Sunak empties his purse for a pandemic-beating budget
Coronavirus lockdown keeps chancellor’s attention on the short term, with the promise of jabs securing jobs for an upturn next year
The impact of the coronavirus pandemic on the UK’s economic agenda dominated the Chancellor’s 2021 Budget Statement, with support for business and jobs receiving top-line billing.
In a statement focused on “protecting jobs and livelihoods”, the Chancellor outlined a range of measures designed to provide a continuing safety net for individuals, businesses, and the wider economy during the planned exit from lockdown and beyond, as outlined in the Prime Minister’s roadmap in February.
This further support will see the country recording the highest-ever level of peacetime borrowing, at 16.9% of GDP, and Mr Sunak paved the way for future tax revenues to restore public finances, including a rise in corporation tax from April 2023.
Business rates reliefs, cash grants, recovery loans and job support packages have all been extended. The furlough and self-employed support schemes will now run until September, with a reduced Government contribution as the economy starts to open up after the anticipated ending of lockdown. The £20 uplift to Universal Credit will continue and the national living wage will increase to £8.91 from April.
There will be new grants and loan schemes for all business from April, replacing the existing schemes which are now finishing, and non-essential retail, hospitality, personal care and gyms will benefit from targeted support for re-opening, with a cash grant scheme and an extension to the reduced rate of VAT for hospitality and tourism. The 5% VAT rate will stand until the end of September, then 12.5% for the next six months, before returning to the normal 20% rate in April 2022. The arts, culture and sports are also in line for £700m of support.
As predicted, there was an extension to the holiday on stamp duty land tax (SDLT) on the first £500,000 of a property purchase, meaning a tax saving of up to £15,000 for buyers. This was set to return to the pre-pandemic threshold after 31st March but has been extended until 30th June, to enable a backlog of transactions to complete.
In another move to stimulate the property market, a new mortgage guarantee scheme has been unveiled. Designed to help people onto the property ladder with smaller deposits, the scheme will provide a guarantee to lenders who offer mortgages to people with a deposit of 5%. This will be available for new mortgages up to December 2022 and applies to homes with a value of up to £600,000.
The measures outlined will bring Government support in response to the coronavirus pandemic to £407bn – the highest level of public sector net borrowing since the Second World War. However, this level is predicted to fall from a high of almost 17% of national income in 2020/21 to just 2.8% over the next five years.
While the Chancellor did not propose any immediate or highly contentious tax rises, he has initiated some income-generating measures which will start to pay off in the coming years. This saw the freezing of many allowances, beyond any previously promised increases. The personal income and higher rate tax allowances are frozen from 2022-23 onwards, while the exempt amount for Capital Gains Tax, the Pensions Lifetime Allowance and the threshold for Inheritance Tax will be held at their current rate up to and including 2025-26.
Changes to corporation tax will see bigger business paying 25% from April 2023, although those with profits of less than £50,000 will continue to pay the current rate of 19%, and there will be a tapered increase for those with profits between £50,000 and £250,000, so only those with profits in excess of £250,000 will pay the highest rate.
In good news for business, the tax treatment of losses will allow companies a three year carry-back to write off losses of up to £2m. Also, upfront capital allowances will see qualifying new plant and machinery assets benefiting from a 130% first-year capital allowance in a drive to boost economic activity.
Despite the continuing lockdown, growth forecasts by the Office for Budget Responsibility have been revised upwards since November 2020, with the Office predicting a faster and more sustained recovery to reach pre-Covid levels by the middle of next year.
And while many of the announcements were widely trailed before the day, such as extensions to the furlough scheme and the stamp duty holiday, the Chancellor kept a few cards up his sleeve, with the announcement of various economy-boosting initiatives. These included the naming of eight new Freeports; measures designed to promote investment in environmental sustainability and the transition to net zero emissions; and a range of measures to support productivity, science and technology, and digital adoption.
This Budget delivered as expected, with the focus on the economic impact of the ongoing pandemic, little in the way of nasty surprises and some potential tax-generating scenarios held back for now. One of those is the announcement on inheritance tax, following the recent consultation, and tax planning remains a priority while we wait, whether by individuals or anyone planning to sell their business.
These days, many plans are trailed or ’leaked’ in advance of the Chancellor’s statement. The stamp duty holiday extension is an example of this, but conveyancing departments and homebuyers will be relieved to hear this confirmed. Everyone involved in the house buying process, from lenders and lawyers to local authorities, have been trying to keep pace with the huge rise in demand from buyers wanting to complete before the cut-off. The Chancellor’s extension should enable those transactions already in process to safely complete, although new purchases may struggle to beat the new deadline from a standing start.
The Chancellor also announced a range of measures to support the victims of domestic abuse in the Budget. The pandemic and lockdown has not only affected people financially; we have seen a marked increase in requests to our family law team, whether people are struggling in close living conditions through lack of compatibility or because of more serious issues, such as domestic abuse. The statistics back this up, showing a significant rise in domestic abuse during the pandemic, and we welcome the news from the Chancellor that there will be more support for the victims.
Source: Office for National Statistics and Office for Budget Responsibility