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Tax increase, extension of furlough, hawkish tone: UK budget forecast

Finance Minister Rishi Sunak will leave 11 Downing Street on November 25, 2020 to publish a one-year spending review of the Treasury at the House of Commons in London, England.

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London — UK Treasury Minister Rishi Sunak will announce an extension of the furlough system by the end of September on Wednesday, announcing that the government will deploy full “fiscal firepower” to support the economy.

The budget will be gradually lifted over the next few months from the national Covid-19 limit and will be completely lifted on June 21st. Meanwhile, more than 20 million people are currently vaccinated in the UK for the first time.

In his budget speech Wednesday, Snack will outline the government’s “three-point plan” to navigate the UK’s economic recovery in terms of current fiscal measures and future devastated fiscal recovery plans. .. He also plans the next phase of the government’s employment plan, which began in October.

The coronavirus employment retention system will continue to subsidize 80% of the wages of employees who were temporarily dismissed until the end of September, but as the economy resumes, companies donate 10% in July and 20% in August. You will be asked to do so.

“There is a roadmap for reopening at the end of the tunnel, so it’s right to continue to support businesses and individuals in the coming months and beyond,” Sunak said.

The government has an economy The most abrupt contraction in over 300 years in 2020.. At the final financial announcement of the snack in November, he Japan’s largest normal budget on record..

In addition to the extension of the furlough, Snacks also expects to offer more welfare and safety measures, business grants, loans and mortgage leave, in addition to subsidies for self-employed people and renewal of the return to work system. It has been.

“We are maximizing the firepower of our finances to protect the work and livelihoods of the British people,” Snack will tell the House of Commons.

Analysts at Morgan Stanley have extended temporary dismissals, targeted support programs for pandemic-sensitive sectors, and one-time payments that benefit claimants affected by the expiration of the £ 20 weekly boost. Expect a £ 20 billion countermeasure package. Universal Credit for UK Social Security Benefits.

Future tax increase?

The UK has incurred £ 285 billion ($ 397 billion) in direct financial costs since the outbreak of the pandemic. This is 13.7% of GDP, according to the Department of Budget and Responsibility (OBR), which warns of a sustained blow to the public. finance.

As a result, some analysts expect the prime minister to raise some cash on Wednesday’s budget.

Morgan Stanley Jacob Nell, head of the European economic sector, and Bruna Scarika, a British economist, said snacks have announced a tax increase, with 21% corporate tax starting in the fall, along with the introduction of online sales tax and further measures for green tax. He said he would advertise that it could be raised.

“Britain’s fiscal stance is more hawkish than its US and eurozone counterparts, and Snack emphasizes the need to return finances to a sustainable foundation after the pandemic,” Nell and Scarika said in a Friday memo. I have. “

“It sounds like a hawk next week and expects a down payment of £ 5 billion, but has announced a fiscal tightening (2% of GDP) only in the fall, which will come into effect in April 2022. “

Overall, Morgan Stanley predicts that this year’s additional tax revenue of £ 5 billion will increase to £ 10 billion next year.

“After the UK has clearly recovered from COVID-19, a further fiscal tightening of 2% of GDP will be announced in the fall,” he said in a memo on Friday.

However, UBS economist Dean Turner suggested that the government’s financial position may not be as vulnerable as the OBR last reported after fears of the fourth quarter of the UK economy. As a result, UBS did not expect an immediate tax increase, but suggested that future changes in corporate tax would likely be shown along with other modest adjustments such as a freeze on pension and income tax bases. ..

“Don’t pull out the rug”

Ruth Gregory, senior UK economist at Capital Economics, said the UK’s fourth-quarter was better than expected, which could improve government forecasts, but the premature rewind of fiscal support is recovering. Warned that it could have a negative impact.

The OBR currently predicts that the economy will be 3% smaller than its pre-pandemic trajectory by 2026 and will have a budget deficit of around £ 100 billion (3.9% of GDP) by 2025/26.

Gregory has determined that if snacks want to bring their budget deficits back to pre-pandemic levels by 2026, they may have to tighten their fiscal policy by about £ 45 billion a year.

“With the government’s desire to raise taxes sooner or later so that it doesn’t happen just before the 2024 general election, it’s entirely possible for the prime minister to take the first step to regain some income with this budget. “She said.

But she suggested that her immediate priority was to prevent long-term financial scars, and snacks would be happy to show their intention to tighten in future financial announcements for now.

Capital Economics expects Snacks to announce a fiscal policy easing of around £ 25 billion (1.2% of GDP) in 2021/22 compared to current plans.

“But the risk is that over the next two years, we’ll be tempted to pull rugs out of the feet of households and businesses by reducing budget deficits at a faster pace than currently planned,” Gregory said. Said.

“It not only undermines economic recovery, but can cause more financial problems than it solves.”

Tax increase, extension of furlough, hawkish tone: UK budget forecast

Source link Tax increase, extension of furlough, hawkish tone: UK budget forecast

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