Rishi Sunak’s second Budget as Chancellor of the Exchequer will be delivered against the backdrop of the largest fiscal deficit since World War II.
Government borrowing is expected to be more than £400 billion higher in 2020/21 than pre-pandemic expectations.
Sunak and Prime Minister Boris Johnson have reportedly agreed to maintain the Conservative’s ‘triple tax lock’ manifesto promise, meaning there will likely be no increase in income tax, National Insurance (NI) or VAT
Pension tax relief, Capital Gains Tax (CGT) and the state pension triple-lock could all be in the firing line come 3 March.
Tom Selby, senior analyst at AJ Bell, comments: “With an agreement reportedly reached between Number 10 and the Treasury not to increase income tax, National Insurance or VAT rates in the forthcoming Budget, Chancellor Rishi Sunak must navigate a £400 billion high-wire act with one arm firmly tied behind his back.
“To one side he can see the fiery pit of economic disaster if the UK doesn’t get its financial house in order, while on the other is the molten lava of electoral disaster if he cuts too hard, too fast or in the wrong places. With such dangers below, the last thing Sunak wants to do is have a wobble.
“The decision to stick to the triple tax lock manifesto promise has likely been driven by both economic and political pragmatism.
“As the vaccine rollout gathers pace, there is genuine hope that society will be able to return to something resembling normal in 2021. Increasing income tax or National Insurance just as society opens up would risk strangling any economic recovery we might see and angering voters in the process.
“While Sunak’s options on 3 March are clearly limited, there are alternative revenue raising options open to the Treasury – but even these come with health warnings attached.”
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