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Looking Ahead: The UK Budget 2021


On February 25, we hosted a great panel discussion looking at what to expect in Rishi Sunak’s March 3 Budget. At this time last year, Sunak was two weeks into the job and the coronavirus pandemic was just starting to make itself felt in the UK. Sunak promised ‘whatever extra resources’ the NHS would need, and some £12 billion in household and business support to get the UK through what he said would be a ‘temporary disruption to our economy’.

A year later, the government has spent around £280 billion on COVID-19 support measures, and last week we  heard from the Prime Minister that many businesses will remain closed until April or May as part of the government’s lockdown exit plan. As a result, most of the speculation about what Sunak might do has revolved around which measures the government might continue, with the Universal Credit increase, furlough scheme, business loans, business rate relief and tax holidays all among policies that could be extended into the summer.

We asked our panel about what Sunak might do and also what they thought he should do to help the UK on its way to recovery, and they had a huge amount of insight to share with us. Scroll down to watch the discussion in full.



King’s Fund chief analyst Siva Anandaciva said we are in the unusual position of not knowing what the Budget is going to say about NHS spending. Normally, fiscal events are more about recalibrating spending that we already largely know about, with health care spending rising on average about four per cent per year. However, Anandaciva said that this year there are more calls on spending than he’s seen before, including:

  • meeting the direct costs of the pandemic, including vaccinations, track and trace, and adapting the NHS;
  • addressing the rising backlog of care, with over 200,000 people now waiting over a year for care, up from 1,500 in 2019;
  • and ‘turbo-charging’ the new reform programme outlined in the Social Care White Paper.

Anandaciva said the Chancellor is likely to reserve any blockbuster announcements for the spending review later in the year, when he will hopefully have a clearer picture of the success of the vaccine programme and what it means for the economy, meaning the Budget may just confirm direct spending on COVID-19 and some levers the Chancellor can use to redirect NHS spending to support the government’s levelling up agenda.

Anandaciva highlighted two areas where he thinks the government should be focusing funding: a multi-year, cash-backed workforce strategy to address the staff crisis that the NHS was suffering even before the pandemic; and reform of social care funding to bring it back from a ‘funding precipice’.

But Anandaciva pointed out that, ultimately, factors such as having stable employment, a safe place to live, good food to eat and opportunities to exercise are what affects our health as a population. He said that when it comes to longer-term health spending, the government can choose between focusing ruthlessly on something like reducing waiting times over the next three years, or they can take a broader view of health and look to invest in areas which support a high state of wellbeing in the population and reduce demand for NHS services.


CBI Chief Economist Rain Newton-Smith said that businesses are encouraged by the Prime Minister’s gradual plan for lifting lockdown restrictions, and it’s important that Sunak’s Budget includes a package of measures to bridge the gap for businesses that will be re-opening slowly over the coming months. This should include:

  • an extension of the Job Retention Scheme until the end of June, and a tapering thereafter which sees a modest increase in employer contributions as the economy re-opens;
  • measures to ease pressures on business cashflows, with research showing that nearly 15 per cent of businesses are at risk of failing by early April without further support;
  • continued VAT deferrals to prevent businesses having to pay deferred VAT from the first lockdown just as they’re getting back on their feet;
  • waiving business rates for another three months for hospitality businesses that are still closed as well as those in their supply chains;
  • support for the aviation sector to ensure supply-side capacity in the economy to trade globally as restrictions are lifted in the UK and internationally.

Looking ahead to the the longer-term, Newton-Smith said that she wants to see the transition to net-zero at the heart of the Chancellor’s growth strategy, including encouragement to invest in making properties more energy efficient, and setting up giga-factories and battery storage facilities to help the UK move to electric vehicles. She pointed out that the transition to net-zero was not only important for human beings and for the planet, but is a real opportunity for the UK to lead the world and be a dynamic economy, focusing on how we can thrive over the medium-term.


Resolution Foundation President Lord David Willetts said that at a minimum, the Chancellor needs to align his economic measures with the lockdown timetable the Prime Minister has set out to avoid an output gap in the autumn should support measures expire and the recovery take longer than expected. Willetts called for an overall package that included generous support now (the Resolution Foundation published a paper on the same day calling for £100 billion in stimulus measures) coupled with medium-term plans for getting a grip on the country’s fiscal position.

