A detailed overview of the Chancellor’s Budget for March 2021.
A detailed overview of the Chancellor’s Budget for March 2021.
The Chancellor pledged to use the “full measure of our fiscal firepower” in his Budget to save jobs as Britain emerges from the lockdown and he warned that the nation faces a “moment of crisis”. Rishi Sunak said today’s Budget was about “bringing prosperity to the whole United Kingdom”, adding that a “majority of today’s Budget measures will apply directly to people in all four nations of the United Kingdom.”
Sunak followed through on much of the pre–briefing during his speech, leading with an extension in furlough scheme until September. The extension is a generous one when considering public expectation is that many restrictions are expected to fall away throughout the summer across the UK. That’s also emphasised by the Government’s own roadmap out of restrictions. However, the extension will be welcomed by businesses who will see a return to trading as a journey, rather than a simple flick of a switch. There were other measures likely to be welcomed by those in the hospitality sector, including the 5% reduced rate of VAT for the sector until the end of September, with an interim rate of 12.5% for another six months after that.
Elsewhere, the Chancellor has bet big on businesses being willing to face up to the rise in corporation tax. Sunak announced that corporation tax on profits will rise from 19 per cent to 25 per cent by 2023, though small businesses will be exempt. While the headline rate is higher elsewhere in places such as France and Germany, the amount raised in the UK will be higher. The chair of the Treasury Committee and Conservative MP Mel Stride noted the corporation tax increase, is “quite a hike” but added that the UK will still remain “internationally competitive” and says it is a “reasonable move”. For Northern Ireland, Stormont has had the power to cut the rate of corporation tax since 2015. However, such a move would lead to a cut in the block grant.
To offset the long–term tax hit on businesses Sunak also unveiled what he described as the “biggest business tax cut in modern British history” to encourage renewed investment to kick–start the economy. Under the ‘super–deduction scheme’, businesses who invest in the next two years will be able to claim 130 per cent of the cost against their tax bill.
There were other policies not typically considered Conservative too. Though the party’s manifesto said that income tax would not rise, a freeze in the threshold at which people pay the basic and higher rates of tax from 2022 and 2026 is what some have suggested is a rise by another name. As a result of fiscal drag, more people will be dragged into the higher rate as wages rise. There were freezes elsewhere, including on the lifetime allowance on pensions which will be frozen at just over £1 million, and the thresholds for VAT and capital gains tax. However, fuel duty being frozen for the tenth year in a row and alcohol duties for the second year were more of what was expected.
There were significant measures on housing as Sunak confirmed that the stamp duty holiday will be extended until the end of June to deal with the “huge volume” of transactions. He also said that to avoid a “cliff–edge” there will be no stamp duty for three months afterwards on properties valued below £250,000. The Government will also provide mortgage guarantees for new homebuyers who cannot afford large deposits. Mortgages of up to 95 per cent for home purchases of up to £600,000 will be available from next month from lenders including Lloyds, NatWest, Santander, Barclays and HSBC. Though critics will argue a mortgage guarantee scheme will artificially stoke house prices, Ian Mulheirn, Executive Director Policy at the Tony Blair Institute, suggested any effect would be small, while the policy necessary as the stamp duty cut is phased out.
Freeports also featured, to the adulation of supporters and the ridicule of the non–believer. Eight new freeports were announced across England, having previously existed until 2012. As a reminder, goods that arrive into freeports from abroad aren’t subject to the tax charges, called tariffs, that are normally paid to the government, unless those goods leave the freeport and are moved elsewhere in the UK. Otherwise, they are sent overseas without the charges being paid. Supporters say freeports can help increase manufacturing, encourage jobs and investment in areas that would otherwise struggle to attract them. In response, opponents argue they don’t boost employment overall, moving economic activity from one place to another but at a cost to the taxpayer. Northern Ireland is yet to set its own freeport policy.
Labour leader Sir Keir Starmer responded for the opposition and, following some slightly flat jokes, argued the Budget simply managed to “paper over the cracks”. There is always plenty to criticise within a Budget and Starmer did, as others will do over the coming days as the detail is examined. However, Starmer’s desire to attack the Chancellor in a jokey fashion, with repeated reference to Sunak’s branding campaign, seemed to be indicative of criticism the party has faced in recent weeks as it struggles to develop its identity.
