Politics

What will Rishi Sunak’s 2020 Budget look like?


Chancellor Rishi Sunak must either raise taxes or entrench austerity in order to meet the Tories’ spending pledges in the upcoming Budget, the Institute for Fiscal Studies (IFS) is warning.

Sunak is under pressure to increase spending on the NHS, social care and schools, but has also inherited a target set by his predecessor Sajid Javid to balance day-to-day government spending by the middle of the current parliament.

The IFS says government borrowing is already expected to increase to around £63bn next year – £23bn more than previous forecasts – amid huge spending increases under Boris Johnson, reports The Guardian.

Although last year’s Conservative election manifesto ruled out rises in income tax, National Insurance or VAT, the think tank says such increases are necessary to avoid a continuation of the past decade’s austerity drive.

“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,” said IFS director Paul Johnson.

The new Budget is expected to be unveiled on 11 March, despite the unexpected departure of Javid in the wake of the prime minister’s cabinet reshuffle earlier this month.

Here is what Sunak may have planned.

Fuel duty hike

Sunak reportedly favours a rise in fuel duty, a tax that remained frozen throughout George Osborne’s days as chancellor. 

Johnson said repeatedly during the election campaign that he did not intend to increase fuel duty. But commentators point out that if the UK is to meet its climate pledges, steps must be taken to cut petrol and diesel car use.

So fuel duty may rise by as much as 2p a litre, if this rumour is true,” says The Independent.

However, 18 MPs from the Blue Collar Conservatives group have written to Sunak warning that “clobbering” voters by increasing fuel duty would “send the wrong message”.

They said: “Any decision to scrap the fuel duty freeze must be seen for what it is: a tax rise which would hit our blue-collar communities hardest.

“Increasing fuel duty would show these communities that this people’s government does not actually have, at its heart, the priorities of the people.”

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Minimum wage

When New Labour introduced the minimum wage in 1999, it was opposed by the Conservative Party.

But the Conservatives now support the idea, and plan to raise the rebranded “national living wage” to £8.72 an hour from April.

Sunak’s Budget may go further, setting longer term targets for increasing the wage. Javid last year pledged to set a target to increase the national living wage from the current £8.21 to £10.50 by 2024.

Pension reforms

The new chancellor had been expected to change pension tax relief, which cost the country £37.2bn in the 2017-18 tax year. One suggestion was that he might introduce a flat rate of pension tax relief, scrapping the higher rate.

But the plans may be shelved following opposition from a number of Conservative MPs, who say the relief cuts proposals – which could have raised £10bn a year for the Exchequer – are too complex to implement, says The Times.

Sean McCann, a chartered financial planner at insurance company NFU Mutual, said: “Pension tax relief is seen as ripe for reform, and a newly elected government with such a large majority may feel confident enough to do something radical.

“However, introducing a flat rate of 20% will not encourage anybody to save more and would put more pressure on the ‘squeezed middle class’. Research suggests a flat rate of 30% would actually cost the Government money, rather than save it.”

National Insurance rise

During the election campaign, Johnson promised to raise the NI threshold to £12,500.

If that pledge is upheld in next month’s Budget, some of the country’s lowest-paid workers could each be up to £100 a year better off.

Environment

In addition to a potential fuel duty rise, Sunak may be planning extra charges on single-use plastics. Or there may announcements of proposals “to help the UK begin its transformation to a lower carbon economy, a change that will require significant investment in the country’s existing housing stock”, says The Independent.

The Times reports that Sunak “is preparing new environmental taxes including heavy restrictions on the use of so-called red diesel”.

Red diesel – which is dyed to indicate that it is for off-road and some commercial use only – makes up 15% of all diesel sales and attracts 11.14p per litre in duty, compared with the standard charge of 57.95p. The subsidy costs the Treasury £2.4bn a year.

The newspaper says that under Sunak’s plans, only farmers will be entitled to use the fuel, ending the subsidy for hauliers, who use red diesel to power refrigeration units, and the construction industry.

Other taxes

The Government’s new spending projects will need to be funded somehow, fuelling speculation about a range of possible tax rises.

“It’s no wonder rumours were circulating before the reshuffle that this Budget could include wealth taxes, mansion taxes and plans to further tax pension contributions,” says Kate Andrews in The Spectator.

But with the tax take at its highest in decades, having shot up under a decade of Tory rule, it is far too short-termist to hike taxes further for the sake of one-off spending projects,” Andrews warns.



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