Mini-Budget scheduled for early July

Chancellor Rishi Sunak told MPs and journalists over the weekend that he intends to stage a “fiscal event” in early July to set the UK economy on course for a post-coronavirus recovery.

Rishi Sunak – HM Treasury

 As reported by Sunday Times, the Chancellor is concerned about the scale of potential job losses and is pressing the Prime Minister to bring forward an economic stimulus package to “kickstart” the economy.

As RSM tax partner George Bull noted, however, the Chancellor’s hints were quickly followed by a statement that the fiscal event will not constitute a Budget.

With tax announcements pushed to the back burner, Sunak is expected to prioritise further spending announcements in a mini-Budget that could include:

  • Retraining funds to help those laid off when the job retention scheme ends
  • A national infrastructure strategy, which was delayed from the March Budget; and
  • Plans to help UK tech businesses.

Some pointers for tax

If no new tax legislation is announced, there might be a few hints on tax, Bull speculated. These proposals could include relaxing Conservative manifesto commitments on tax, or a roadmap for future tax changes.

 “It will be easier for the government to introduce the tax increases which seem inevitable in the wake of coronavirus sooner rather than later,” said Bull. “However, with many MPs hoping to postpone any tax increases, the Chancellor may find himself under pressure to delay them for 2-3 years.

“Allowing 18 months for consultation and implementation, those increases would then be coming into force in the run-up to the next election. That seems unlikely, even for a government which is not afraid of taking deeply unpopular action. It’s likely therefore that the July fiscal event will include heavy hints about future tax increases, with specific proposals delayed until an autumn Budget.”

Self-employed taxation

When he first announced the Self Employed Income Support Scheme, Sunak commented that he was keen to equalise tax treatments for the employed and self-employed. “If we all want to benefit equally from state support, we must all pay in equally in future,” he said in March.

Taxation magazine editor Andrew Hubbard commented in last week’s editorial, “Is it too
much to hope that we will finally get to grips with this issue properly?”

According to AccountingWEB’s regular tax commentator Rebecca Benneyworth, the Chancellor may encounter a few problems, so it might not hurt to get some consultation on the issue. “If he does [equalise tax for employed and self-employed], he’ll need to put national insurance up – and one of his predecessors got his fingers burned when he tried that. But the world has changed a bit. We might see something on self-employed tax, but there are also MPs lobbying for no more tax changes for two years, so he may give a wide berth to taxes on the employed.”

Nevertheless, any business grants or stimulus announcements could be of great interest to practitioners, she added.

Borrowing commitments

The government came into power last year promising not to increase taxes. Instead, it planned to hold to the various fiscal rules and locks that limited its borrowing and spending during the austerity years.

With recent Office of Budget Responsibility estimates indicating that the crisis would swell public sector borrowing to £300bn for 2020-21, Sunak faces a difficult balancing act to deliver a meaningful stimulus package while working out a way to pay for the long-term costs of the Covid-19 crisis.

It should make interesting viewing on the day and set the scene for an even more intriguing Budget expected in November.

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