Chancellor of the Exchequer Rishi Sunak leaves 10 Downing Street after attending a Cabinet meeting on 14 February, 2020.
As British Finance Minister Rishi Sunak prepares to set out the country’s economic path to recovery, analysts are weighing the possibility of tax hikes and a nod to future fiscal tightening.
The budget, due on March 3, comes as nationwide Covid-19 restrictions are set to be gradually unwound over the coming months, culminating in full removal on June 21. Meanwhile, more than 20 million people in the U.K. have now received a first vaccine dose.
Sunak told the BBC over the weekend that his budget will “provide support,” but cautioned that the “shock to the economy” would not be a quick fix.
The government has embarked upon unprecedented public spending as the economy posted its sharpest contraction in more than 300 years in 2020. At Sunak’s last fiscal announcement in November, he unveiled the country’s largest peacetime budget on record.
Sunak is broadly expected to keep some of the government’s support beams for the economy in place until restrictions are eased, most notably extending the furlough scheme until at least June in a bid to stave off an unemployment crisis, according to Dean Turner, economist at UBS Global Wealth Management.
“Following the Chancellor’s announcement of a £5 billion ($7 billion) company grant scheme, we may also see more generous lending terms to companies announced, as well as an extension to tax exemptions in order to help firms through what will hopefully be the last phase of lockdowns and, crucially, the recovery thereafter,” Turner said in a statement Monday.
Morgan Stanley analysts are anticipating a £20 billion package of measures, including a furlough extension, a targeted support program for pandemic-sensitive sectors, and a one-off payment to benefit claimants affected by the expiry of the £20-per-week boost to Universal Credit, the British social security payment.
The U.K. has taken on a direct fiscal cost of £285 billion ($397 billion) since the onset of the pandemic, or 13.7% of GDP, according to the Office for Budget Responsibility (OBR), which has cautioned of a lasting hit to public finances.
As a result, some analysts cautiously expect the Chancellor to look to raise some cash in Wednesday’s budget.
Morgan Stanley Head of European Economics Jacob Nell and U.K. Economist Bruna Skarica said Sunak could announce tax hikes, touting a potential corporation tax increase to 21% from the autumn, along with the introduction of an online sales tax and further action on green taxes.
“The UK’s fiscal stance remains more hawkish than its U.S. and euro area counterparts, with Chancellor Sunak stressing the need to put the public finances back on a sustainable footing after the pandemic,” Nell and Skarica said in a note Friday.
“While we expect him to sound hawkish next week, and deliver some tax hikes – perhaps £5 billion – as down-payment on his intent, we see…
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