The Budget And Its Deficit – Could There Be A Tax Shift?
Could you name me one person who may want to trade jobs with the chancellor, Rishi Sunak right now? Not only has he got to dig us out of the worst deficit since World War II, but he has also got to support the 2.7 million Brits who currently find themselves out of work and claiming unemployment benefits. It seems an impossible hole to battle out of; we need solutions for crashing businesses, new opportunities for young people, a whole cash economy rebuild. And we sort of need it yesterday. Not an easy day at the office.
How exactly is he going to go about tackling this and what could this mean for our taxes? Its possible we will find
out soon enough, with the Autumn Budget just round the corner.
The nationwide lockdown meant people were earning and spending much less, therefore not paying as much in tax, driving government income down and leading to an increase in borrowing, however the pandemic has since had an
unprecedented impact. Currently, the Government are continuing in their attempt to stem the flow through borrowing and throwing billions of this at the economy in a hope it sticks.
They have issued bonds to be purchased by investors on the stock market, with the Bank of England contributing to a significant amount of these, as well as being committed to buying a vast amount.
However, with perhaps the worst recession we have seen in our lifetime, will this be enough? If not, it seems there is no other option but a tax increase.
No one could have predicted a world-halting pandemic last year when the Conservatives pledged for no tax increases, so we may have no choice but to forgive them for this broken promise.
It is possible that the Autumn Budget could reveal an increase in Income Tax, National Insurance Contributions and VAT. In 2018/19, our VAT brought in £132 billion to the Government so a huge amount could be clawed back if this was to increase.
Sunak of course slashed the VAT to 5% in a bid to help the arts, hospitality, and entertainment industries through the pandemic. We could also see the introduction of more taxes, perhaps an online sales tax, targeting an area that has grown rapidly over the lockdown period.
The implication of this may force people back out to the High Street, restoring some funds in this area of the economy.
Tax relief and tax breaks on pension contributions and withdrawals could also come under review, sharing the
levels of tax across all generations.
For now, it seems sensible to make the most of any allowances available, be it through ISA’s or tax reliefs, before the Budget and Sunak’s plan on how to climb out of this hole which is expected to be revealed in October or November.
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