What Can We Expect From The U.K.’s 2021 Spring Budget?

I imagine there are very few people who would want to be in the shoes of the U.K. Chancellor Rishi Sunak at the moment. Less than a year into the job, Chancellor Sunak has been responsible for managing the U.K.’s economy as it navigates the uncertainty brought about by the Covid-19 pandemic. Having cycled through periods of lockdown, each with their own degree of strict social distancing measures, there is a collective hope that 2021 will be the year the economy is able to get back on track.

Positively, the rollout of the Oxford-AstraZeneca and Pfizer BioNTech vaccines could bring about an end to the initial health complications presented by the virus. The long-term challenge is ensuring the necessary reforms and policies are in place to kickstart the post-pandemic recovery of the economy.

Fiscal spending is needed to support investors, businesses and consumers adversely affected by the pandemic. In the short term, this means tax relief, state grants and targeted funding packages. At the same time, such relief also results in a loss in state revenue; something the government is keen to keep to a minimum given the current levels of public debt.

Preparing for a Tax Overhaul

In November 2020, a government spending review revealed that the pandemic had cost 284 billion pounds ($388 billion) at the time. The same review also projected that a further 55 billion pounds was needed for public services in 2021–22. To cover these costs, government borrowing looks set to reach the highest level since the Second World War, according to the Office for Budget Responsibility.

This could be a cause for concern. At the end of the last financial year, general government gross debt amounted to 1,876.8 billion pounds; equivalent to 84.6% of gross domestic product (GDP). With the current financial year coming to a close on April 4, 2021, it is likely that the percentage of public debt to GDP will rise substantially.

All eyes are now turned to March 3, when the Chancellor is set to announce the 2021 Spring Budget. It is highly likely the Chancellor will use this opportunity to lay out significant tax reforms. We are already aware of a 2% Stamp Duty Land Tax surcharge coming into force in April for overseas buyers of property in England and Northern Ireland. There is also speculation that the Chancellor will increase corporation tax and capital gains tax.

Of all the rumored reforms, there is one that has been generating significant attention and debate. I am indeed referring to a new tax being applied for those own property in the U.K.

Bracing for a New Property Tax?

While the notion of a property tax may be a new development, the basic principles can be traced back several years. In one sense, it would share the same principles of a wealth tax, applying to certain individuals based on the value of their real estate portfolio. There have even been suggestions that the such a property levy could replace the existing Stamp Duty Land Tax framework as well as Council Tax, meaning that the tax would be levied against those who own a property in the U.K., including nonresidents.

At the moment, it is difficult to tell whether such a radical reform is likely in the Spring Budget. However, the fact that it is being discussed suggests we could see this kind of change taking place in future budgets to come.

Naturally, any discussion of a tax will deliver mixed responses. Granted new measures are warranted to cover the public debt incurred by Covid-19, but is the introduction of taxes determined by the value of one’s property assets viewed favorably?

When earlier discussion of a potential one-off wealth tax first surfaced, Butterfield Mortgages Limited (BML) commissioned an independent survey of 885 U.K. investors with portfolios worth over 10,000 pounds, excluding their primary property, pensions, savings and self-invested personal pensions. The sample was asked about their thoughts on such a tax being introduced.

BML’s research found that 52% are opposed to the introduction of a wealth tax in the U.K. Interestingly, this figure rises to 60% among those with investment portfolios worth over 50,000 pounds.

While it now looks unlikely that such a tax will be introduced, this sort of insight is useful in understanding general public sentiment towards such proposed levies.

All Eyes on March 3, 2021

The government is rightly looking for ways to address the public debt amassed as a result of Covid-19. It is not known whether this will be addressed in the Spring Budget or will be delayed until there is greater certainty surrounding the pandemic.

Interestingly, the Institute of Chartered Accountants in England and Wales (ICAEW) has said that this budget is not the time to reform the tax system. Instead, ICAEW is calling on Chancellor Sunak to focus on delivering existing fiscal pledges and providing further updates on existing Covid-19 support packages. This proposed strategy does make sense given the current uncertainty.

Regardless of what may transpire, Chancellor Sunak must deliver a budget that does three things; addresses public debt, provides support for those affected by Covid-19, and encourages consumer spending and investment activities. Whether this can be achieved through creative tax reform is a question that will need careful consideration.

For now, all eyes are turned to March 3, 2021.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

The opinions expressed herein are those of the author and do not necessarily reflect those of the Butterfield Group.

Alpa Bhakta is the CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of U.K. and international HNWIs.

The author can be contacted at: alpa.bhakta@butterfieldgroup.com

Butterfield Mortgages Limited is authorized and regulated by the Financial Conduct Authority (Financial Services Register Number: 119274). Registered office: Sun Court, 66-67 Cornhill, London, EC3V 3NB. Registered in England No. 338594.