Budget 2020: What will be in Rishi Sunak’s red box?

On March 11 Rishi Sunak will make his debut against one of the most politically charged Budget backdrops for years. Predecessor Sajid Javid quit last month, leaving novice Sunak to balance the “levelling-up” political agenda with a wobbly economy now being battered by coronavirus. His scope for action is limited, to say the least, but here we look at the key measures that could be in that famous red box.

Pension tax relief

Cutting pensions tax relief to 20% from 40% for high earners is a controversial measure at Sunak’s disposal. Under current rules, workers get the same relief on pension contributions as their income tax rate (a higher rate taxpayer paying 40% will get a 40% relief on pension contributions). Slashing the relief to 20% could give the Treasury an extra £11 billion but the idea is politically fraught.

It has already had a cooler reception from Sunak than Javid gave it and today the Institute for Fiscal Studies said it would increase the income tax bill of people earning more than £50,000, the cohort the Government had pledged to defend from tax hikes. EY head of tax policy Chris Sanger says: “Reform of pensions tax relief is notoriously difficult. Any tax changes on existing pension pots is controversial and brings calls of unfairness.”

A business rates review

Traditionally the Government’s cash cow, business rates raise around £30 billion for the Treasury each year. Some recent tinkering has seen relief for some retailers, music venues and pubs but the nation’s chain retailers, the most vociferous opponents of the duty, are pinning their hopes on Johnson’s manifesto pledge to review rates.

Recent legislation has set up a revaluation of property values next year, and then every three years after that. But while that’s seen as a step in the right direction, a complete overhaul is on retail’s wish list.

A cut to Entrepreneurs’ Relief

There was significant opprobrium when it emerged the Government was looking at revamping this tax break for entrepreneurs last month. It allows firms’ owners to pay reduced capital gains when selling up. The measure has been criticised for being too generous to the wealthy.

PwC tax partner Adam Waller says: “While it’s unlikely to be done away with altogether, restrictions on the size of the relief and ease with which it can be accessed are certainly on the cards.” Narrowing it to priority industries like tech and science is also a possibility.

Digital services tax

Pushing through a digital tax on giant tech companies would be a brave decision for the young Chancellor, especially as the US has promised to retaliate when it comes to thrashing out a trade deal. At the last Budget, the then Chancellor Philip Hammond said that a 2% turnover tax for digital businesses with global revenues of over £500 million would be introduced this April. The Office for Budget Responsibility estimates the tax would raise more than £400 million a year.

Those close to Sunak believe he will see Hammond’s plans through, but there may be pressure from the PM to hold off until a co-ordinated tax is worked out on an international level.

A fuel duty rise

Rumours abound that fuel duty could be on the rise for the first time since the Tories took office in 2010 with industry predicting an inflation-linked 2p a litre increase. Despite Johnson’s comment on the campaign trail that he had “no intention” of raising the duty, the mood music has been become anti-drivers in the run-up to November’s Cop26 climate summit. Suggestions of a rise have riled backbench Tories, who believe it would upset voters outside big cities who drive to work.