Rishi Sunak has hinted that he will extend a wide range of government support schemes in tomorrow’s Budget, as he again pledged to do “whatever it takes” to restore the British economy from the impact of the coronavirus crisis.
It may be only Sunak’s second Budget as chancellor, but it comes after delivering almost a dozen major economic announcements last year.
Last year’s announcements were all about paying billions of pounds to prop up the economy and pay people’s wages as the Covid crisis dragged on.
Sunak will face a very different task in 2021 as he will be forced to make tough long-term decisions on the country’s finances — beginning with his spring Budget tomorrow.
The chancellor will set out a three-point plan focused on support, honesty and building the UK’s future economy, after almost a year of on-and-off lockdowns around the country.
Sunak is expected to say he will draw on the full “fiscal firepower” available to him to “protect the jobs and livelihoods of the British people”.
The chancellor has hinted heavily that he will extend furlough, the Self Employment Income Support Scheme, business loan schemes and the Kickstart and apprenticeship schemes for young people, after holding a virtual call with around 50 recipients of the programmes earlier today.
City A.M. takes a look at what Sunak is expected to announce.
Sunak will vow to use “the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people” in tomorrow’s Budget.
Several media publications have said that Sunak will extend a range of emergency Covid support measures until June, with The Sun reporting the package will have a £30bn price tag.
Support measures that are expected to be extended are the furlough scheme, VAT cut for hospitality and leisure companies, the business rates holiday and stamp duty exemption on property sales under £500,000.
The extensions will take the UK government’s Covid spending to more than £300bn and will put the one-year Budget deficit at almost £400bn – the highest proportional spend since World War II.
When speaking about extensions to Covid schemes on Sunday, Sunak told the BBC that “we went big, we went early and there’s more to come”.
Business secretary Kwasi Kwarteng indicated today that the furlough scheme would be extended, saying: “The chancellor has already indicated that we will be extending furlough. It’s vital at this time that we provide the support that people will require.”
The chancellor is set to unveil the start of his plan to bring the country’s finances under control, with Sunak already indicating he will raise taxes.
He is expected to say: “Once we are on the way to recovery, we will need to begin fixing the public finances — and I want to be honest today about our plans to do that.”
Sunak said on Sunday that he wanted to “level” with the UK about the fiscal challenges to come after the Covid crisis has abated, with the UK reportedly facing a £40bn gap the government will look to fill with extra tax revenues.
When asked about potential tax rises in the Budget, Sunak told Sky News: “I would like to keep taxes low for people… but I want to deliver our promises to the British people that we will be responsible with their money.”
Boris Johnson has already tied Sunak’s hands when it comes to the three biggest sources of government revenue – income tax, VAT and National Insurance – thanks to a triple-tax lock pledge from the 2019 election.
This has left the chancellor looking for other ways to claw back some of the UK’s Covid spending.
Sunak is expected to outline his plan to incrementally increase corporation tax from 19 per cent to 25 per cent by 2024.
Each extra percent of corporation tax will bring in an extra £3.3bn of government revenue per year.
The Financial Times reports that Sunak will say Joe Biden’s planned increase in corporation tax to 28 per cent shows the necessity of the move and that his increase to 25 per cent will mean the UK still has the lowest rate of corporation tax in the G7.
The Sunday Times also reported that the chancellor will freeze the threshold at which people start to pay income tax at £12,500 for three years and freeze the rate at which people start to pay the 40p rate at £40,000 for three years.
This could bring in an extra £6bn a year without technically breaking the Tories’ 2019 manifesto pledge to not raise income tax.
The moves have already been panned by hardline Tory fiscal hawks, with grassroots party members also unlikely to be happy with the policy.
Labour leader Sir Keir Starmer also signaled his opposition to a corporation tax rise and could potentially team up with Conservative backbenchers to try and vote down the measure in parliament.
Former Prime Minister David Cameron also said raising corporation tax was not a good idea until the UK’s economic recovery is further along.
Speaking to CNN, he said: “So piling, say, tax increases on top of that before you’ve even opened up the economy wouldn’t make any sense at all.
“I think it’s been right for the government here in the UK and governments around the world to recognise this is more like a sort of wartime situation.”
Sunak could also look to increase capital gains tax as a way to shore up finances, after the Office of Tax Simplification last November carried out a review on this area.
The review suggested bringing capital gains tax rates in line with income tax and decreasing the threshold at which you start to get taxed on capital gains.
These measures alone could bring in an extra £14bn in tax revenue a year.
Help for High Streets and SMEs
The Treasury announced on the weekend that Sunak would unveil a £5bn fund for businesses that have been forced to close in the latest national Covid lockdown.
Eligible businesses will be able to apply for grants worth up to £18,000.
The Treasury also announced last night a £520m scheme to provide business training to SMEs.
The new Help to Grow scheme will see the government pay UK business schools to provide 50 hours of free tuition to SMEs over twelve weeks, with with one-to-one support also offered from a “business mentor”.
The government will also create an online platform to offer free advice on technology that will “help businesses to save time, reduce costs, and reach more customers”, according to the Treasury.
The final part of the scheme will see eligible businesses given vouchers to get up to 50 per cent off new “productivity enhancing software”, up to £5,000 each.
A new £150m scheme will also be launched to help ailing pubs survive.
The scheme will see community groups given £250,000 each to help take over struggling pubs in their area.
Arts and sports boost
The Treasury has also already announced that the Budget will include a £400m package for the arts, culture and heritage industries who have been badly hit by Covid-19.
“This includes a £300m boost for the Culture Recovery Fund, an extra £90m to support our National Museums and cultural bodies to bridge the months ahead, and nearly £20m for culture projects in regional towns and cities,” the Treasury said.
The chancellor will also announce a £300m summer sports recovery package, with funding going toward professional cricket, tennis and horse racing.
“Building a future economy” will form the third part of Sunak’s three-point plan for lifting the British economy out of a “moment of crisis”.
Sunak announced £27bn of infrastructure spending in last year’s Budget as a part of Boris Johnson’s 2019 election pledge to spend £100bn on new projects.
This year’s key Budget infrastructure announcement will likely see Sunak divulge details of his already announced government bank.
The bank, announced last autumn, will provide financing for infrastructure projects, with proposals in the North and Midlands prioritised.
Few details have been provided about the bank so far, however the chancellor is expected to outline more on Wednesday.
Dieter Helm, utilities specialist at Oxford university, told the Financial Times that the bank was “a good idea but it needs scale — a balance sheet and capital funding from the state, in which case you’ve essentially created a new arm of the Treasury”.
“The question is whether this is going to be the primary vehicle through which the government implements infrastructure,” he said.
Treasury goes up north
Sunak announced last year that the Treasury would be creating a “northern campus” as a part of its efforts to “level up” the Midlands and the North”.
The chancellor is expected to announce where the campus will be tomorrow, with the Financial Times reporting that the final four contenders are Darlington, Leeds, Bradford and Darlington.
Darlington is said to be the favoured option of the Tories’ group of so-called “red wall” MPs who in 2019 won seats in traditional Labour areas in the North.
Darlington is also notable for being just a 20 minute drive from Sunak’s constituency – Richmond in North Yorkshire.