With his rise to become the most popular politician in the country, and his historic measures to support the economy during the pandemic, it’s easy to forget that Rishi Sunak has only been Chancellor of the Exchequer for 11 months.
He will have been in the job a little more than a year when he delivers his first Budget proper on March 3, and there are reasons to think the going is about to get tougher for the 40-year-old inhabitant of No.11 Downing Street.
After playing the role of benevolent giver of furlough cash in 2020, the difficult decisions needed to balance the books have arrived in 2021. He has been clear that there will have to be some increases to tax at some stage to help offset the huge spending that has taken place and the upcoming Budget - following a delay to the Budget scheduled for last Autumn - will be his first opportunity to show where he is willing to look for those tax increases.
Yet there are already signs of how difficult the task will be. The Government is facing pressure to extend the extra £20 a week of Universal Credit it granted last year as a means to help those on benefits in lockdown, as well as the Stamp Duty holiday for primary home purchases below £500,000. Remember, these would not be tax rises exactly, merely the ending of temporary, more generous conditions, but they are still likely to carry a political cost. Genuine tax rises to above pre-pandemic levels would be even more painful.
That’s why it’s still an open question whether Sunak will make this Budget a tax raising one, despite his threats. Following negative GDP (gross domestic product) data for November, released last week, it is likely that the UK will already be in recession by the time the Chancellor stands to address MPs on March 3. Lockdown measures are still likely to be as tight as they are now and millions will still be on furlough. Under those circumstances, most Chancellors would be looking to cut tax to help growth, rather than raising it.
The weekend press brought reports that the Chancellor is considering a rise to corporation tax on company profits. Unlike more complicated changes to the tax system, this one is relatively easy to administer. The main rate of corporation tax rate has been falling from as high as 28% in 2010 and has been down at 19% since 2017. A further cut to 17% was ruled out last year and now a rise is being seen as a less-toxic way of raising revenue.
A rise in corporation tax would still be politically difficult, but it is probably easier than some of the other rumoured tax changes. There are reports today that the Treasury could in future enact a plan to scrap council tax and stamp duty and replace them with a property tax based on a percentage of a home's value. A change of that complexity would not happen in time for the March Budget, but may be considered in the future.
There’s even reports that pension tax relief - so often the subject of Budget rumours - could again become the target of a tax raid.
Whatever comes on March 3 is likely to be just the beginning of a difficult phase for the Chancellor. He has proved adept at giving, can he now turn his hand to the trickier job of taking away?
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