The chancellor of the exchequer’s spring budget will provide him with a final opportunity to set the tax and spending policies that will underpin the Conservative Party’s campaign ahead of the forthcoming general election.
Chancellor Jeremy Hunt will publish his Spring budget on Wednesday, 6 March and “with battle lines already starting to be drawn up, the economy is likely to feature front and centre”, said Scott Wright, a public policy expert at Pinsent Masons.
The chancellor has indicated that the budget will be focused on prioritising economic growth. However, much of the attention will be on the scale of any pre-election tax cuts and how these may impact the economic situation that will be inherited by the next UK government, Wright said.
The upcoming budget comes while the UK is in a technical recession. A technical recession is when a country’s gross domestic product (GDP) – a monetary measurement of the market value of its goods and services within a set time period – decreases in two consecutive quarters. GPD edged down by 0.3% in the final three months of last year, following a 0.1% drop in July-September, meeting the standard definition for a technical recession.
Considering the economic situation, the chancellor faces the need to project fiscal prudence, Wright said. With this in mind, Hunt is likely to be prevented from announcing wide-ranging tax cuts.
“Notwithstanding this limited fiscal flexibility, the chancellor will overwhelmingly recognise the political value in announcing changes to personal taxation to put more money back in people’s pockets,” Wright said. “This may be achieved by a potential 1% cut to income tax or a further cut to National Insurance contributions. Cancelling the scheduled rise is fuel duty is also a possible outcome in a bid to keep petrol prices affordable for consumers.”
The chancellor is expected to consider measures which signal to the private sector that the UK is a competitive place to do business. This is a particular interest given the Labour Party’s recent pronouncement that it is now “the party of business”, which was underpinned by a commitment to sustain a stable environment in which to invest if they are elected.
Wright said that a cut to the headline rate of corporation tax is unlikely given the constrained fiscal environment. However, the chancellor may look to extend the now-permanent full expensing on capital expenditure to leased and rented assets which is being called for by various business groups. A stamp duty exemption for smaller businesses is also anticipated.
Any tax cuts will likely be at the expense of public services, Wright said. Despite this, it is understood that the government will provide an extra £600m in funding for councils to help mitigate the position many find themselves in and to avoid further insolvencies. This additional funding it expected to be predicted upon council tax being raised by the maximum of 4.99%, however, which will have an acute impact on lower income households.
As the budget will be driven by short-term demand measures, we are unlikely to see any announcements on fundamental reform of policies such as business rates or the apprenticeship levy given proximity to the election. Rather, these are likely to feature in party manifestos,” Wright said.
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