The government effectively owes money to itself because the central bank (despite its much-discussed independence) is a branch of the state.
It will be interesting to note Sunak’s rhetoric on the public finances, given that servicing the debt at current low interest rates does not require massive tax rises or spending cuts.
2. More support for the housing market
The chancellor is expected to extend a tax break on home purchases for another three months.
The stamp duty holiday means no tax on the first £500,000 of the sale price. That means a maximum tax saving of £15,000 on all property sales at £500,000 or more.
A new government mortgage guarantee scheme is expected to offer 95 per cent mortgages for houses worth up to £600,000.
These measures are controversial as they are expected to push up prices, which have already been motoring along.
As predicted, the stamp duty holiday helped fuel a property boom in 2020 despite the economic gloom. The average sold price jumped 8.5 per cent – far in excess of wage growth – to more than £250,000 and the latest figures show that the trend has continued into 2021.
The primary beneficiaries are not people looking to buy their first home, but those who already own one. Even more quids in are landlords who own several properties as assets.
3. Extension of the furlough scheme
The coronavirus job retention scheme is set to continue until the end of September.
The extension will be a relief to the millions of workers whose wages are partly supported by the government. The next big question is how the government helps businesses that will struggle when furlough is withdrawn.
As part of the proposed answer, Sunak will unveil a £520m “Help to Grow” scheme. It will give smaller firms access to training from top business schools as well as government subsidies of up to £5,000 to pay for software it is hoped will increase productivity.
£5bn Restart Grant will give 700,000 shops, pubs, clubs, hotels, restaurants, gyms and hair salons up to £18,000 each to boost their businesses.
Watch this space for additional measures to help businesses out of the current slump.
4. Tax rises
Sunak has prepared the ground for tax hikes, saying he needs to “level with” the public about the task at hand.
The Conservatives’ 2019 manifesto promised not to raise the rates of income tax, national insurance or VAT.
To stick to this pledge, Sunak is reported to be considering a freeze in the thresholds at which people start paying income tax or move into higher brackets. That would mean more people pay higher rates as average wages rise.
Capital gains tax is also rumoured to be in line for an increase. Currently, the rising value of company shares, property or other assets is taxed at a much lower rate than income. This favours relatively well-off people.
The UK’s corporation tax rate may be increased from 19 per cent to 25 per cent, which would still make it among the lowest of the G7 countries and lower than the EU average. A modest rise in corporation tax carries little risk of choking off the economic recovery as it only affects those firms that are making a profit.
5. Business rates cut?
Business rates – the tax on commercial property values – have been heavily criticised for being unfair and out of date. An extension of the holiday on rates for retail, hospitality and leisure businesses would be widely welcomed.
Without an extension beyond the current 31 March end date, struggling businesses face big bills just as they are trying to get back on their feet. An overhaul of the system is long overdue but may have to wait.