Britain has a new Chancellor of the Exchequer less than a month before the Budget after Sajid Javid dramatically quit.
The new Chancellor will be Rishi Sunak, who at 39 becomes the second youngest person to hold the role after George Osborne, who was 38 in 2010.
As the new Chancellor is forced to prepare quickly for Boris Johnson’s government’s first Budget, which is booked in for 11 March, there are some big questions around major policies that affect the nation’s personal finances.
Changes to pension tax relief, stamp duty and inheritance tax had all been flagged as potentially on the cards, while issues including social care and doctors’ pensions need dealing with, and even the prospect of a mansion tax has been floated in recent weeks.
Rishi Sunak is the new Chancellor of the Exchequer after Sajid Javid dramatically quit with less than a month to go before the Budget
At the heart of the Chancellor’s resignation apparently lay a dispute with the Prime Minister’s chief adviser Dominic Cummings, with Mr Javid reported to have said he would not accept a wholesale clear-out of his aides and being ‘Chancellor in name only’.
Mr Sunak had been Chief Secretary to the Treasury and before he became a member of parliament in 2015 had previously worked for Goldman Sachs and two hedge funds.
Financial commentators are now asking whether Mr Sunak will shelve radical plans, or they could be pushed up the agenda at the behest of Mr Cummings.
The approach to tax, borrowing and public spending will also come under the microscope, with Mr Javid reported to have clashed with Number 10 Downing Street as he pushed for greater fiscal responsibility and spending promises to be reined in.
There are suggestions that Mr Sunak may take a more free-spending view, as Johnson and Cummings push their levelling-up agenda and looks to splash out on infrastructure and the North.
We look at some of the key issues that could come up in the Budget and affect Briton’s personal finances.
The burden of stamp duty on home buyers has been a hot topic for many years and while former Chancellor George Osborne overhauled the system to make it cheaper for most, those buying more expensive homes ended up with even bigger bills.
The chilling effect on the upper end of the property market has long been documented: bills rise from £15,000 for someone buying a £500,000 home, to £27,500 at £750,000, £43,750 at £1million, to £93,750 at £1.5million and higher beyond that.
This matters because activity in the property market has a trickle-down effect. People not moving at the top of the family home market, mean less homes for sale further down the scale, and a thin market has been blamed for keeping prices high.
First-time buyers have a stamp duty exemption on homes costing up to £300,000, while buy-to-let landlords pay an extra 3 per cent surcharge that can triple the bill on some properties.
Sajid Javid had hinted at stamp duty reform previously, answering a question with the comment ‘I’m a low tax guy’ but it didn’t feature in the Tory manifesto.
There had been predictions that a Budget shake-up would come, cutting bills further for first-time buyers but also those moving up the ladder and buying more expensive homes. It is possible that this could still happen.
At the opposite end of the spectrum to a stamp duty cut for people buying expensive homes is the idea of a special mansion tax for them.
This was surprisingly rumoured as being under consideration at the weekend. It’s not what you’d expect from a newly-elected, big majority, Tory government, and instead is a policy that’s been considered by Labour and the Lib Dems before.
Whether a mansion tax idea was really being considered, or this was briefing for or against the Chancellor is matter that’s up for debate.
It’s not a popular policy though, even with voters who don’t own expensive homes.
A raid on pension tax relief for higher rate taxpayers was rumoured last weekend, but this is not a popular policy
Pension tax relief
A £10billion raid on pension tax breaks, which would see Government top-ups into retirement savings pots set at basic rate for everyone, was also floated in last weekend’s press.
This would tear up the long-standing principle of saving into a pension from untaxed income, and hit existing high earners and aspiring young workers the hardest.
Everyone would get 20 per cent pension tax relief, rather than the 40 per cent available to higher rate taxpayers.
It was suggested in an FT report that Javid was not entirely convinced by the plan, which is likely to arouse strong opposition among traditional Tories if introduced in the upcoming Budget.
But it is unclear whether it is favoured by Number 10, which we can presume will be calling the shots after installing its own man at the Treasury.
If the Government fights shy of a sweeping shake-up of pension tax, it might announce a consultation instead.
It should be noted that cutting pension tax relief is also not a popular policy, even among those who don’t pay 40 per cent tax, and it would affect younger high-earners and those aspiring to earn £50,000-plus one day hardest, as they would lose the tax-free pension saving the older generation had.
Big stamp duty bills at the upper end of the property market have been blamed for stalling activity, with a trickle-down effect for buyers and sellers lower down the scale
Speculation has grown that the Government might be ready to reform the hated ‘death tax’ following two reports issued by its own tax gurus – though these were commissioned by Javid’s predecessor, Philip Hammond.
Long and complicated forms should be overhauled and confusing rules on giveaways to loved ones should be scrapped in favour of a single ‘personal gift allowance’, according to the Office of Tax Simplification.
A few weeks ago, a cross-party group of MPs issued a report calling for inheritance tax at 40 per cent to be ditched and replaced with a 10 per cent tax on annual gifts of £30,000-plus and a new death allowance.
Javid was invited to join politicians, lawyers and finance experts at the official launch of the report at the House of Commons – which This is Money attended – but the Chancellor was a no-show.
Overhauling inheritance tax would be popular if it was seen to be being cut, as despite most estates not incurring any bills it is Britain’s most hated tax.
The coronavirus outbreak and fears it could spread in the UK has added pressure onto the government to sort out the pensions taper that is leading doctors to turn down extra shifts
NHS pensions crisis
The Treasury under Javid was reportedly considering a tweak to pension tax perks that would offer a windfall to all higher earners to end a staffing crisis in the NHS.
A one-year fix to stop doctors turning down shifts to avoid shock pension tax bills was announced shortly before the election, but the Government still needs to find a permanent solution.
This has become even more urgent following the coronavirus outbreak, which could still worsen dramatically and increase overtime demand on NHS doctors, who are also dealing with the usual winter flu season.
The Conservatives offered a ‘guarantee’ in their manifesto that no one needing care would have to sell their home to pay for it.
After no firm plans were included in the Queen’s Speech in December, financial experts anticipated that more details would emerge in the Budget.
There has been no word on this of late.
Proposals to reform how social care is funded have been repeatedly postponed since Theresa May’s idea to deplete an individual’s assets – including their home – down to a £100,000 floor bombed with voters in the 2017 election.
IR35 – contractors’ tax arrangements
The controversial IR35 tax rules shift responsibility from contractors and freelancers to employers in deciding whether they really are contractors or should be on PAYE tax.
The Treasury and taxman have been using it to crackdown on disguised employment income, arguing that long-term contractors working for just one company should be paying full income tax and national insurance rather than cutting their tax bills as limited companies.
A cottage industry sprung up around facilitating this some years ago, which led to some agencies taking pay and giving contractors income as interest-free loans. This in turn led to the controversial loan charge crackdown that has seen HMRC accused of heavy-handed tactics and issuing unrealistic big tax demands.
Employers stand accused of pushing workers down the contracting path in order to cut their own national insurance bills, as well as the costs of sick pay, holiday pay, pensions and other employment rights.
IR35 rules meaning the employer not the employee is responsible for tax status are already in place for the public sector, with a crackdown seen in the NHS, councils and social services.
The same system is due to come in for the private sector in April but there has been a pushback that firms and workers are not ready and claims that an overreaction by companies will harm contractors.
The issue is expected to be dealt with in the Budget and Mr Sunak is perceived to be receptive to helping out contractors.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.