Rishi Sunak will unveil both his and Boris Johnson’s first Budget on Wednesday, 11th March. Sunak was unexpectedly appointed Chancellor of the Exchequer on 13th February 2020, following the sudden resignation of Savid Javid, the previous short-lived incumbent.
Sunak was previously Chief Secretary to the Treasury and has had less than a month to prepare for his first Budget Speech.
This Budget will be closely scrutinised to understand the extent to which the various pledges during the recent General Election campaign will be delivered upon and how they will be funded. It will also provide an insight into how closely aligned Rishi Sunak’s vision as Chancellor is with that of the party in general and Boris Johnson. Early indications and his voting record suggest that he will toe the line.
There are a number of key areas that we will be closely watching:Pensions
A review or overhaul of the tax relief for pension contributions has been talked about for some time and we would not be surprised to see this on the agenda. The most recent proposals suggest that the Chancellor may limit the tax relief on pension contributions to basic rate tax at 20%. This would not detriment Basic Rate Taxpayers but would be a blow to Higher Rate Taxpayers.
Additionally, the issue of Doctors and Consultants NHS Defined Benefit pensions may also be addressed. The issue arises because of the way that increases in pension accruals are calculated, meaning that healthcare professionals can be liable to large tax charges, making it unattractive for them to continue working. Not an ideal situation given the current Coronavirus crisis.
In 2016 the Government committed to introducing a pensions dashboard. This would, in theory, give users the ability to see all of their pensions in a single place making it far easier to track multiple pensions. In our view this would be a very welcome addition, giving people much greater scope to manage and have visibility over their pension arrangements and take greater control of their retirement planning.
Inheritance Tax
Inheritance tax is one of the most universally disliked taxes, even though it affects only around 5% of the UK population – but many Foresight clients.
A cross-party group of MPs have put forward proposals for a large cut to the rate of Inheritance Tax, including a cut to the rate of Inheritance Tax from 40% to 10%.
Part of the proposals have also suggested simplifying the rules around Inheritance Tax, such as cutting the complex range of allowances and scrapping the rule that enables gifts to fall outside individuals’ estate after a seven-year period. Instead, this could be replaced with a £30,000 cap on lifetime gifts.
Income Tax and National Insurance
During the recent General Election campaign, Boris Johnson made firm commitments that he would not seek to increase Income Tax rates. However, recent reports from the Institute for Fiscal Studies (IFS) have suggested that the new Chancellor, Rishi Sunak, may have to consider tax rises to offset some of the ambitious spending plans being put forward by the Government.
What is almost certain to be announced is a reiteration of Boris Johnson and Sajid Javid’s previous plans to raise the threshold for National Insurance. There is already a firm plan to raise the threshold to £9,500 next year and to increase it to £12,500 over the coming few years. This would represent a tax saving which, while small, would be particularly beneficial to those on lower-income brackets.
Foresight will be watching closely for any changes to the tax system, as these can have significant effects on our clients.
Social Care
Social care funding has been labelled a crisis and is an area that Boris Johnson promised would be one of the first issues he would tackle after the election. In the Queen’s Speech last December, it was stated that the Government would seek cross-party consensus to help solve this issue.
One of the core tenets of the proposals voiced so far is that no-one will have to sell their home in order to fund social care. Beyond this, little in the way of detail has been released.
However, we believe that social care funding will be on the agenda in the Budget and we will be watching this closely.
Housing
The housing shortage across the UK has also been labelled a crisis.
The lack of affordable homes is making property purchase unattainable for many. Property ownership is seen as one of the core aspirations of many people across the UK.
The recent Queen’s Speech made a commitment to make homes available at a discount for local first-time buyers. Like many other promises outlined at this early stage of the current term, there is little in the way of detail as to how this will be tackled.
Initial proposals suggest that the government is seeking to provide a discount of approximately 30% to local first-time buyers, but critics have been quick to point out the lack of detail as to how this will be funded.
Student Tuition Fees
Last year the government announced a student finance review, the results of which were published in May 2019. The results of this review suggested a cut in fees to £7,500 per annum, coupled with an extended repayment term from 30 years to 40 years. Although the cut in tuition fees levied on students is welcome, extending the repayment timeframe also increases the amount of interest payable over the term of the outstanding loan and also increases the point at which any outstanding debts are scrapped.
Summary
The timing of this budget with a newly elected Government, newly appointed Chancellor and with the UK leaving the EU, makes this one of the most interesting Budgets for many years.
The announcements will potentially have far-reaching implications for the whole of the UK. We will be scrutinising the details of the budget in detail and will provide a summary and analysis of the announcements after Rishi Sunak’s maiden Budget Speech.
If you have any thoughts or concerns about how any of the potential announcements may affect your financial planning or you wish to discuss your position then please contact us so that one of our expert Wealth Strategists can talk these through with you and advise on the best strategy for your personal circumstances.
