Chancellor of the Exchequer Rishi Sunak has paved the way for the year with his three-point economic plan to fix public finances and the economy. He announced new measures to help business and jobs through the ongoing pandemic, and support the UK's long-term economic recovery through a series of tax-raising plans. Setting a tough tone for the announcement made on March 3, he said he will do “whatever it takes” to help people and businesses through the “moment of crisis” caused by the Coronavirus. Speaking in the House of Commons, he said. “We're using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people.”
In his opening remarks, Sunak said there has been acute damage to the economy, with more than 700,000 people losing their jobs, the economy shrinking by 10 per cent, and borrowing at the highest. “It's going to take this country, and the whole world, a long time to recover from this extraordinary situation,” he said.
Furlough
Sunak extended the furlough scheme until the end of September. Employees will continue to receive 80 per cent of their wages until the scheme ends, however, firms will be asked to contribute 10 per cent in July and 20 per cent in August. The scheme will be gradually phased out in September. Sunak confirmed that the self-employment income support scheme has also been extended. The fourth grant will cover February to April, worth 80 per cent of average trading profits up to £7,500. The £20-a-week increase in universal credit is extended for six months. He said unemployment will peak at 6.5 per cent down from a forecast peak of 11.9 per cent last July.
Support for businesses
During the Budget, Sunak stated that the total direct cash support to businesses has reached £25bn. With the government-backed bounce back loan (BBL) and coronavirus business interruption loan scheme (CBILS) coming to an end, the Treasury is launching a new loan scheme to run until the end of the year. Loans can be between £25,000 and £10m.
The 5 per cent reduced rate of VAT will be extended until the end of September. Then it will be gradually increased, at 12.5 per cent for six months, before returning to the standard rate from April 2022. In a £6 bn tax cut, hospitality and leisure businesses pay no business rates for three months, then rates will be discounted for the remaining nine months of the year by two-thirds.
Housing & spending
Stamp duty holiday on properties up to £500,000 has been extended until the end of June. It will be kept at double its standard level until the end of September, and then returned to usual levels from October 1. Sunak confirmed a mortgage guarantee to help first-time buyers access 95 per cent mortgages. The Chancellor announced a total Covid support package worth £352 bn for this year and next.
Corporate taxation
The rate of corporation tax will increase to 25 per cent in April 2023, the lowest rate in the G7 according to Sunak. He said businesses will only be impacted if they are making profits, and the change will only come in once the OBR forecasts the economy will be recovering. The rate will be tapered so that only businesses with profits of more than £250,000 will be taxed at the full 25 per cent rate; meaning, only 10 per cent of companies will pay the full higher rate. Companies with profits of less than £50,000 will remain at 19 per cent. Sunak said, “It's a tax rise on company profits, but only on the larger more profitable companies, and only in two years' time.”
Health & education
Sunak has announced £16.5 bn to support the UK's vaccination rollout, and £50 m to boost the country's vaccine testing capability. £19m has been promised for domestic violence programmes, funding network of respite rooms for homeless women. £40 m for new funding for victims of 1960s Thalidomide scandal, and lifetime support guarantee. £10 m has been announced in support of armed forces veterans with mental health needs.
Back-handed tax on pensions
The Chancellor has frozen the lifetime allowance (LTA) for pension contributions at £1,073,100 until April 2026, rather than let it increase in line with inflation. It was expected to rise by £5,800 in 2021-22 in line with 0.5 per cent Consumer Prices Index. The freeze is estimated to net the Treasury an additional £250 m in tax, meaning more people will be dragged over the threshold and could face a 25 per cent tax on any additional income from their pension pot. In this tax relief, the government takes what you would have paid in income tax and puts it in your pension instead. Basic rate taxpayers get a 20 per cent boost and higher earners, those earning more than £50,000, get 40 per cent.
Environment and low-carbon investment
The new national infrastructure bank will open in Leeds with £12 bn capitalisation from the government. Green projects will be supported through a green recovery bond. £15 bn in green bonds, including for retail investors, to help finance the transition to net zero by 2050. The Chancellor said the Treasury will reform the Bank of England's mandate to include targeting net zero emissions, in addition to the existing 2 per cent inflation target.
