Chancellor Jeremy Hunt will announce his second Budget in the House of Commons next Wednesday in what is likely to be his last fiscal update before the next general election.
The looming national vote makes the chancellor’s decisions even more pertinent, but the Spring Budget is expected to be “far more limited than last year’s autumn statement“, said The Times.
Britain’s gloomy economic position means Hunt’s choices, particularly when it comes to cutting the historically high tax burden, are severely hamstrung. To ease the mounting pressure, he will almost certainly announce plans to find “new sources of revenue”, added the paper.
Here are five things to look out for in next week’s Spring Budget.
Tax cuts
There is no doubt the government would like to drastically cut the current record level of taxes, but the chancellor “lacks the fiscal firepower” to be able to do it, said the Financial Times.
The Institute for Fiscal Studies (IFS) has warned that the “economic case” for tax cuts is “weak”, but if the chancellor is “determined to cut taxes and wants to boost growth then better options exist than just cutting the rates of income tax, National Insurance contributions or inheritance tax“. Instead, a cut to stamp duties on buying property should be “front of the queue for growth-friendly tax cuts”, it said.
It is “often the case” that the chancellor faces pressure to cut stamp duty before a Budget to boost the housing market, said consumer site Which?. In particular, there is a long-considered option of cutting or scrapping it to “incentivise older homeowners to sell up” and potentially downsize, and consequently free up housing for families.
Inheritance tax is another divisive tool that many Tory MPs particularly would like to see scrapped. It seems “most unlikely” that the chancellor will cut the tax in this Budget, however, said The Telegraph. Given it affects such a small percentage of the population (just 4% of UK deaths in 2020-21), it is unlikely to feature here but “proposals for change could appear in the Conservatives’ election manifesto”.
Scrapping non-dom tax status
Hunt is also “exploring the option of scrapping the tax status enjoyed by people who live in the UK, but whose home for tax purposes is overseas”, said the BBC‘s political editor Chris Mason. They don’t have to pay UK tax on their foreign income so long as it is not brought into the country. Rishi Sunak’s wife, Akshata Murty, is among the country’s non-domiciled people, or non-doms, although she has agreed to pay UK tax on her foreign income.
The move, which affects around 70,000 people, is expected to raise £3.2 billion a year, said City A.M.. It would mean Hunt was “taking one of Labour’s most prominent tax policies, forcing the opposition to find new sources of revenue for their own spending plans”. But it would also “restart a debate about whether reforming the rules would do more harm than good by driving high net-worth foreign nationals out of the UK”.
Vape tax
One source of additional income is expected to come through an increase in tax on vapes. While disposable vapes are to be banned, the government is keen to find a balance between discouraging people from taking up vaping through taxation but also maintaining it as a less damaging alternative to smoking.
To achieve this, there will be a “one-off increase in tobacco duty” to ensure vaping products remain cheaper, but a “duty will be levied on the liquid in vapes”, said The Times, with higher tax as the amount of nicotine increases. The measures are “expected to raise more than £500 million a year” by 2028-29.
Lifetime ISA reforms
There have long been calls for the government to reform lifetime ISAs and it is rumoured the chancellor could be considering “cutting the early access penalty” from 25% to 20% for first-time home buyers, said The Telegraph.
Currently, those buying a first home worth more than £450,000 would be charged 25% when they withdraw from the account, but a reduction to 20% means “people will not lose any of their own savings” and just the government bonus, said MoneyWeek.
There have been calls to increase the threshold in line with rising house prices, which “would be around £560,000 today”, but it is unclear whether that is under consideration.
99% mortgages
In another move to help first-time buyers, the government is considering introducing a 99% mortgage scheme, which would “go even further than the previous Help to Buy scheme”, said Which?.
The scheme could allow young people to “get on the property ladder with just a 1% deposit” with the remaining funding provided by a mortgage lender and backed by the state.
The idea has been “largely welcomed by MPs on the left and right” but there is concern that “it could push house prices up higher”.