It’s fair to say none of us have ever been in the situation we are in today. For nearly 12 months the entire country has been at a standstill. City centres are empty of office workers, many of whom will never return. Pubs, restaurants and hotels have stood empty. Aircrafts have stopped flying, non-essential shops remain closed, and hundreds of thousands have lost their jobs - with hundreds of thousands with the potential to follow.
Whilst the pandemic has most certainly taken its toll on our country’s mental health; the incredible scientists who have worked tirelessly throughout this period have done the impossible and provided us a light at the end of the tunnel. The rollout of vaccinations is finally providing us all with the glimmer of hope of a return to normal life.
So, with the end in sight, what is Chancellor Sunak expected to do to fuel economic recovery following the devastation of Covid-19 and what can we expect from the (unusually quiet) conversation of Brexit?
- Extend furlough. Unless furlough is extended beyond the full return to normality, hundreds of thousands are still in danger of losing their jobs. The furlough scheme has successfully preserved jobs that would otherwise have been lost during the pandemic, so we are hopeful that the scheme remains in place for the rest of 2021; enabling business to rebuild and keep people employed.
- Further support for the self-employed, under the Self-Employment Income Support Scheme non-repayable grant. Sadly, he is unlikely to provide any assistance to the estimated 3 million self-employed who fell into a time gap and who have so far received no help.
- Tax. The fact is, Covid has cost the UK economy and inevitably there is a shortfall; hopefully Sunak sees repaying that shortfall as a very long-term goal and avoids an immediate significant tax hike. He will likely look at:
- freezing income tax thresholds
- increasing Class 4 National Insurance
- raising fuel duty
- cutting pension tax relief
- changing capital gains tax
- raising corporation tax
- reforming council tax
- introducing an online sales tax
We can expect there to be an increase on duty on items such as alcohol and cigarettes.
The chancellor has a decision to make on whether or not to extend the stamp duty holiday. The current stamp duty holiday has fuelled a near 6% house price hike during the pandemic, but, if he doesn’t extend this, house prices may fall or the market could stagnate. He is unlikely to increase VAT, hoping there will be a payback from a consumer boom when restrictions end.
By nature, Conservative Governments don’t like to borrow their way out of trouble, but this chancellor doesn’t really have many other options, so on balance we shouldn’t see aggressive tax raising, either personally or from corporates. An economy already really fragile as a result of Covid, having to deal with the known hits of Brexit, needs very careful handling.
The sums of money spent by this government are staggering. An estimated £286 billion in the six months to November and spending at similar levels since show the scale of what Sunak has to deal with.
Whatever he does, let’s hope he leaves us with a few pounds in our pockets. If ever we needed to go out, meet other humans and let our hair down, it’s after the worst year most of us have ever endured. Just remember though, if he does hit our pockets, those remaining in work are the lucky ones. 700,000 people lost their jobs during the pandemic and it will be months or years before the economy recovers to pre-pandemic levels and new jobs are created - so whatever he does, spare a thought for those people.