• Melissa Geiger, Partner |
  • Sharon Baynham, Director |
10 min read

The UK economy (along with many others) has been ravaged by the global pandemic, with public debt levels not seen for many decades. But there are also other seismic shifts affecting the UK. The UK has left the EU, fundamentally changing trading relations with both the EU and third countries, and the US has a new President who is expected to introduce very different economic and tax policies to his predecessor.

It is the task of the Chancellor to steer the UK through these tricky financial waters. His meteoric rise to one of the most senior positions of power in the country may feel like a bittersweet success as he looks across the current landscape and seeks inspiration for a set of economic and tax policies that he hopes will create economic nirvana.

The Government must decide whether it is to tolerate the high debt burden, hoping that interest rates stay low for the foreseeable future, or to actively try to bring the debt burden down. GDP growth might act to reduce the relative debt burden, but it is likely that more will be needed. To make real inroads a combination of tax rises and austerity are likely to be required, and austerity may not look like an attractive option when the pandemic has exposed weaknesses in public services that need to be fixed.

The widespread expectation is therefore that taxes will have to rise to help pay down the debt and invest in areas of public services, such as the NHS. Economically, the Chancellor also needs to spur GDP growth and tackle the unemployment crisis caused by the pandemic. Tax increases will help the deficit situation but tend to act as a drag on unemployment and GDP growth. On the other hand, some believe that tax cuts are the answer, spurring growth in both GDP and employment to generate increased tax revenues and ease public debt.

Imposing tax rises at this point will be challenging. The Government made a “triple tax lock” manifesto commitment not to increase the rates of income tax, NIC and VAT during this parliament. Tax rises may need to be bold to raise the revenues necessary to make a significant impact on public debt, and these three are the workhorses of tax revenues. Leaving these three taxes untouched will inevitably hinder the Chancellor’s flexibility, but the prospect of breaking manifesto commitments may be too politically unpalatable to consider.

The Government still has to deliver on their agenda of levelling-up and making an economic success of Brexit. Climate change still needs to be tackled. Finally, lest we forget, the pandemic has exposed more starkly intergenerational issues with the young taking much of the brunt of economic hardship arising from the pandemic.

It all looks like a roulette style gamble not unlike the Wheel of Fortune television game show, where contestants compete to solve puzzles, to win cash and prizes. The title refers to the show's giant carnival wheel that contestants spin throughout the course of the game to determine their fate. In a sense, the Chancellor has a spin of the wheel and it could land on any of the wedges, a free spin, miss a turn, gamble, etc. So, let’s play:

The Free-Spin round

This round explores areas where the Chancellor may be able to make some changes to increase tax revenues without having too much of a negative economic impact or generating a backlash.

Corporation tax

Reports have been circulating in the media that the Chancellor is considering increasing the headline rate of corporation tax. The financial press reacted badly arguing that this would have the potential to damage any recovery before it begins and is unlikely to be a short-term revenue raiser.

At 19 percent, the UK has one of the lowest global headline rates and the government has already reversed plans to reduce the rate further to 17 percent. The current G20 average is around 26 percent and President Biden has stated he intends to increase US federal rate from 21 percent(following President Trump’s tax reform) to 28 percent.  Despite the response of the financial press, it is possible that the Chancellor could seek to impose a modest increase that will still allow the UK to claim a low (and therefore competitive) rate against international standards.     

Online tax

There have also been media reports that the Chancellor is considering some form of online tax, as an additional tax that targets online retailers.  It is probable that any online tax would be passed onto consumers rather than being borne by the retailer. The Chancellor may feel that such a move might help rejuvenate the high street as an alternative to online shopping as the economy begins to reopen following the pandemic.  However, it is likely that something more comprehensive will be needed to help the high street.

Stamp duty

The recent stamp duty holiday is due to end on 31 March 2021, but while it existed it fuelled property transactions and house price inflation.  A cliff edge withdrawal on 31 March could result in house prices falling in 2021. Housing is an important pillar of the UK economy and a crash would damage consumer confidence.  We think the Chancellor is likely to continue the holiday in the short term, perhaps with a tapered withdrawal to take the heat out of the market in a managed and gradual way.

Pensions relief

Rumours of restrictions to pensions relief have been circulating for several years now.  The Chancellor is reported to be considering a flat rate relief of 20 percent on pensions savings. The taxation of pensions savings and receipts is incredibly complicated.  Ideally any change to relief on pensions savings would be part of a carefully planned pensions reform package that also delivers some desperately needed simplicity, as many find the system too complicated to understand without financial advice.  But the restriction to a flat rate relief of 20 percent is unlikely to have any significant economic downside, so may be tempting to the Chancellor.

The Miss-A-Turn Round

This Miss-A-Turn round summarises areas where we think change is likely but will probably be deferred, either to avoid disrupting the economy in the short term, or to allow for more considered policy development.