Willletts stressed the importance of spending on business investment and investment in human capital, singling out education, training and R&D as priorities and recommending:

  • enriching the Kickstart scheme with a larger training and education element to avoid a cohort of young people entering the workforce with fewer training opportunities;
  • focus on re-training and re-skilling at the same level, rather than up-skilling to increase qualifications, to allow people to move within the labour market to areas where job vacancies are stronger (ie from retail to care);
  • education and training provisions that are available for people unemployed for over six months should also be made available to those coming off of furlough schemes;
  • initiatives to promote research and development investment from money businesses are sitting on, including a potential private/public partnership.

Looking ahead to fiscal policy, Willetts said any argument on raising taxes this year is ‘a complete red herring’, but that the government does need some kind of credible plan to show how it will get borrowing and public finances under control.

He highlighted the rise in value of assets relative to GDP and income as one of the biggest single changes in the shape of the British economy in the past decade; assets have increased in value from three times GDP to seven times GDP, but the government hasn’t collected any more tax from them. Willetts said this means property taxes could do ‘more of the heavy lifting’ to balance the budget, and also suggested improving regressive council taxes and removing some of the exemptions in capital taxes like capital gains tax.


Flint Global partner and former Treasury senior adviser Tim Pitt said that March 3 would be a Budget for the next six months, with just ‘half an eye on the longer-term’. Pitt focused on three key judgements he said the Chancellor would need to make:

  • the scale of short-term support, balancing the risk of too much support triggering inflation while too little could cause further long-term scarring.Pitt said the Chancellor should look to be generous with short-term stimulus, and cautioned against any comparison with the US stimulus package because the UK Chancellor has more controls over fiscal levers down the line;
  • apportioning between existing schemes and more traditional stimulus measures to achieve the right balance on employment, avoiding creating a short-term spike in unemployment by withdrawing the Job Retention Scheme too soon, while also moving off of it as the economy recovers to avoid maintaining jobs that are never going to return.Pitt suggested extending existing schemes in line with the exit timetable, plus a few months’ leeway, followed by a more traditional package focused around the labour market and business investment, and questioned whether a package to stimulate consumer demand would be necessary given pent-up savings and the ‘slightly chequered history’ of last year’s Eat Out to Help Out scheme;
  • the long-term picture and repairing public finances.Pitt said the Chancellor should begin to set out some form of roadmap but thought it was likely autumn would be a bigger moment and that any tax rises announced would come into effect later in the parliament.

Pitt also discussed the politics of these decisions, pointing out that by the time we reach the 2024 election, the economy will have (hopefully) recovered, and the discussions will be more focused on fixing public finances, with the politics of debt and deficit ‘about to make a comeback’. Pitt said there has been strong public backing for the government’s support packages, but that there is now a clear view that borrowing will have to be brought under control, and that this is as true in the ‘red wall’ seats as elsewhere. Pitt thinks it’s a strategic opportunity for the Conservative Party and trickier for Labour, but acknowledged that it would require ‘politically painful’ decisions from Sunak as well.


After getting our panellists’ individual views, we took some questions from the audience and were able to get some pooled insight on some key issues:


Tim Pitt and David Willetts agreed that, following recent reports about a mooted hike in corporation tax, it was important to note that any rise announced in this Budget is likely going to be set to come into effect gradually over the next few years, probably beginning in April 2023.

Rain Newton-Smith said that Sunak is isolated among G7 leaders in focusing on fiscal consolidation and tax rises right now, despite the UK being one of the economies worst hit by the pandemic and still adjusting to the Brexit transition. She said the Chancellor should be mindful of our international position, and that increasing taxes before G7 peers would put us at a disadvantage when it comes to international investment.

Newton-Smith also pointed out that business taxation only accounts for about a quarter of tax receipts, so the government will need to look at a broader picture on taxes, a sentiment echoed by Pitt, who said big levers that hit individuals and households will be needed if the Treasury needs to raise £30-40 billion as forecast. However, Newton-Smith said that while now is ‘absolutely not the time’, businesses will be willing to look at a tax rise as part of a clear roadmap setting out the country’s ambition and strategy.