The Budget contained a number of headline announcements, some of which have appeared scattered across the press in recent days. The Treasury has structured the policy announcements across fives areas: Covid–19, protecting jobs and livelihoods, strengthening public finances, creating an investment led recovery and investment across the four nations of the UK.
Northern Ireland, Scotland and Wales
• Individuals and businesses in Scotland, Wales and Northern Ireland continue to be supported by the UK Government through the Coronavirus Job Retention Scheme, self–employment grants, loan schemes and VAT cuts. Devolved administrations have received Barnett funding to provide support in areas of devolved responsibility.
• The Budget confirms an additional £2.4 billion for the devolved administrations for 2021–22 through the Barnett formula. This is an additional £1.2 billion for the Scottish Government, £740 million for the Welsh Government, £410 million for the Northern Ireland Executive.
• The devolved administrations will also receive £1.4 billion of funding in 2021–22 outside the Barnett formula.
• £27 million in the Aberdeen Energy Transition Zone and £5 million in the Global Underwater Hub in Scotland, the first stage in delivering the North Sea Transition Deal.
• Three Growth Deals in Scotland – Ayrshire, Argyll & Bute, and Falkirk – will receive funding more quickly.
• £4.8 million to support the development of a demonstration hydrogen hub in Holyhead, Anglesey.
• Up to £30 million for the Global Centre for Rail Excellence in Wales.
• Three City and Growth Deals – in North–Wales, Mid–Wales and Swansea Bay – will receive funding more quickly.
• Northern Ireland will benefit from the Corporation Tax exemption for the Northern Ireland Housing Executive.
• Almost half of the £400 million New Deal for Northern Ireland funding has been allocated, subject to business cases, to: new systems for supermarkets and small traders to manage new trading arrangements; building greater resilience in medicine supply chains; promoting Northern Ireland’s goods and services overseas; and supporting skills development.
• £5 million to extend the Tackling Paramilitary Programme in 2021–22.
• An extra £1.65 billion cash injection to ensure the Covid–19 vaccination roll–out in England continues to be a success.
• £28 million to increase the UK’s capacity for vaccine testing, support for clinical trials and improve the UK’s ability to rapidly acquire samples of new variants of COVID–19.
• £22 million for a world–leading study to test the effectiveness of combinations of different Covid–19 vaccines. This will also fund the world’s first study assessing the effectiveness of a third dose of vaccine to improve the response against current and future variants of COVID–19.
• A further £5 million on top of a previous £9 million investment in clinical–scale mRNA manufacturing, to create a ‘library’ of vaccines that will work against Covid–19 variants for possible rapid response deployment.
Protecting jobs and livelihoods
• An extension of the Coronavirus Job Support Scheme to September 2021 across the UK.
• An extension of the UK–wide Self Employment Income Support scheme to September 2021, with 600,000 more people who filed a tax return in 2019–20 now able to claim for the first time.
• An extension to the temporary cut in Stamp Duty Land Tax in England and Northern Ireland until September will support the housing market and protect and create jobs.
• A new mortgage guarantee scheme will enable all UK homebuyers secure a mortgage up to £600,000 with a 5% deposit.
• £5 billion for new Restart Grants – a one off cash grant of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England.
• A new UK–wide Recovery Loan Scheme to make available loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million, to help businesses of all sizes through the next stage of recovery.
• Extension of the Film & TV Production Restart scheme in the UK, with an additional £300 million to support theatres, museums and other cultural organisations in England through the Culture Recovery Fund.
• Six–month extension of the £20 per week Universal Credit uplift in Great Britain, with the Northern Ireland Executive receiving additional funding to match the increase. A one–off payment of £500 to eligible Working Tax Credit claimants across the UK.
• Extension to the VAT cut to 5% for hospitality, accommodation and attractions across the UK until the end of September, followed by a 12.5% rate for a further six months until 31 March 2022.
• 750,000 eligible businesses in the retail, hospitality and leisure sectors in England will benefit from business rates relief.
• Extension of the apprenticeship hiring incentive in England to September 2021 and an increase of payment to £3,000.
• £7 million for a new “flexi–job” apprenticeship programme in England, that will enable apprentices to work with a number of employers in one sector.
• Additional £126 million for 40,000 more traineeships in England, funding high quality work placements and training for 16–24 year olds in 2021/22 academic year.
