Rishi Sunak will delay some of the government’s biggest decisions on tax, spending and borrowing until the autumn, as the chancellor acknowledged that growth forecast downgrades and the coronavirus outbreak had created a difficult economic backdrop to his first Budget.
As the Treasury prepares for the statement on March 11, Mr Sunak, who has been chancellor for just two weeks, has ordered his aides to focus on delivering specific promises from the Conservative manifesto. Officials are referring to the Budget as the first instalment in a “trilogy” of statements this year.
“The chancellor’s view was very clear from day one — this Budget needs to do what we promised and deliver on the manifesto. It’s about trust,” a Treasury official said.
The Budget will honour an election pledge to scrap a cut in the corporation tax rate to 17 per cent. Mr Sunak will also cut or abolish entrepreneurs’ relief in capital gains tax, allowing for a rise in the threshold for paying national insurance and extra spending on the NHS.
Proposals to increase taxes on high-end properties, curb pension contribution tax reliefs and raise fuel duties could be put into reviews for possible action in the autumn Budget. Addressing workforce skills is likely to wait until the spending review, also in the autumn.
Officials are still working out the precise formulation of the new budgetary rules that the government will aim to follow at a time of historically cheap borrowing where there is a fuzzy dividing line between highly constrained day-to-day spending and much looser limits on capital expenditure.
The Treasury has accepted that the room for manoeuvre is very tight after receiving forecast downgrades from the Office for Budget Responsibility.
“It’s no secret that we’re looking at a challenging economic context,” said a Treasury official. “We’ve seen a global slowdown over the past year and, of course, we’ll have to see the economic impact of coronavirus.”
The Institute for Fiscal Studies estimated that the government would struggle to meet a current budget balance by 2022-23 if the OBR’s economic forecast was the same as the Bank of England’s own projection.
Paul Johnson, director of the IFS, said: “The chancellor is hemmed in by a rising deficit and fiscal targets set out in the Conservative manifesto [which] will not allow substantial increases in current spending, or tax cuts, to be funded by more borrowing”.
“We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas. Mr Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax,” he added.
The likely delay in the big choices over tax, spending and borrowing will still leave Mr Sunak room for some significant tax changes on March 11, such as pushing through a manifesto pledge to scale back or abolish entrepreneurs’ relief.
Mr Sunak will also honour an election pledge to cut the national insurance contribution bills of millions of workers by raising the starting point for paying the tax from £8,632 to £9,500.
But the tight finances and timescale have led officials and Tory MPs to expect the chancellor to announce reviews of big revenue raising measures on fuel duty or pension tax relief.
