When the government’s annual Budget is announced, it is usually the subject of intense scrutiny and often derision in some quarters – throw a pandemic into the mix and, well, you have a recipe for a major political headache on your hands.
That’s the conundrum for Rishi Sunak who, as the chancellor of the exchequer, will announce his own Budget for 2021 in the wake of one of the worst years the UK and global economy has ever witnessed.
On March 3, we’ll all get a glimpse for the first time of how the UK’s finances are looking, and how each of us is likely to be ‘penalised’ – unavoidably, perhaps – as Sunak and co outline a roadmap for economic recovery.
But the golden question….what will the Budget 2021 consist of?
As you are probably aware, the government had to borrow a significant amount of money to pay for the furlough scheme and other measures in response to the pandemic.
That debt figure is thought to be around £270 billion – for context, government borrowing in 2019 was approximately £58 billion.
As a side effect of that, the national debt has increased to more than £2 trillion, which is a level not seen since the darkest of days in the 1960s.
How will the government raise the funds to begin repaying those loans? Clearly, taxation is one of the easiest and immediate ways for Sunak to get his hands on more cash, and while the Conservative Party manifesto ahead of the 2019 General Election ruled out tax hikes, clearly that was in a very different world to that which we find ourselves in.
A tax increase is likely, probably income tax and national insurance for workers back in full time employment.
Throughout the pandemic, the government has pledged a further £20 per week to families claiming the universal credit.
On March 31, that increase is set to come to an end, and as yet the government has not announced whether that will continue or not.
With many families struggling financially now more than ever, and with more households claiming universal credit due to unemployment and changes in circumstances, the hope is that the credit increase will remain. However, it may be a case of watching this space.
Self Employed Financial Support
According to Martin Lewis, who has been a stalwart supporter of the self-employed throughout the pandemic, good news may just be on the horizon.
He has reported that the government is planning a fourth package of financial support for self-employed individuals who have lost work during the pandemic, although right now specifics on that are unknown.
The spring is, historically, the best time to buy and sell a new home, and so Sunak finds himself in a bit of a predicament – does he extend the stamp duty holiday in order to kickstart the property market, or does he led the traditional market economics do their thing?
The stamp duty holiday, in its original guise, powered the UK property market to incredible highs, however the tax is considered an ‘easy’ source of income for the government, and with supply and demand high in the spring months I would be incredibly surprised if the stamp duty holiday – in its current form – continues past the March 31 deadline.
Cigarettes and Alcohol
One of the most divisive topics in the Budget each year is the cost of alcohol and cigarettes, which are typically hiked as part of the government’s ‘taxation of sin’.
However, in 2021, you would expect tax hikes on booze to be frozen. Pubs will, presumably, open again at some point in the next couple of months, and the last thing that Sunak will want to do is keep bums off seats at such an important time for an industry decimated by the pandemic.
As for cigarettes, a price increase seems inevitable – particularly with import costs on the rise.
Is This Sunak’s Dress Rehearsal?
There are many insiders who believe Sunak is being groomed to replace Boris Johnson as Prime Minister.
Boris has appeared increasingly bedraggled of late, and you wonder how long he will continue at 10 Downing Street once the pandemic has been brought under control as best as possible.
The betting odds suggests he could be in charge until 2023 at the earliest, but will he have the stomach of another few years in the job given what he has been through already?
If the summer heralds a relative return to normality, it may be that Sunak is sworn into the hot seat as a figurative new beginning for parliament. At 11/5 in the Next Prime Minister market, Rishi seems to be a bet of extraordinary value.