Budget Day is usually an opportunity for the Chancellor of the day to present their vision for the future accompanied with some giveaways which may (or may not) go down well with the public. This year’s, however, struck a more sombre tone, with the Chancellor levelling with the public that despite seeing light at the end of the COVID-19 tunnel, we are at a critical economic juncture and must meet the scale of the challenge together.
The Chancellor’s statement involved three broad sections. First, tackling the crisis and offering further economic support for individuals and businesses in the short-term. Second, begin fixing the public finances and levelling with people around some tough choices on taxation, choices of which there is no doubt he would have had ideological concerns about. Third, appealing to backbench MPs across the country and be as forward-thinking as possible about the future of our economy.
Our top 5 takeaways from Budget 2021 are:
1) Support remains beyond June 21
It was no surprise that the Chancellor opted to extend the Government’s economic support for individuals and businesses. This includes the extra £20 per week uplift for Universal Credit for a further six months and the continuation of business rates relief until June with discounted business rates for a further nine months. The VAT cut to 5% will remain extended until the end of September with an interim rate of 12.5% for a further six months.
The Chancellor announced that a new restart grant will be introduced in April. Non-essential retail will receive up to £6,000 per premises and hospitality, leisure, personal care and gyms will receive grants of up to £18,000. This support totals £5 billion in total.
As bounce back loans come to end, the Chancellor outlined a new recovery loan scheme where businesses can apply for a loan with a Government guarantee to lenders of 80%.
Furlough also remains until the end of September, a move that will cost an extra £10 billion. Between now and June 30, the Government will pay 80% of wages for furloughed workers up to £2,500 a month. From July 1, state support will begin to taper off, going down to 70% and then 60% from August 1.
Whilst most see extending this state aid as a necessity for people’s livelihoods, others have expressed concern about differing dates, with the Prime Minister’s roadmap suggesting June 21 as the date all restrictions ease. There is no doubt that both the Prime Minister and Chancellor will face some questions about why furlough is running until the end of September.
Support for the self-employed also remains and 600,000 more self-employed people are now eligible for access to grants with tax return data for 2019-20 now being available.
Other key support includes:
- Getting more jabs in arms: An extra £1.65 billion to be allocated to help the Government reach its target of offering a first dose to every adult by 31 July with some of this money used for a trial to see if different doses can be mixed.
- A boost for arts, culture and sport: An extra £300 million will be added to the Government’s £1.57 billion Culture Recovery Fund. Museums and cultural bodies in England will also receive £90 million to keep going until they can open their doors and £18.m has been made available for community cultural projects. Sport will also benefit from a £300m recovery package.
2) Some tax increases, but is this just the beginning?
The Chancellor was somewhat constrained when it came to taxation policy, for the 2019 Conservative manifesto pledged no increases in VAT, inheritance tax and National Insurance. On taxation, the Budget was therefore more nuanced than speculation previously predicted.
Whilst we will not see increases to income tax, personal tax thresholds will be frozen from next year until April 2026. He reiterated that no one’s take home pay will be less, but the benefits the threshold increases offer will be removed.
His decision to increase corporation tax from 19% to 25% in April 2023 has met with some disquiet from his own backbenches. Conservative MPs, will, however, get in line as any rebel faces losing the whip and Mr Sunak can continue to point out that the UK’s rate remains competitive being the lowest in the G7.
Another sweetener to mitigate concerns is the introduction of a new Small Profits Rate, maintained at 19% for businesses with profits of £50,000 or less and a taper for those with profits between £50,000 and £250,000. This means only 10% of companies will pay the full rate.
Even many Labour MPs who normally champion corporation tax rises seemed uncomfortable at the Chancellor’s decision. Although the Shadow Chancellor, Anneliese Dodds said she could support corporation tax rises in the future, she could not now and lambasted Mr Sunak for refusing to abandon planned council tax rises in England.
And with corporation tax contributing just 8% of the tax government collects, compared with 45% from income tax and National Insurance, is this a sign of more to come?
The Super Deduction is another effort by the Chancellor to encourage business investment. For the next two years, when businesses invest in new equipment, they will be able to offset all the cost against tax, plus an additional 30%. The ambition is to take the UK from 30th to 1st when it comes to business investment and is being touted as the single biggest business tax cut in modern British history.
3) A boost for prospective home buyers
Facing a cliff-edge with the stamp duty holiday set to expire at the end of March, the Chancellor opted to extend this holiday until the end of June with the nil rate being £250,000, double its standard level until the end of September.
Perhaps more interesting was the decision to bring back 95% mortgages in the form of a mortgage guarantee in a bid to help first-time buyers. The Chancellor has suggested this policy has the backing of major lenders across the country but is facing backlash from critics who say it will do little to protect generation rent and only help higher income earners.
4) Green growth is a popular strategy
With the hosting of COP26, the environment is a significant policy focus this year and there was plenty of environment-related content in this year’s Budget.
A key announcement was the launch of the UK’s first infrastructure bank located in Leeds to accelerate progress to Net Zero. The Chancellor also unveiled the world’s first government green bond and measures were outlined to bring down carbon emissions, including a more extensive electric vehicle-charging network and earmarked investment into cleantech.
Critics will say this goes nowhere near as far enough and point to the fact that fuel duty remains frozen, but the statement today indicates the growing importance of green growth as a popular post-pandemic strategy.
5) An ongoing and reinforced commitment to levelling up across the country
In his statement, the Chancellor pledged to use the full measure of our fiscal firepower to think about the future of our economy and UK-wide levelling up remains a core ambition of this Government.
In a win for red wall Tories, Mr Sunak confirmed that the Treasury’s new economic campus will be in Darlington, contrasting with the officials’ preferred options of Leeds and Newcastle.
He also announced the launch of two UK-wide new funds, a Levelling Up Fund worth £4 billion to invest in infrastructure, town centres and high streets and heritage and cultural assets, and a £220 million Community Renewal Fund, with 100 priority places already identified to receive assistance with their applications.
But the big announcement that came at the end was the naming of eight freeport locations across England, including East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames. And Teesside.
This was a critical moment for the Government and the Chancellor who used this Budget to balance the support individuals and businesses need with an insight on where he sees the country going as we recover from the pandemic. With many of the announcements trailed in advance, there were no major surprises, but it can be argued that today’s Budget is simply a placeholder for what is to come in the autumn, when the focus will be less on support and more on the Government’s vision and ambition for the rest of this Parliament and beyond.
If you would like to discuss any issues outlined in the Budget in further detail, then please do not hesitate to get in contact with Samir Dwesar.