Capital gains tax

The Chancellor is already looking at raising capital gains tax rates to align more with income tax rates. The Office of Tax Simplification recently produced a report recommending such a move.  Whether this would result in more tax yield is up for debate. A capital gains tax hike may encourage some to advance disposal plans to pay the lower rate of tax on their gains which might bring a short-term bump to the tax coffers, but that may be counterbalanced by those who decide to hold on to their assets and ride out the increase. This risk is especially true when the tax increase is announced for the very near future only allowing those that already have deals in the pipeline to accelerate them. Those whose disposal plans are still in the medium term are more likely to ride out the rise and see what happens in the future. 

One sensible option may be to announce an increase in the tax rate but deferred until 2022, thereby encouraging 12 months of increased deal activity for those who had disposals planned in the short to medium term without changing long term behaviour.  

National Insurance

Early in the pandemic, the Chancellor commented that he would consider removing the differences in NIC rates between the self-employed pay compared to the employed. The NIC burden is significantly less for the self-employed and there is evidence that this is driving decisions as to how to structure the supply of labour rather than driving true entrepreneurial activity.

Against making such changes will be the memory of an attempt at something similar by Philip Hammond a few years ago. The measure was met with a severe backlash that led to an embarrassing U-turn.  In addition, NIC was one of the taxes that the 2019 Conservative manifesto made a commitment not to increase.

We might see some smaller changes; for example, imposing NIC on those that continue to work beyond the State Pension age. Inevitably, however, any changes to NIC would best be undertaken as part of a wider review of the taxation of work, ensuring that tax burdens are fair and that the system works for modern ways of working.

Income tax

The Conservative manifesto pledged not to increase income taxes and so, as with any NIC increase, this may be deemed politically unpalatable.  However, one of the challenges of the national debt is that no real inroads will be made until tax revenues are significantly increased. 

It is difficult to see income tax, the major workhorse of the tax system in terms of yield, untouched in the longer term even if it escapes on 3 March 2021.  It is also difficult to see how limiting any rate increases just to those that pay tax at higher rates will be sufficient. 

Statistics published by HMRC in January 2021 show that increasing the basic rate of income tax by 1 percent would be expected to raise an extra £4.5billion in 2021/22.  However, a 1 percent increase to the higher rate (40 percent  to 41 percent) would only raise an additional £1billion.  An additional 1% on the additional rate of 45 percent is expected to be counterproductive due to behavioural responses of those affected.

Assuming breaking a manifesto pledge is a step too far for the Chancellor, then it is unlikely that we will see income tax rate increases.  However, it is still possible to increase real tax take without increasing the main rates; for example, the personal allowance may be frozen at £12,500.  This may not have large short-term impact yield but could have significant cumulative effect.


For the reasons cited above regarding manifesto commitments, we are unlikely to see any changes to the VAT rate and increase in VAT would dampen demand in any case.  However, we may well see the temporary reduced rate for the hospitality and tourism sector extended.  This was due to end on 31 March 2021 but there have been two additional lockdowns since this measure was introduced that have had a significant negative impact on those sectors.

Business Rates

The Conservative manifesto committed to carrying out a fundamental review of the business rates system. Pressures on towns and cities and changes in retail business models were already demonstrating the need for reform and the pandemic has only underlined this further.  

It is unlikely that any major changes will occur on 3 March 2021, but we are likely to see an extension to the rates holiday which was in place in 2020/2021 for retail, hospitality and leisure sectors.

We could, however, see an announcement of detailed policy review that may extend to property taxes more generally (and encompass stamp duty).

The Gamble Round

And so, we move to the final round, the Gamble round. This is where we consider some bold new taxes and initiatives. Every Chancellor likes to have an eye-catching measure in their speech for the day, something from left field. 

Innovation hubs

Against the backdrop of an economy that needs levelling up, exit from the EU and the success of UK science in relation to COVID vaccines, there is a real possibility that the Chancellor will gamble on an ambitious innovation agenda.   

The Government has already made Freeports part of their levelling up agenda and it is possible that we might see plans to leverage of this with innovation hubs that offer tax incentives to attract investment both from the south of the country but also internationally.

NHS tax or COVID tax

A couple of years ago there was a proposal from a group of health experts to impose a special ringfenced ‘NHS tax’ to fund the NHS and social care. It polled reasonably well among the public; voters love the NHS and they also like to know how their taxes are being spent.

Chancellors generally do not like hypothecated or ringfenced taxes as it limits their ability to direct tax revenues as they please. But, in the midst of a global pandemic the idea of some form of NHS tax or a short-term COVID tax should form part of any policy response consideration.  It might also be seen as not breaking the manifesto pledge of not raising income tax rates.

Wealth tax

A one-off wealth tax has been much discussed in the press and based on some models could raise £300billion.  It has been reported, however, that the Chancellor has discounted this as a policy option. This is probably sensible, imposing a wealth tax would need a whole raft of new tax infrastructure, and would be a “dry tax” for many as those caught are potentially be asset rich but cash poor.    


Whatever the Chancellor chooses to announce on 3 March 2021 it will be a gamble but is also unlikely to represent systemic reform.  Inevitably some structural reform is needed to steer us out of the current economic crisis, but the economy is probably too fragile.  Provided the vaccine roll-out allows us to emerge from the current pandemic over the summer with limited likelihood of a return to lockdown next winter, it is far more likely that we will see more sweeping tax measures in the Autumn Budget.