Pitt and Willetts also discussed the politics of announcing a rise now; Pitt said it’s easier both to raise taxes on businesses than individuals and to do so while you’re also announcing lots of giveaways. Willetts said that if the news were announced now, the policies could seem more like an automated mechanism when they actually come in in 2023/24, closer to an election. He cautioned, however, that the politics could still revolve around the actual increases in years to come, and warned against a ‘dangerous scenario’ where people start to conclude the government can’t get a Commons majority for raising taxes, which he said would be very bad for international credibility.


Answering a question on how to communicate the need to reform the care sector, Siva Anandaciva suggested a more emotional, less technocratic sell which focuses on the unfairness of the way the care sector is currently structured compared to, for example, care for cancer and Alzheimer’s. He said that the pandemic has created a higher awareness of what social care is and the importance it plays in people’s lives, and that the government can capitalise on that feeling to push for reform. He recommended removing fear from public communication so that people didn’t worry they would lose their homes to finance care, and pointed to the examples of Japan, Germany and Hong Kong for inspiration on how reform could be carried out.

Newton-Smith and Willetts both zeroed in on the jobs aspect of the care sector – Newton-Smith said that with an ageing population, the care sector is a growing part of the UK economy, and it should be seen as a valued, skilled sector which contributes to the wider economy. Willetts said there are twice as many applications for retail positions as care positions despite there being twice as many vacancies in social care, and that people need to be shown that this is where the jobs are.


Responding to a question on where the last year leaves the government’s ‘levelling up’ agenda. Pitt said it would still be central to the government’s political ambitions and a key part of its economic strategy. He said the government would need to set out in more detail what it actually means and how they’re going to deliver it, and that pressure on the Budget would come from decisions on human capital, particularly on the skills agenda, as much of the broader spending comes from the historically-generous capital budget.

Newton-Smith pointed to the structural changes wrought by the pandemic which have seen an acceleration in the trend toward working from home, and said this could have an impact on smaller cities, regions and towns across the UK which have traditionally struggled to attract talent and worked from a smaller pool of human capital. And while levelling up will continue to be important, the government will also need to focus on the recovery of its bigger city centres – London, Manchester, Birmingham – which have been hit hard by the reduction in commuters, tourists and students. Newton-Smith also stressed the importance of continued commitments on capital infrastructure to provide low carbon transport and connections between regions as part of the net-zero transition.


Discussing how the Budget could address wealth, income and health inequalities, Willetts and Newton-Smith both expected a short-term extension to the Universal Credit increase. Willetts said the social security system needs to be made fairer between generations, pointing to research showing that benefits spending has added on average £200 beyond inflation to pensioners’ incomes, while reducing income for working-age families by the same amount below inflation. Pitt said the Conservative Party has been too slow to recognise income and wealth inequality as a problem, and that they are going to need to look at how to better distribute growth and create a more generous safety net over the longer term.

Newton-Smith also touched on the issue of fairness, saying that people have seen how the bottom 20 per cent of society have been hit so much harder by the crisis, with the pandemic shining a light on social and health inequalities that can also be tied to race, and that the government should be thinking about how to create a more inclusive society. She said one positive of the pandemic has been employers thinking more about how they can support their employees’ health and particularly their mental health.

Anandaciva said that in the same way the pandemic has not affected all groups of society evenly, the recovery also won’t be experienced evenly. But he has a real hope that there is a movement within the NHS not only to reduce health inequalities in their day-to-day work, but also to look at less obvious areas of impact. He recounted a conversation with the chair of a large NHS hospital who thought that perhaps looking at hiring and apprenticeships could be as big a contribution to reducing inequalities as anything else, something Anandaciva said was incredibly counter-cultural in his experience in the last 10 years.


Responding to two questions on the reported extension of the stamp duty holiday, Newton-Smith said that although the CBI supported the original holiday to kick start the property market as we emerged from the first lockdown, a new extension isn’t necessary in the context of the overall tax picture and as housing demand has stayed strong.

She said that although it would be an ideal opportunity to think about wider reform of the system, she didn’t expect it would happen at this Budget. Pitt agreed, saying that while there is a very strong case to abolish stamp duty and replace it with some form of annual property tax, the reform is ‘politically nightmarish’ and revenue-netural, so likely wouldn’t be happening any time soon.

Thanks again to all of our panellists and to our audience members for their questions.

Watch the full discussion:


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