What will the 2021 Budget include?

The 2021 Budget could be the most significant for a generation. In a little over 12 months as Chancellor, Rishi Sunak has made more than his fair share of seismic economic announcements. But, with the government set to unveil plans for a road map out of lockdown next week, spring’s Budget could impact businesses and employees more heavily than any in recent memory.

With COVID and its financial fallout dominating the news agenda – not to mention the small matters of Brexit and changes to IR35 in the private sector – it’s easy to overlook other substantial announcements that Mr Sunak could include in his speech next month. So, we’ve taken a quick look at what might be changing, and how it will affect you.

‘Pre-Budget’ Announcements

On Monday (February 22nd) the government will reveal how they plan to ease Coronavirus restrictions across the country. The Chancellor may also take the opportunity to explain what the government’s lockdown-easing plans will mean for the economy, particularly existing state support schemes, such as the furlough scheme and business tax relief. We’ll look across any announcements from the Treasury, and bring them to you first.

 

What will the 2021 Budget include?

Beyond the immediacy of the economic implications of COVID-19, what else could the Chancellor unveil in his Budget? Here are 10 things that the 2021 Budget could include…

  1. Extension of the furlough scheme? The government’s furlough scheme, or Job Retention Scheme (JRS) to give it its full title, is due to close in April. What the Chancellor chooses to do with the JRS thereafter will depend on what his boss decides with regards to the easing of lockdown. If restrictions persist, it’s likely that the furlough scheme will too.
 
  1. More support for the self-employed? The fourth grant period for the Self-Employed Income Support Scheme (SEISS) has already begun. However, how much that grant actually amounts to has not yet been revealed. This should be cleared up in the 2021 Budget. Elsewhere, with self-employed workers amongst those hardest hit by lockdown restrictions, many are hoping that the Chancellor will announce further support when he delivers his speech on March 3rd.
 
  1. Increase in Capital Gains Tax? With government borrowing reaching record levels during the pandemic, tax rises are a sure-fire way to generate much-needed funds. But choosing which taxes to raise is a tricky decision. Particularly when people and businesses are more anxious about their financial security. One tax increase that has been mooted is Capital Gains Tax. In fact, ‘the Office of Tax Simplification even recommended bringing it level with income tax rates’. Until the Chancellor makes his move, we can’t be certain of which taxes, if any, will increase. In any case, tax rises tend to be ‘pre-announced’, with tax-payers getting 12 months’ notice before the increase takes effect.
 
  1. Corporation tax rises? Another potential tax rise could come in the form of corporation tax. Given that corporation tax is currently at a much lower level than it was a decade ago (9% lower, in fact), some forecasters are predicting a possible increase. However, with many businesses struggling to keep their heads above water, and with many more relying on tax relief and government schemes – schemes which may be soon to end – a rise in corporation tax might prove too controversial. One solution could see a rise that’s limited to larger companies who have performed well since the outbreak of the pandemic. Along with other business-related announcements, this is one to watch.
 
  1. VAT cuts? The existing 15% cut in VAT for businesses in the tourism and hospitality sector (from 20% to 5%) is due to end next month. There seems to be a consensus amongst commentators and analysts that this will once again be extended. Other cuts to VAT are unlikely, but not impossible, though a higher rate of VAT could be introduced for goods and services that damage the environment.
 
  1. Extension to stamp duty holiday? Another potential extension could be that of the current stamp duty holiday. Set to expire on March 31st, Mr Sunak is under pressure to prolong the tax cut – which has been something of a success – to continue to stimulate the housing market.
 
  1. Cuts to pension tax relief? Cutting pension tax relief means decreasing the amount of money each person can add to their pension fund each year. How this would manifest itself – and what impact it would make – remains to be seen. Though, it’s anticipated in some quarters that tweaks to pension tax relief – of some form – are on the horizon.
 
  1. Fuel duty rise? In 10 years of Conservative rule, the levy on fuel duty has been frozen at just under 60p per litre. On average, this has saved motorists upwards of £1,000 over the course of that period. However, that may be about to change. It’s widely reported that a small uplift in fuel duty will be included in the 2021 Budget. With people driving less as a result of home working and travel restrictions, the government may feel now is the time to break their duck on fuel duty.
 
  1. New tax for online sales? One of the enduring images of this pandemic is empty high streets and boarded up shop fronts – with some unfortunately never to reopen. Household names such as Debenhams and Topshop are now under the ownership of online retailers Boohoo and ASOS, respectively, though their stores – and shop workers – were not included in the purchases. With shoppers buying almost exclusively online for much of the last 12 months, a new online sales tax could be an opportunity for the Treasury to a) generate revenue from this online retail boom, and b) in doing so, encourage shoppers to hit the high streets for bargains when they reopen later in the year.
 
  1. Pay more… contact-less? Excuse the rather naff pun. With social distancing set to stay for the near future, and with businesses less keen on cash transactions, the contactless payment limit could increase for the second year in a row. Already up from £30 to £45, consultations have been launched about raising the threshold once again, to as much as £100.


‘Encourage the economy to bounce back’

Amidst stark statistics, Danbro’s Executive Chairman, Damian Broughton MBE, expects a Budget that focuses on stimulating a somewhat depleted economy.

“It was sobering last week when we heard that the UK economy shrunk by 9.9% in the previous 12 months,” he said. “This is the worst contraction since 1709 and the UK also has the worst death toll in Europe. On March 3rd we expect the focus to be on stimulus, to encourage the economy to ‘bounce back’ and reverse the downward trend.”

“Encouraging the freelance, contractor and contingent workforce sector will help to launch the increase in economic activity, by providing workers and expertise to push forward the multiple projects and initiatives that had been put on hold due to uncertainty in the economy.”

Keep an eye on our website and social channels in the coming weeks for more updates and reaction to the 2021 Budget.

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