Chancellor Rishi Sunak delivered his second budget on Wednesday, laying out spending plans to get the economy back on the road to recovery. Sunak started off with a realistic summary of the current situation that’s seen the economy shrink by 10% with 700,000 unemployed and wartime levels of government borrowing.
Despite the sobering reality, Sunak went on to offer reassurance that the UK response effort is working. The OBR is now forecasting a “swifter and more sustained recovery” than they were expecting in November. The economy is expected to recover to its pre-Covid level by the middle of next year – six months earlier than previously expected.
The main Budget highlights are as follows:
- Personal Tax thresholds are to be frozen until 2026. The basic allowance will continue to go up to £12,570, as planned. But then it will stay at that level until 2026. The higher rate threshold will also go up to £50,270, but will then be frozen for the same period.
- The furlough scheme, which pays 80% of employees’ wages for the hours they cannot work in the pandemic, will be extended until the end of September. Employers will be expected to pay 10% towards the hours their staff do not work in July, increasing to 20% in August and September, as the economy reopens.
- There will also be an extension to the Self-Employment Income Support Scheme with changes that also allow around 600,000 newly self-employed to qualify, providing they have filed a 2020 tax return. People whose turnover has fallen by 30% or more will continue to receive the full 80% grant, with those whose turnover has fallen by less receiving a 30% grant.
- Universal credit £20 uplift will be extended for another 6 months – in the form of a one off £500 payment. The National Living Wage will also go up, to the equivalent of almost £350 a year.
- To continue supporting the 150,000 businesses in the tourism and hospitality sectors, the government will extend the temporary 5% reduced rate of VAT until 30 September 2021. Then it will be gradually increased, at 12.5% for six months, before returning to the standard rate from April 2022. Sunak says this is a cut worth £5bn.
- Good news for those buying a new home is that the £500,000 “nil-rate band” for stamp duty will be extended to the end of June, rather than the end of March, as planned. It will then be tapered until September. This means that until 30 June 2021, no stamp duty will be charged on a residential property bought for up to £500,000. After 30 June and up to 30 September 2021, no stamp duty will be charged on a residential property bought for up to £250,000.
- Corporation tax is to rise from 19% to 25% in 2023, but companies with profits of less than £50,000 will still pay 19%. The Chancellor said that this means only 10% of firms will pay the higher rate.
- There will be a “Super Deduction” – a tax break encouraging firms to invest in their business. Firms can reduce their taxable profits by 130% of what they spend on qualifying plant and machinery investment. Under the current rules a firm spending £10m on equipment can reduce their taxable income by £2.6million. With the Super Deduction they can now reduce it by £13.6million. The OBR thinks it could boost investment by 10%.
- Alcohol duty will be frozen for the second year in a row, and fuel duty for the 11th year in a row.
- In November the chancellor announced the launch of a world-leading sovereign green bond. The Budget went further by announcing a new retail savings product to give all United Kingdom savers the chance to support green projects. Sunak said that he wants to make the City a global leader for voluntary high quality carbon offset markets.
- Eight locations for freeports were announced. These are special economic zones where a country’s normal tax and customs rules don’t always apply. Simpler planning rules will help the construction of infrastructure. The Freeports are: East Midlands Airport, Liverpool, Felixstowe, Humber, Plymouth, Thames, Teesside, and Solent.
Responses to the Budget criticised the lack of support for the country’s most vulnerable people. The Chancellor’s statement ignored the social care system and set out only a temporary extension of the universal credit boost that could see 500,000 people left in a precarious position next winter.
The Budget did not include any detailed plans for the NHS, and unions complained it was “strangely silent” on public services. The red book published alongside Sunak’s statement showed the NHS England budget will fall from £148bn in 2020-21 to £139bn in 2021-22.
Health experts said the failure to give the NHS any extra cash, except £1.65bn for the vaccine rollout, would leave it struggling to cope with the pandemic’s “challenging legacy”, particularly with regards to the increasing levels of mental illness.
Jonathan Ashworth, the shadow health secretary, commented that “Rishi Sunak promised to be ‘open and honest’ with the British public. But buried in the small print of his budget is a cut to frontline NHS services that will increase pressure on staff and do nothing for patients stuck on growing waiting lists.”
As with all budgets the devil is in the detail. It won’t be until Tax Day – 23 March – that the full extent of the policies announced today will be open to public scrutiny and we will be able to see how well the Chancellor is “protecting jobs and livelihoods”.
For more on the latest economic outlook and hiring news, you can read our article here. If you’re starting a new contract, ContractingWISE has access to a wide range of hassle-free services that can help you with setting up a limited company or finding the right umbrella company for you. To talk to a member of our team, call: 0203 642 8679