Tomorrow, 3 March, is the second Budget for the UK Chancellor of the Exchequer, Rishi Sunak, his first being this time last year, on 11 March, just as the full scale of the pandemic was becoming apparent.
As with all Budgets, anticipation is running high and rumours are rife, not the least for what may come to help business as the country hopes to recover from the coronavirus pandemic, or indeed what disappointments the Budget may impart for businesses in the UK.
Here is a summary of the firmest expectations for the Chancellor's announcements tomorrow
The state of play
The UK is a year into pandemic now. Although the vaccination programme is proceeding extremely well and the Prime Minister has announced the Government's plan for the slow unlocking of restrictions (in measures that were focussing on 'data, not dates,' and then set out a series of dates without presenting much data), the country has a current-year forecast for a deficit of a 19% of GDP, according to the Office for Budget Responsibility (OBR), the highest level since 1944/45 at the end of the Second World War.
This is the sort of budget that might be expected in times of war, then. It means that the Chancellor has a very difficult job to balance competing demands: supporting people and businesses in recovering from the pandemic, managing the substantial consequences of the end of the Brexit transition period, and planning for the future of the country — and all of this in the context of an exceptionally high deficit.
The economic outlook
After the worst downturn in 300 years in 2020, the Chancellor will have taken stock of the damage to the UK economy. Although there is growing expectations for a recovery in 2021, there are still many months ahead of restrictions that the country will have to contend with.
Nonetheless, the OBR seems likely to predict that 2021 will see the fastest period of economic growth in half a century. That means that, though the deficit will not then be as large as was predicted in November, it will still be very substantial.
This presents the central problem — though there will be a recovery, it will not return the nation to its pre-pandemic position this year, nor for a long time to come. That will affect tax receipts. With further government spending needed, especially in key areas like health and education, a substantial gap in the public finances will remain.
There is much speculation that the Chancellor will need to 'level with people' that higher taxes are necessary to make up for the stimulus spending of the last year.
Corporation tax seems set to have rise in the headline rate. Some reports suggest plans have been considered to increase corporation tax from the current rate of 19% to 25%.
There is speculation, also, of changes to inheritance taxes and capital gains tax. This would be perceived as doing something to address wealth imbalances in the UK, sending a message that the government is serious about the distribution of wealth. Whether that is little more than window-dressing is yet to be seen, as there are few indications of action to close tax avoidance loopholes exploited by big businesses and wealthy individuals.
Regarding income tax, there may be a freeze on allowances and thresholds, meaning that tax receipts rise over time as inflation slowly increases wages.
Jobs: stimulus and safeguards
Key to the Chancellor's plans will be measures to protect jobs whilst there are still healthcare restrictions for the pandemic in place. And, since businesses will not be back to normal the instant that restrictions are lifted, he will need to continue those measures after they are relaxed in order to encourage the economic recovery. He will want to prevent a cliff-edge withdrawl of support, so it's anticipated measures will be phased out.
In order to prevent a catastrophic rise in unemployment, the Chancellor will ease his employment support measures slowly — the furlough scheme being central, but also measures such as the VAT deferral, business rates relief for the retail, hospitality and leisure sectors, and local authority grants. The phaseout period may differ across sectors, with those more severely affected such as leisure and hospitality, receiving support for longer. Some want to see support continuing to the end of 2021, or even into 2022.
The Kickstart Scheme, launched in September to help employers fund work placements to 16-24-year-olds receiving Universal Credit, may have its deadline extended
There are indications of a 'Help to Grow' scheme for SMEs, allowing people to access management training from business schools and the university sector to enhance business skills. There would also be discount vouchers of up to 50% for new productivity-enhancing software, to a maximum of £5,000 each.
There are rumours of some reforms designed to encourage highly-skilled workers to come to the UK, such as engineers, scientists and researchers, especially those in the tech sector. These are likely to include a simplified sponsorship process, aimed at reducing bureaucracy and the burden on employers.