It has been a Budget build-up to keep a new chancellor up at night. The understudy suddenly thrust into the limelight is now facing growing pressure to redirect huge sums to help tackle the growing coronavirus crisis. The promises and hints that were voiced just a few weeks ago, in very different circumstances, have fizzled out.
Thanks to the last snap election though, we’ve now been waiting for the next Budget for the longest period since before 1900. There has been plenty of time to ponder, to tinker, to close loopholes and to come up with new sources of revenue, global pandemic or not.
So what will happen today? And if this Budget is all about fiscal stimulus and freeing up cash for the NHS, is there really anything for consumers to worry about?
What won’t happen
“Don’t expect fireworks,” says Prudential UK’s tax and pensions specialist Les Cameron. “This Budget is highly anticipated, and while there are a number of areas that are ripe for change, consultation is more likely to be announced at this Budget with any changes to follow in the autumn.”
With five years elapsing since the introduction of pension freedoms, for example, there are plenty of aspects of retirement savings that still need reform, but such complex issues are more likely to prompt consultations rather than flat-out overhauls.
We can be pretty sure income tax rates, bands and allowances won’t change imminently either. The current amounts were announced in the previous Budget as ‘also applying for 2020-21’ and have since been confirmed when HMRC issued PAYE guidance to employers at the end of February.
Meanwhile, we won’t see any more public service spending cuts with their knock-on effects on real individuals this time, the Institute for Fiscal Studies (IFS) believes.
“Outside of health, day-to-day public service spending per person remains 26 per cent below its 2010 peak,” said a spokesperson. “£54bn would be required just to return to real 2010 levels.
“No department will see cuts in 2020–21. Beyond that there are commitments to increase spending on the NHS, schools, defence and overseas aid. Simply to avoid any further real-terms cuts elsewhere over the following three years the chancellor would need to find an additional £3bn by 2023–24. Maintaining spending on unprotected services as a share of national income would require an additional £6.5bn.”
This would still leave cuts to means-tested support for low-income families with children slowly working their way through the system, though.
What shouldn’t happen
The chancellor should not continue to ignore the failure of the current retirement savings system to support women, warns Maike Currie, investment director at Fidelity International.
“Women are more likely to have less income than their male counterparts in retirement, with 25 per cent less in the first year alone,” she says. “When longer life expectancies are taken into account, this leaves a substantial deficit to overcome.
“The Budget will offer key insight into the government’s domestic agenda for the next five years. Commitment to changes which genuinely benefit women, particularly when it comes to their long-term finances, could set an important precedent.”
Lowering the minimum earning threshold to bring more women into the workplace pension would be a good start.
Then there’s the controversial introduction of IR35, the reforms designed to work out whether, for tax purposes, a freelance contractor is really self-employed or is an employee in all but name.
“Delays or a ‘gentle’ approach to implementation aren’t helpful,” says Jamie Morrison, head of private client, HW Fisher, commenting on recent rumours. “The chancellor needs to take a serious look at whether IR35 will ever be fit for purpose.
“As it stands, ensuring compliance with IR35 reforms will be a significant cost to businesses and being tied up by more red tape will not help anyone. Too many questions remain unanswered and a ‘soft’ introduction to the regulation does not address the crux of the problem.”
What will happen. Probably.
The writing seems to be on the wall for entrepreneurs’ relief, the tax break designed to encourage people to grow businesses by reducing capital gains tax if they then sell those businesses. Potentially reducing their tax bill from 20 per cent to 10 per cent, capped at £10m, some business owners have been speeding up the sale of their operation ahead of this week’s Budget.
“For some entrepreneurs the tax savings at stake are very significant, making it well worth pushing for an early completion of a deal,” Lucienne Parry, of accountancy firm Moore, says. “For many, the gains from their business sales will form a large part of their retirement income – an increase in tax here is going to impact their quality of life in retirement, as the amount that they will ‘take home’ could be much smaller.”
Look out for changes to the way inheritance is taxed too, including business property relief and possibly even agricultural relief, as well as the treatment of trusts for tax purposes.
Finally, there’s the endless speculation over whether this Budget will be the one in which higher-rate tax payers lose the bumper tax relief on their pension contributions. For years, the higher rate of tax relief on retirement savings has quietly ticked on at 45 per cent, but every Budget prompts speculation that those days are over and a universal relief rate of 20 per cent will soon apply to all taxpayers.
It hasn’t happened. Yet.