• More than doubling the legal limit for single contactless payments, from £45 to £100
• £10 million to support veterans with mental health needs across the UK.
• £19 million to tackle domestic abuse in England and Wales, with funding for a network of ‘Respite Rooms’ to support homeless women and a programme to prevent reoffending.
• £90 million funding to support our government–sponsored national museums in England due to the financial impact of Covid–19.
• £300 million for major spectator sports, supporting clubs and governing bodies in England as fans begin to return to stadia.
• Small and medium–sized employers in the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay (SSP) costs per employee from the Government.
• To further support the cashflow of businesses, the government is extending the loss carry back rules worth up to £760,000 per company.
• £100 million for a new Taxpayer Protection Taskforce to crack–down on COVID fraudsters who have exploited UK Government support schemes.
Strengthening the public finances
• Maintaining the income tax Personal Allowance and higher rate threshold from April 2022 until April 2026.
• To balance the need to raise revenue with the objective of having an internationally competitive tax system, the rate of Corporation Tax will increase to 25%, which will remain the lowest rate in the G7. In order to support the recovery, the increase will not take effect until 2023. Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19% and a taper above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.
• Maintaining inheritance tax thresholds at their current levels until April 2026.
• Fuel duty will be frozen for the 11th consecutive year.
• Alcohol duties will be frozen across the board for the second year running
• Capping the amount of SME payable R&D tax credit that a business can receive in any one year at £20,000 (plus three times the company’s total PAYE and NICs liability).
• Maintaining the Lifetime Allowance at its current level of £1,073,100 until April 2026.
• The adult ISA annual subscription limit for 2021–22 will remain unchanged at £20,000.
An investment–led recovery
• Beginning April 2021, the new super–deduction will cut companies’ tax bill by 25p for every pound they invest in new equipment. This is worth around £25 billion to UK companies over the two–year period the super–deduction will be in full effect.
• Eight new English Freeports will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
• The £375 million UK–wide ‘Future Fund: Breakthrough’ will invest in highly innovative companies such as those working in life sciences, quantum computing, or clean tech, that are aiming to raise at least £20 million of funding.
• Reforms to the immigration system will help ambitious UK businesses attract the brightest and best international talent.
• A new Help to Grow scheme to offer up to 130,000 companies across the UK a digital and management boost.
• £2.8 million to support a UK and Ireland bid to host the 2030 World Cup and £25 million investment in UK grassroots sports, enough for around 700 new pitches.
• Launching a review of Research & Development tax reliefs to make sure the UK remains a competitive location for cutting–edge research.
• £20 million to fund a UK–wide competition to develop floating offshore wind demonstrators and help support the government’s aim to generate enough electricity from offshore wind to power every home by 2030.
• £68 million to fund a UK–wide competition to deliver first–of–a–kind long–duration energy storage prototypes that will reduce the cost of net zero by storing excess low carbon energy over longer periods.
• £4 million for a biomass feedstocks programme in the UK to identify ways to increase the production of green energy crops and forest products that can be used for energy.
• Publication of the government’s ‘Build Back Better: our plan for growth’.
• Over £1 billion funding for a further 45 towns in England through the Towns Fund, supporting their long–term economic and social regeneration as well as their immediate recovery from the impacts of COVID–19.
• £135 million to progress A66 Trans–Pennine upgrade.
• £28 million to fund the Queen’s Platinum Jubilee celebrations in 2022, delivering a major celebration for the UK.
• Plans for at least £15 billion of green gilt issuance in the coming financial year, to help finance critical projects to tackle climate change and other environmental challenges, fund important infrastructure investment, and create green jobs across the UK.
• £150 million Community Ownership Fund will allow communities across the UK to invest to protect the assets that matter most to them such as pubs, theatres, shops, or local sports clubs.
• £18.8 million to transform local cultural projects in Hartlepool, Carlisle, Wakefield and Yeovil.
• Publication of the prospectus for the £4.8 billion UK–wide Levelling Up Fund, providing guidance for local areas on how to submit bids for the first round of funding starting in 21–22.
• The UK’s first infrastructure bank, which will channel billions of pounds into big projects and help tackle climate change, will be based in Leeds. The Chancellor said it would finance the “green industrial revolution”.