Rishi Sunak has repeatedly stated he would do “whatever it takes” to keep the economy afloat in the face of coronavirus impacts. According to the ONS, this sentiment could end up resulting in public spending ballooning to £393.5billion by the end of March.
Given these astronomical figures, many are wondering how long this spending spree can go on for, with several experts warning existing taxes will have to be raised to cover the debt.
On this, Tom Selby, a senior analyst at AJ Bell, commented on what changes may be arriving come March: “With an agreement reportedly reached between Number 10 and the Treasury not to increase income tax, National Insurance or VAT rates in the forthcoming Budget, Chancellor Rishi Sunak must navigate a £400 billion high-wire act with one arm firmly tied behind his back.
“To one side he can see the fiery pit of economic disaster if the UK doesn’t get its financial house in order, while on the other is the molten lava of electoral disaster if he cuts too hard, too fast or in the wrong places.
“With such dangers below, the last thing Sunak wants to do is have a wobble.
While Tom noted income tax increases may be unlikely, it has been pointed out that the Government may align income tax with capital gains tax.
Tom expanded on this: “After the Office of Tax Simplification (OTS) backed calls to align CGT and income tax rates, the Chancellor could decide to press ahead with the move on March 3.
“Doing so would have significant implications for anyone selling assets outside of tax wrappers [a savings product which provides tax incentives] savings like ISAs or pensions, as well as those looking to sell a property that isn’t their main residence or business assets.
“At the moment CGT is charged on gains above £12,300 at 10 percent for basic-rate taxpayers and 20 percent for higher and additional-rate taxpayers. For properties, the rates are 18 percent and 28 percent.
“Aligning these rates with income tax would mean a doubling of the non-property CGT rate for basic and higher-rate taxpayers to 20 percent and 40 percent, respectively. Additional-rate taxpayers, meanwhile, would face a CGT rate of 45 percent.
“Anyone worried about this who has assets held outside tax wrappers should consider transferring them into an ISA or SIPP, where gains are not subject to CGT.”
Additionally, Tom theorised that freezing income tax bands may be an option, which could be processed with little notice.
However, in utilising this option, the Treasury could be hindered by high unemployment figures, while consumers who may end up facing higher tax bills could react by simply spending less, limiting any sort of recovery.
Tom concluded with commentary on this: “Perhaps the easiest way for any Government to raise revenue is by stealth – namely by not increasing the point at which higher tax rates kick in.
“Given millions of people are already facing income uncertainty and unemployment figures are expected to get worse in 2021, the impact of this move on the public finances could be limited.
“Nonetheless, given the circumstances, it would also be relatively uncontroversial and could at least help rake in a little extra tax revenue.”
Thus far, Rishi Sunak has refused to expand on what changes may be coming with the budget.
However, when the budget date was announced in late December, HM Treasury confirmed: “The Budget will set out the next phase of the plan to tackle the virus and protect jobs and will be published alongside the latest forecasts from the Office for Budget Responsibility (OBR).”
Many organisations have called on the Chancellor (and will likely continue to do so) to extend coronavirus support where possible, which includes furlough payments, SEISS extensions and Universal Credit uplifts.
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