Chancellor Rishi Sunak will address the nation on Wednesday with measures to kickstart economic recovery following the Covid-19 lockdown, in a move that could pave the way for more significant changes in the Autumn Budget.
Immediate changes could include a cut in employer National Insurance to stimulate the employment market or a reduction in VAT to boost consumer spending, according to Aegon pensions director Steven Cameron.
Cameron says: “A cut in employer NI would reduce costs for employers and prove a welcome boost to employment. There are some pension implications to consider because where an employer pays a contribution to an employee’s pension, they don’t pay National Insurance. This has led to some employers offering ‘salary sacrifice’ arrangements where employees agree to a pay cut in return for a greater employer pension contribution.
“If employer NI rates fall, they’ll make less saving on their pension contributions making salary sacrifice arrangements less attractive for them.”
The Government could also announce targeted extensions to support packages such as the furlough scheme or the decision to temporarily lift the stamp duty threshold.
Cameron says: “A temporary lifting of the threshold for stamp duty on house purchases might benefit some seeking to move home. This could include encouraging some retirees to downsize to release equity in their homes to supplement pension pots which in turn might free up larger family homes, a generational win-win.”
However, with initial expectations of a full-blown Budget quickly dampened, the Chancellor is widely expected to hold off from unveiling more fundamental changes until the Autumn Budget.
These changes could include the Treasury wielding its axe on pensions tax relief, which would reduce people’s income tax bill in the short term, as well as a temporary or permanent reform of the triple lock, which guarantees a state pension increase at the highest of price inflation, average earnings growth or 2.5% a year.
According to Cameron, there could be a drive to encourage pension funds to invest in long-term infrastructure projects, after the Government announced ambitious plans to ramp up investment in infrastructure.
There has also been much talk of wealth taxes, as questions grow around how to share the economic fallout of Covid-19 between different generations and sectors. The issue of social care is also likely to make it on to the Chancellor’s list in the Budget, with the government under increasing pressure to tackle the longstanding issues of how to find a sustainable and fair means of funding social care.
Lastly, recent events have turned the spotlight on the growing number of self-employed and gig economy workers in the UK and the need for both employees and the self-employed to be offered support and protections, with greater alignment between income tax, NI and access to state benefits.
According to Cameron, deferring such decisions until the Autumn would offer the Chancellor more time to assess how the economy performs over the summer months as lockdown unwinds.
Cameron adds: “In the meantime, we’d welcome the Government taking this opportunity to launch consultations to allow proper consideration of possible future changes and avoid unintended consequences.”
