Chancellor sticks to tax plans despite high receipts
Chancellor Rishi Sunak is unlikely to use the highest Treasury tax receipts since the 1950s to offer any substantial easing in the cost of living.
Mr Sunak is expected to stick to his tax plans when he announces his Spring Statement on Wednesday despite being given some flexibility from a £40 billion boost from rising energy prices, a stronger-than-expected recovery in the economy and falling unemployment.
He insisted on Friday that his goal was “to get the tax burden down” and does not want the statement to turn into a mini-budget.
Any help for households is more likely to see him shuffle money around various departments, though there is speculation that he may offer a further rise in income tax thresholds and another “rebate” on household energy bills similar to the package announced in February. He may also follow the example of some European countries and cut fuel duties.
But the increase in national insurance contributions is expected to go ahead next month as planned, despite widespread calls for it to be cancelled or postponed.
Mr Sunak and the Prime Minister say the 1.25% hike will raise £13 billion to help the NHS.
Help for business is likely to focus on tax reliefs, though the Federation of Small Businesses and CBI have offered contrasting advice on extending the ‘super deduction’. The FSB wants it scrapped and replaced with more help for small firms, while the CBI says it should be extended beyond its March 2023 deadline to give the economy a £40bn investment boost.
Despite the healthier receipts, and falling borrowing requirements, Mr Sunak is concerned about the uncertainty created by the war in Ukraine and its impact on commodity prices.
He will therefore stick broadly to his tax plans to improve the public finances following two years of supporting the economy during the pandemic.
Rising inflation will mean the chancellor’s freeze on income tax thresholds will raise an additional £12.5 billion over the next four years, according to the Institute for Fiscal Studies. Corporation tax is due to rise from 19% to 23% from 2023
The Office for Budget Responsibility is expected to revise down the government’s borrowing bill by £23 billion for this year, according to Deutsche Bank. But lower borrowing costs are being offset by the rising cost of repayments caused by inflation at 5.5% and forecast to hit 8%.
The Chancellor is also benefiting from a substantial repayment of the support given to businesses during the various lockdowns.
The Covid Corporate Financing Scheme scheme, which launched at the start of the lockdown in March 2020, closed yesterday and has not only recouped all £38 billion paid out to some of the UK’s biggest employers, it ha made a profit of £60m.
Household names, such as Gatwick Airport, the Football Association and the National Trust, were among more than 100 of the UK’s biggest employers that benefitted from the facility.
Rishi Sunak said the Bank of England administered scheme was another example of the government offering support at unprecedented speed to protect millions of jobs and taxpayer’s money simultaneously.
He said; “The CCFF scheme ensured that many of the UK’s biggest employers could continue to pay wages and suppliers, protecting millions of jobs – and on top of that every penny has been repaid.”
The scheme made a profit for the taxpayer because the rate of interest applied to the cash provided by the Bank of England was priced at rates comparable to the market before Covid. Companies therefore paid back a slightly larger amount at maturity compared to the finance they borrowed initially.