It’s safe to say that Chancellor Rishi Sunak has had an unexpectedly intense first year in the job. When he was first appointed Chancellor, there had only been nine confirmed cases of COVID-19 in the UK.
Since then, he has had to grapple with an unprecedented task of ensuring adequate public funds and relief packages are in place to support investors, consumers and businesses.
Managing the UK economy through these uncertain times is no small feat. However, there are hopes that 2021 will be the year the country overcomes the challenges posed by the pandemic.
Actually accomplishing this, though, is a different matter entirely. Although the rollout of the Pfizer BioNTech and Oxford-AstraZeneca vaccines mean that lockdowns should be progressively lifted in the next few months, kickstarting the post-pandemic recovery of the UK economy requires creative thinking.
Fiscal spending that’s currently in place to support consumers, businesses and investors affected by the pandemic must continue, including targeted financial support packages and tax relief.
However, in the long term, the government must begin reigning in the levels of public debt.
Preparing for the Spring Budget
Last November, a government spending review estimated that the pandemic had cost £284 billion.
The same document also projected that the UK would need an additional £55 billion to cover the costs of public services between 2021 and 2022. On this basis, government borrowing is on course to reach its highest level since WW2, according to the ONS.
That’s why all eyes are set on 3 March 2021, where Chancellor Rishis Sunak is scheduled to deliver the Spring Budget.
At the moment, it is not clear what kind of approach the government will take. We could see a cautious budget, with the extension of existing policies in place to support those affected by the pandemic. However, there are also rumours of a budget big on tax reforms and even fiscal spending.
While nothing has been confirmed at present, there have been some interesting discussions regarding new taxes that could be applied to those who own property in the UK. One of these includes a wealth tax.
Preparing for a wealth tax?
While the possibility of a wealth’s tax imminent implementation is a relatively new development, there have been campaigns to introduce such a tax for years.
This tax would be applied to certain individuals based on the total value of their real estate portfolios. It’s possible that such a tax could even replace the existing Stamp Duty Land Tax and Council Tax’ greatly simplifying the current tax status of buying and owning property.
At present, it’s impossible to say for certain whether this radical reform will be included in the Spring Budget. However, the policy’s growing appeal alongside the drastic need to balance the government’s books means that this policy will undoubtedly be on the table in future budget considerations at 11 Downing Street.
Obviously, such a substantial tax reform will incur spirited debate on both sides of the ideological spectrum. But how do homeowners and property investors feel about this rumoured development?
To find out, Butterfield Mortgages Limited (BML) recently commissioned a survey of 885 UK investors with portfolios worth over £10,000, excluding their pensions, primary property, savings and SIPPs.
BML found that 52% of survey respondents oppose the introduction of such a tax. Among those with portfolios worth over £50,000, this figure rises to 60%.
Although the current likelihood of this tax’s implementation is uncertain, I believe it is important to know what the current public sentiment towards such a reform is in case of its future enactment into law.
Is now the time for tax reform?
Tax reforms can be a controversial topic. This is made all the more complicated by the fact that the UK is in the middle of a pandemic and only recent left the European Union (EU). With this in mind, it is right to question whether the Spring Budget is the right time to radically overhaul the existing tax stem.
The Institute of Chartered Accountants in England and Wales (ICAEW) recently declared that now is not the right time for any major tax systems reforms. Instead, the ICAEW believes that the Chancellor should concentrate on delivering on existing fiscal promises and expanding the financial support available for those adversely affected by the pandemic.
Such an argument does make clear sense. Although the vaccine rollout has led to a lessening of the daily COVID-19 infection rate, it is simply too soon to say that the pandemic is over yet; or whether there’ll be future nation-wide lockdowns in the future.
But it’s imperative that something be done soon. Regardless of how the rest of the pandemic plays out, the Spring Budget should endeavour to accomplish three things: tackle public debt; provide support for those negatively affected by the pandemic; and encourage investment activities.
For those eager to know how the government aims to fulfil these goals–myself included–we will have to wait until 3 March 2021 to see how the government wishes to proceed.
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 UK and international HNWIs.
The opinions expressed herein are those of the author and do not necessarily reflect those of the Butterfield Group.
Butterfield Mortgages Limited is authorised 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.