I find myself torn between thinking Rishi will increase taxes to pay for the government support, or that this will have to be a budget filled with supportive measures for the economy. The pandemic has meant borrowing around £400bn so far … which will need paying back! Clearly the UK economy is not back to normal and we probably won’t get back to pre-Covid levels until 2022, which is why I think this budget will contain lots of supportive measures … and the 2022 budget will contain the tax rises. If I was the Chancellor, I think I would pre-announce the bad news for 2022, as well as the good news for 2021 now. That way everyone is over the shock of the announcement long before we start paying extra tax!
National Insurance or Income Tax?
Which leads me to the first of my predictions, that he will pre-announce a 1p rise in the basic rate of either National Insurance or income tax for 2022. Because income tax and National Insurances are the two biggest earners for the government, they are likely to be part of paying the bill. Pretty much everybody has benefited from Government support since March 2020 – and this will ensure that everyone will help pay for it! I lean more towards an increase in National Insurance than Income tax, as this will restrict the tax increase to workers rather than including pensioners.
Value-Added Tax (VAT)
My second prediction is about VAT – we currently have the cut in the rate of VAT for hospitality and leisure businesses from 20% to 5%, but it is due to end in March and I think this will be continued for the remainder of 2021/22. This sector of the economy really does need help and support and this will give it a year of help.
VAT is the third of the government’s big earners and I think he will announce a small increase in the rate of VAT. This might be an increase for 2021, but it’s more likely to be delayed until 2022.
Green taxation has been on successive Chancellors’ minds and I think we will see an increase in taxes designed to stop us from using single-use plastic items. We had a hugely successful plastic bag 5p charge in 2015, and I think we can expect to see a tax charge on a range of single use plastic items: bags, coffee cups, bottles, etc. On the flip side, I don’t think fuel duty will go up.
One of the ways that the Chancellor can help businesses revitalise and come out of the recession is by giving tax breaks for investments in equipment. I think these are likely to be extended.
What else will he say – probably that it has been tough, but a 9.9% drop in the economy and GDP due to the pandemic is better than expected, and that he expects things to start steadily improving month on month for the rest of 2021.
Lets see how close I am, come Budget Day!