Chancellor Rishi Sunak is expected to call an emergency budget in July to tackle recovery from the coronavirus crisis.
Over the last week, the Government has revealed details of how it will extend the Coronavirus Job Retention Scheme and has also announced another leg to the Self-Employed Income Support Scheme.
The rising costs of these support schemes is becoming increasingly evident. So too is the pressing need to move beyond them and get the country back to work.
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It is expected that the July budget will first and foremost be a rallying call to revive the economy. However, it is likely to ‘trail’ ideas for tackling the enormous cost, now estimated at £300 bn, roughly the equivalent burden of fighting World War II.
Bank of England economists believe that 25-33% of the workforce is now inactive due to redundancy and furloughing. They expect the economy to shrink by 20% by the end of the second quarter and many more people could lose their jobs as firms struggle to pay furlough contributions.
What to expect
It is likely the Budget will be announced on 8 July and reports expect it to focus on at least three key elements:
- Training – Retraining workers who lose their jobs when the furlough scheme ends in Autumn.
- Infrastructure – The Chancellor is expected to bring forward £100bn of infrastructure schemes. Projects could include transport, gigabit broadband and sustainable energy projects.
- Technology – The crisis has highlighted the crucial role of technology in creating a resilient economy. The Chancellor is likely to build on the start created by schemes such as the the Future Fund and the Clean Growth Fund.
“It is less likely to be a tax-raising Budget – though that may still happen in the Autumn or in the years to come when recovery is happening,” says Andrew Browne, Partner and Head of Tax at Bishop Flemming.
“The Chancellor has already provided billions of pounds of support to businesses and individuals. But what is needed now is a runway to a sustainable recovery.”
Adam Harper, AAT Director of Strategy & Professional Standards, comments:
“Reinvesting in digital infrastructure, based on upgrading the digital states of businesses, will have a crucial part to play in any recovery. So will investing in the development of digital skills to harness the digital infrastructure with the aim to create rich growth in productivity and employment”
Browne speculates on his blog that possible Budget measures might include:
- A temporary reduction of the VAT rate to help certain sectors, such as leisure and tourism
- Changes to the Apprenticeship Levy – linked perhaps to a new skills fund
- Fundamental reform of business rates to remove the regressive nature of the tax
- Another look at how the proposed off-payroll rules will affect the agility of the private sector
- Further enhancements to R&D tax credits to boost innovation from 1 January 2021 (post Brexit and out of EU state aid rules))
- Launch of a cross-party resolution to social care
It took 70 years to pay off the cost of World War II. So once the economy is showing signs of life, attention must turn to finding ways to pay for the enormous cost of the Covid-19 crisis.
AAT’s Adam Harper says:
“AAT identified a number of alternative measures to tax rises in our document ‘Time for change: alternatives to tax rises’ which we issued in late 2018. Included within that were measures such as the simplification of Inheritance Tax (putting restrictions around Business & Agricultural Property reliefs), dispensing with the Winter Fuel Allowance and closing the gender pay gap.
“However tax policy changes alone are likely to be insufficient in addressing the economic challenge.”
David Nunn is Content Manager at AAT.