It’s been a busy weekend for Rishi Sunak as he prepares to reveal what’s in his budget box ahead of Wednesday’s big speech. As well as appearing on the BBC’s Andrew Marr Show and Sky News’s Trevor Phillips on Sunday, the chancellor wrote a column in The Sun telling the nation that “I’ve got your back” and also announced a raft of new spending pledges.
The Treasury has committed to almost £26bn of spending ahead of the budget, The Guardian reported. But the Labour Party has accused Sunak of devising a “smoke and mirrors” budget after the chancellor “conceded that just 20% of his biggest single spending commitment revealed before the speech was made up of new money”, the paper said on its front page today.
After the pre-speech teasers were published over the weekend, BBC Radio 4’s Today programme correspondent Dharshini David described the budget as having “more trails than the average James Bond movie”. Here we take a look at what the experts are predicting in Sunak’s first-ever joint budget and three-year spending review.
The budget and spending review will be Sunak’s “first real opportunity to set the tenor of his chancellorship”, said Sky News political editor Beth Rigby. Although the fall-out of Covid-19 will “undoubtedly loom large” he is now focused on the “post-pandemic rebuild”.
One of the major government announcements is that the NHS in England will receive an extra £5.9bn in this week’s budget. The money, which is on top of the £12bn a year for social care announced in September, will be used to help “clear the record backlog of people waiting for tests and scans” and to buy equipment and improve IT, the BBC reported. A proportionate amount will also go to the health services in Scotland, Wales and Northern Ireland.
Sunak called the announcement “game-changing”, but some people in the healthcare sector warned it was not enough to keep up with costs and demand. The NHS Confederation said the funding “falls short of what is needed to get services completely back on track”.
Public sector pay and minimum wage
In an exclusive The Sun’s Harry Cole reported that nearly five million people will get salary rises as the chancellor “unfreezes public sector pay and hikes the national minimum wage”. Because of Covid, Sunak “put the squeeze” last year on wages for 2.6m teachers, civil servants and police officers, but he will use the budget to “end that pain”.
The National Living Wage (people aged 23 or over) currently stands at £8.91 an hour, but ITV’s Robert Peston said he understands it is set to rise to £9.50.
The 6.6% increase is “inflation-busting”, said Peston, and “will go some way to compensating the low paid for recent significant rises in the price of energy, petrol and food, at a time when the £1,000 a year top-up to Universal Credit has been (controversially) removed”.
Income tax, National Insurance and capital gains
Despite breaching a key commitment in the 2019 Conservative manifesto not to increase taxes, it was announced last month that National Insurance contributions would increase by 1.25% from April 2022 as part of government plans to boost NHS and social care funding.
Given the recent rise in NI and income tax rates on dividends, it seems “unlikely” there will be further increases, said Rachel McEleney, associate tax director at Deloitte. Paul Johnson of the Institute of Fiscal Studies agreed that it’s “highly unlikely we’ll see the raising of any taxes” in what will be the third big fiscal event of the year. “We don’t expect to see a cut in spending,” Johnson told Sky News, “but a lot of departments will still have less to spend, not least because spending on the NHS keeps taking a big slice of pie”.
However, despite hints that this budget would contain no more tax rises, economists are sceptical, The Times reported. Analysts think the chancellor may need “more revenue to meet uncosted spending pressures”, such as ongoing test and trace and vaccination programmes, and balance the public finances after borrowing billions to protect the economy during the pandemic.
At the Conservative Party conference, Sunak said he wanted to cut taxes, but to do that, public finances “must be put back on a sustainable footing”. He added: “Whilst I know tax rises are unpopular – some will even say un-Conservative – I’ll tell you what is un-Conservative: unfunded pledges, reckless borrowing and soaring debt. Anyone who tells you that you can borrow more today and tomorrow will simply sort itself out just doesn’t care about the future.”
The threshold for capital gains tax is frozen at £12,300 until 2026, but perhaps the chancellor will “tinker with the rate instead”, The Times said. Current capital gains tax rates of 10% and 20% (or 18% and 28% for property) could be scrapped and everyone would pay income tax rates on their profits. Or Sunak may U-turn on his decision to freeze the tax-free allowance from its current £12,300. “It wouldn’t be the first time the government has backtracked on a pledge,” the paper added.
Business rates: a new online sales tax?
Corporation tax will rise substantially from 19% to 25% in 2023 while various pandemic support schemes, such as furlough and business rates relief, are being phased out. Accountancy and business advisory firm BDO said it doesn’t seem likely that the chancellor would risk many more business tax increases, but it doesn’t mean that the government “can’t increase its tax take from businesses in other ways”.
Sunak is again expected to delay a “fundamental overhaul” of the business rates system, Sky News reported. Allies say that he “does want to reform the system and level up between bricks and mortar businesses and virtual ones”, but has decided to push business rates reforms into next year. The chancellor is considering whether to introduce an online sales tax.
Cost of living
The government will “ease pressures on the cost of living but also strengthen the public finances”, Sunak wrote in his column for The Sun. He added that this week’s budget and spending review will “set out a plan to deliver the people’s priorities” by supporting business and helping the recovery “so we have a stronger economy for the British people”.
While the chancellor has pledged to deliver the people’s priorities, The Mirror predicted last week that it would be a “nightmare” autumn budget for the occupant of 11 Downing Street, who is facing some “tough choices”.
Britain is braced for a “double whammy of fresh austerity measures and tax hikes” and calls are “intensifying” for the chancellor to do more to support poorer households and people on lower incomes who are facing a “perfect storm”. Energy bills are expected to shoot up because of the global gas crisis, while food prices are also predicted to rise because of a possible inflation shock.
Levelling up transport: new money?
It was announced before the budget that £6.9bn will be delivered to English regions over five years to improve train, tram, bus and cycle routes, The Mirror reported. However, Sunak has been forced to admit that “only a fraction” of the transport levelling up package is new money – with £4.2bn already announced and “the pot topped up” by just an extra £1.5bn. When challenged on Sky News, Sunak accepted that most of it had already been announced, with “the main news on Wednesday being where it will be spent”, The Guardian said.
Green credentials ahead of Cop26
With the Cop26 climate summit starting in Glasgow a few days after the budget, the government will be keen to show its green credentials. So you can expect at least part of the budget to be focused on green measures, Which? said. This could include an update on the green savings bonds and a possible replacement for the Green Homes Grant. “But with Cop26 on the horizon and the climate crisis escalating, we may see something bolder.”
The government might do more to align the tax system with its 2050 net zero emissions pledge – and “one way it might do this is by encouraging more households to switch their domestic heating away from gas”, The Times said. Last week the government announced an initiative to encourage households to swap their gas boilers for heat pumps. “With global gas prices rising, this could be a good time to encourage people to switch to greener alternatives.”
The chancellor is reportedly considering a cut to the 5% rate of value added tax on household energy bills, the BBC reported. The move would be “popular and timely” ahead of winter, but it could “attract criticism as it would – in effect – mean subsidising fossil fuels ahead of the climate summit”.