A delayed Budget? And will the real Chancellor please stand up?

With just 27 days to go before the first Budget in 16 months, there has been a shock change of Chancellor. And with speculation that the proposed Budget on 11 March 2020 could now be delayed, who is really in charge at The Treasury?

It’s a legitimate question to ask as both the BBC and The Times report that 10 Downing Street and the Treasury refuse to confirm whether or not the date of the Budget will change.

On Sunday’s BBC Andrew Marr show, Transport Secretary Grant Shapps said the government had not confirmed the budget would "definitely go ahead on the same date as mentioned before",

Referring to the new Chancellor, the minister added: "The guy’s only been in place for a few days, let’s give him a few days to decide on the date."

It's not the first time the Budget date has changed. It was meant to be delivered on 6 November last year, but was cancelled due to the general election.

Sajid Javid (the first Chancellor in modern times not to deliver a Budget) resigned on 13 February and Rishi Sunak - who was Chief Secretary to the Treasury - is now the Chancellor. 

The student has become the master, or perhaps he has only become a puppet?

What will happen now?

Will Sunak be having sleepless nights whilst trying to formulate a new, coherent vision of the UK economy, together with clear government spending and taxation plans, or are these being dictated to him by Prime Minister Boris Johnson and his adviser, Dominic Cummings?

It appears unlikely that Sunak is starting his Budget from scratch as he was already in the Treasury and, it has been reported, Boris has already sent in a team of his aides to the department to provide “short-term support” to Sunak before the Budget.

The speculation is that Boris Johnson and Dominic Cummings are now effectively running the Treasury. They, rather than the Chancellor, are deciding what will appear in the Budget on spending and tax.

Who is in charge?

There used to be a TV game show called “To Tell the Truth”, where celebrity panellists were presented with three contestants and had to identify the genuine character as described by the show’s presenter.

If the show was on now and describing the Chancellor’s job, out of Sunak, Johnson and Cummings, who would stand up?

Spending plans

With Johnson and Cummings now effectively controlling the public purse strings, we can expect to see much greater spending on public projects than might otherwise have been the case under Javid.

And if there are new spending plans, the Office for Budget Responsibility may need more time to assess them, which in itself could lead to a delay in the Budget.

Javid had wanted day-to-day public spending to be matched with tax revenues and for any borrowings to be made only for investment in projects such as HS2 and other infrastructure plans. This was a commitment in the Conservative Party manifesto last year.

So whilst The Treasury could stay within his rule to cover planned extra spending on the NHS, social care, education and the police, it may need to raise taxes to keep public finances on track for any further day-to-day spending. Which has led to speculation about new taxes.

Taxation

These could take the form of reduced pension tax relief, scrapped or restricted entrepreneurs' relief and new wealth taxes, such as a mansion tax.

Following a National Audit Office report last week, a number of tax reliefs could be in the firing line for being scrapped.

However, if Javid’s rule is ditched, such tax rises may be phased in over time to reduce their impact, or just delayed until a future Budget.

Reports indicate that Johnson may have now shelved plans for a mansion tax on owners of expensive homes after Javid’s resignation, along with plans for a revaluation of homes, which could have resulted in many paying higher council tax bills. 

Income tax and NIC

We know that Johnson had wanted to raise the income threshold at which people pay 40% tax from £50,000 to £80,000. He has since decided to reduce the tax burden for the low paid from April 2020 by increasing the NIC earnings threshold to £9,500. He says he would like to see this eventually increase to £12,500 (the income tax threshold).

Corporation Tax

The planned reduction in Corporation Tax from its current 19% to 17% in April has been scrapped. It therefore appears unlikely that we will see any cuts to corporation tax in the foreseeable future.

Business Rates

Many business groups have long asked for reforms of the business rates system, and the Queen’s Speech hinted that changes would indeed be made.

Extra business rate reliefs for pubs, music venues, cinemas and offices occupied by local newspapers have already been announced to take effect from 1 April 2020. 

Whether we get the much-requested route and branch reform of the tax remains to be seen. There could, at the very least, be a fundamental review of the system announced.

Employment taxes

A tax that urgently needs looking at is the apprenticeship levy, which was well intentioned at the time of its introduction but has not been executed very successfully.

The levy pool of money collected from the tax has not been accessed by employers in the way it was expected. The CBI has called for a comprehensive review of the levy.

Increases in the National living wage from April have already been announced.

Stamp Duty

Johnson has said that he plans to raise the Stamp Duty Land Tax (SDLT) threshold from £125,000 to £500,000 and also reduce the top level of SDLT from 12% to 7%.

There will be many potential house buyers who will be waiting to see if he follows through on this.

Tax reliefs

Johnson has promised to change the tax rules to incentivise investment in areas such as Research & Development and capital expenditure. We await the details on this. 

We do know that there will be an increase in tax credits for R&D from 12% to 13% from April.

Some of these changes may be dependent on the EU state aid rules under which the UK remains bound until at least 1 January 2021 when the Brexit transitional period ends.

IR35 off-payroll

The new Chancellor has already been inundated with requests to delay the planned IR35 off-payroll reforms starting in April.

There is currently under way a review by The Treasury of the planned rules, and the House of Lords has also announced a review of the regime.

Whilst there has been no indication that the planned reforms will be postponed, will Sunak, Johnson and Cummings listen to business concerns over the reforms?

When the Budget does happen, we can expect some major announcements and maybe a few tax rabbits pulled out of the proverbial hat.

The tax team at Bishop Fleming will be analysing the potential impact of the Budget announcements when they emerge. 

[Gary Mackley-Smith]