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What to Watch as Sunak Targets Covid, Deficit in U.K. Budget
(Bloomberg) — Chancellor of the Exchequer Rishi Sunak is set to unveil his second U.K. budget as he tries to balance the need for prolonged aid to stem the damage wrought by the pandemic with calls to control the deficit.With the prospect of the economy fully reopening still months away — Prime Minister Boris Johnson has set June 21 as the earliest that can happen — here’s what to expect in the chancellor’s statement on Wednesday:More Covid AidSunak says his priority is to protect jobs through the pandemic. He’s promised to support “people and businesses” as lockdown measures are gradually lifted.On Tuesday night he announced:An extension of the flagship furlough program, under which the state pays idled workers 80% of their usual wages, up to a maximum of 2,500 pounds ($3,500) a month. It was due to expire at the end of April but will be extended to the end of June, and the allowance will then decline over the following three months.Grants for self-employed workers will be extended to next month, and details of further support in April will be set out Wednesday. More than 600,000 people who previously weren’t eligible will qualify for these grants.Other measures are likely to entail:An extension of the business-rates holiday for retail, hospitality and leisure beyond the end of the tax year next month.An extension in the temporary reduction of value-added tax for the hospitality and attractions sectors beyond the end of March. The Telegraph on Monday reported that the rates holiday and VAT cut may be extended beyond June 21 for pubs.An extension in the 20-pound a week uplift in Universal Credit social security payments. Options debated by the Treasury included one-off bonuses in lieu of an extension, and extensions of six or 12 months. The BBC reported Tuesday that the six-month option has been chosen.A new loans program for struggling firms that are up to 80% backed by the state.TaxationThe chancellor has also signaled there’s pain ahead as he tries to rein in a fiscal deficit that the Office for Budget Responsibility has predicted will swell toward 400 billion pounds this tax year.“If we don’t do anything, borrowing will continue to be at very high levels even after we’ve recovered from Covid — debt will continue to rise indefinitely,” Sunak told Sky News on Sunday. “That’s not a good situation.”Sunak may announce some tax increases on Wednesday, or he may detail what taxes are set to be lifted in the future. Here are some potential measures:Corporation tax seems the most likely to rise. Officials signal that a planned hike in the U.S. would give the U.K. scope to raise its own rate in the coming years to as high as 25% from 19%, while still retaining the lowest level among the Group of Seven major economies.The Sunday Times reported that Sunak plans to freeze the thresholds at which people start paying the basic and higher rates of income tax, pushing 1.6 million people into a higher bracket by 2024. That would still heed a Conservative Party electoral pledge not to raise the three main rates of tax — income tax, national insurance and value-added tax — during this five-year Parliament.The Times reported last week that Sunak is drawing up plans to freeze the lifetime allowance on pensions savings at just over 1 million pounds, meaning those who exceed it will be liable to pay more tax on income from their pension pot.A Treasury-commissioned review into capital gains tax last year suggested changing rates to align with income tax could raise as much as 14 billion pounds.Treasury AnnouncementsAlongside the budget, Sunak is expected to publish an independent review into U.K. stock market listing rules as part of an effort to bolster the City of London post-Brexit.As is customary in the runup to the budget, the Treasury has already trailed a number of other measures to be outlined, from changes to visa rules to billions of pounds of capitalization for a new infrastructure bank. Here’s a selection:22 billion pounds of capital and loan guarantees to capitalize a new national infrastructure bank, with the aim of supporting 40 billion pounds of infrastructure investment.5 billion pounds of grants worth up to 18,000 pounds each to help nearly 700,000 eligible businesses in the retail, hospitality, accommodation, leisure and personal care sectors reopen.The world’s first sovereign green savings bond for retail investors. The funds raised will be earmarked for projects such as renewable energy and clean transportation.A mortgage guarantee program for 95% mortgages to help people get on the property ladder.1.65 billion pounds of funding for the U.K.’s Covid vaccination drive.55 million pounds to develop vaccines against new Covid variants and to study the effects of combinations of vaccines.375 million pounds for a new public-private fund to invest in fast-growing tech start-ups.A 520 million-pound ‘Help to Grow’ program to provide small and medium-sized businesses with subsidized management training, discounted software and technology advice.A 300 million-pound summer sports recovery package to get sports such as cricket, horse racing and tennis re-opened.408 million pounds of funding for museums and the arts.126 million pounds for traineeships, and an increase to 3,000 pounds in the cash incentive for hiring apprentices.150 million pounds to help community groups take over struggling local facilities such as pubs and sports clubs.A new fast-track visa program to ease entry to the U.K. for highly-skilled researchers, engineers, scientists as well as those working in the financial technology and cyber sectors.(Updates with furlough plan details in first two bullet points)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
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