Tomorrow Rishi Sunak, the Chancellor of the Exchequer, will outline the Autumn Budget, reflecting his view on the state of the economy and its direction of travel. He has to tread a difficult line between financial rectitude, a key pillar of Conservative policy, and not limiting the growth of an economy just re-starting after the Coronavirus pandemic. Misjudging this balance will have a lasting impact on the public’s perception of the party and his future credibility.
This week a flurry of announcements have led up to the Budget, which strays away from the normal secrecy. This includes announcements on increased funding for the “digitisation” of the NHS, a rise in National Living Wage and funding for regional transportation, amongst others. Superficially, such announcements of spending windfalls suggest he will have to announce some spending cuts or tax rises in other areas. The devil, as always, is in the detail. Such announcements may take advantage of the backdrop of a reduction in real time wages, department spending cuts and tying in announcements with previous ones.
Some changes were already announced in the Budget earlier this year. Most notably, in areas such as corporation tax, deferred until April 2023, and an increase to National Insurance. In addition, the net effect of freezing tax thresholds, especially for income tax, was a tax increase by stealth. There are fewer levers for Mr Sunak to pull in this Autumn Budget.
A subject of much speculation for a number of budgets has been the alignment of capital gains tax rates with those for income tax, but it may be that this again is postponed. The general feeling is the tax benefits of this move may be outweighed by the impact on a still relatively fragile economy, coupled with the practical difficulties of raising revenue in this way. After all, high rates of capital gains tax make it more likely individuals will postpone disposals, thereby raising no tax at all.
A strong public relations message shows Mr Sunak attempting to deftly straddle both sides of the debate and maintain his party’s (as well as his) appeal. However, with some notable changes in the last Budget, he may decide this is not the time to announce major changes on this occasion. Ahead of the COP26 at the end of the week, I expect to see a show of the government’s green credentials, but that’s probably about as exciting as it will get.