Sunak's 15th fiscal announcement beckons . . .
IT'S hard to believe that when the Chancellor stands up at the despatch box on March 3, it will be only Rishi Sunak's second budget, and comes 51 weeks after his first. But in that intervening period he has made another 13 fiscal announcements, with the Coronavirus Job Retention Scheme (furlough scheme) the most significant.
Indeed, the last year has seen a wide range of measures introduced to save jobs, support businesses and the economy, and support public services in the fight against Coronavirus. Remarkably, those announcements have totalled more than £250 billion in spending.
And when it comes to Northern Ireland, this has meant an extra £3.3bn over the last fiscal year, which broadly equates to the budgets of the Stormont Departments of Education and Economy combined.
In this budget, Rishi Sunak is facing yet more difficult decisions. Originally scheduled for last November, the speech was delayed by the emergence of a second wave of Covid-19 in the UK and the subsequent extension of support for furloughed workers and the self-employed.
While the economy remains in the doldrums, there are reasons for optimism at present - not least the apparent success of the UK's coronavirus vaccine roll-out. The government has just hit its latest target of offering vaccinations to the 15 million most vulnerable people in the country. It's hoped official figures will demonstrate the effectiveness of these inoculations in the coming weeks, indicating that, at long last, there is light at the end of the tunnel.
Against this backdrop, Sunak faces something of a balancing act. It's vital the Treasury continues to support the workers, businesses and public services that have been hit hardest by the pandemic, and to put in place the foundations for sustained economic recovery later this year. But he must also recognise the record levels of government spending that have enabled the UK economy to keep its head above water over the past 12 months, and set out a long-term plan to rebalance the public finances.
The furlough scheme is due to finish at the end of April. But with lockdown measures still in place around the UK, this is almost certain to be carried over until the summer at least. The same is likely to apply to the Self-Employment Income Support Scheme (SEISS), as well as to the temporary uplift in universal credit payments.
Looking further ahead, possible support measures may be kept in place on a sector-by-sector basis, with hospitality businesses and airlines provided with more prolonged assistance given the specific challenges they are facing. The current stamp duty holiday is scheduled to end at the start of April, but this, too, could be carried into the new financial year. Expect the temporary VAT cut for the hospitality sector to be extended.
The most controversial part of the budget is likely to be the chancellor's plan to increase revenues through the tax system. But given the unprecedented circumstances the country faces, if you don't raise taxes and introduce radical new measures after a pandemic, you surely never will.
We can almost certainly rule out increases to income tax, VAT and national insurance rates: these areas are protected by manifesto pledges. Regarding income tax though, they will likely freeze the thresholds, and no uprate in line with inflation, which means that more people will be dragged into paying the higher rates of tax.
A rise in corporation tax for businesses could be on the cards, while there may also be increases to capital gains tax or a reduction in tax relief on pension contributions - especially in light of the strong stock market performance in recent months.
Another option that currently appears to be under discussion is a 'wealth tax': potentially a short-term measure to run over five years, perhaps, which could be applied to those whose personal wealth in terms of property, pensions and investments is highest.
This could be an effective way for the government to clear much, or all, of its pandemic bill, but such a measure is unlikely to be welcomed by Conservative backbenchers. This is something that has been raised by the chair of the Treasury Select Committee Mel Stride. There was also the establishment of the Wealth Tax Commission in Spring 2020 to provide analysis of proposals for a UK wealth tax, for the first time in almost half a century.
Nonetheless, intergenerational fairness will be a key component of this budget, and a wealth tax could go some way towards redressing the balance between the older, betteroff sections of the population and those younger people who have, on average, ended up bearing more of the economic burden of the coronavirus crisis.
As well as paying down the debt incurred as a direct result of the pandemic, the government continues to face considerable pressure to fund the NHS and social care for older Britons.
Could Sunak therefore take this opportunity to introduce some form of new hypothecated tax aimed at paying for care in later life? Theresa May's attempts to do something similar ahead of the 2017 general election came to nothing, but times have changed, to say the least. The pandemic has arguably exposed the unsustainability of the UK's current approach to care funding, and public sentiment has most probably shifted over the past four years.
Given that the UK is hosting the COP26 UN Climate Change Conference in November, the government will be keen to showcase its green credentials. It is under pressure to meet emissions-reduction targets, and this may provide the chance to raise taxes in some areas in order to disincentivise fossil-fuel use. It could finally be time, therefore, for the government to increase fuel duty, which has been frozen now for more than a decade.
On balance, whilst there are things that the Chancellor will have to do in the budget regarding taxation and things like pension tax-relief could come into focus, the likelihood is that it will be relatively taxation-light given that we are still in the thick of the fight against coronavirus. It is not until we win the war against Covid that the gears will really begin to shift regarding taxation.
:: Richard Ramsey (firstname.lastname@example.org) is Northern Ireland chief economist at Ulster Bank (www.ulstereconomix.com)