Perhaps it was the lack of wiggle room afforded to him or the fact that today’s Government is like a sieve when it comes to news of plans and ideas circulating around the cabinet table, but the lack of surprise elements in this week’s budget was probably, in itself, not a surprise.
As our preview blog post in February considered, there were few routes open to the chancellor. With most of the UK still in lockdown and a protracted exit planned, now was not the time to go silly in either spend or taxation. But whilst there will be those that bemoan the real terms or actual tax rises and highlight the fact that the collective measures create the biggest tax burden faced in over 50 years, the simple fact is he seems to have walked the line in the most trying of circumstances.
The Financial Outlook – Key Facts:
- 4% growth forecast for 2021 as the economy begins a rebound.
- The economy shrank by 10% in 2020.
- Unemployment is expected to peak at 6.5% in early 2022 – currently at around 5.1%
- Borrowing will peak at over £350bn, dropping to £234bn in 2022.
- The OBR believes the economy will be around 3% smaller in 2025 than previously forecast.
Here’s a brief roundup of the key measures likely to impact Evans Weir clients:
- Furlough is extended until the end of September and the criteria remain unchanged, meaning the Government will still cover up to 80% of pay for hours not worked. However, businesses are being asked to contribute in the latter months of the scheme – 10% in July and 20% in August and September.
- Self employed grant scheme extended to end of September and access to the scheme is widened enabling more people to make a claim.
- £20 increase in Universal Credit extended for an extra 6 months, worth around £500 extra to claimants.
- One off payment for Working Tax Credit claimants with each receiving £500.
- Business rates holidays continue until the end of June and then be subject to a 75% discount after that.
- Corporation tax rates will rise but will be tapered. Smaller companies with profits of less than £50,000 will continue to pay 19%. Companies with profits over £250,000 will see an increase of 6% in April 2023, taking their rate to 25%. Companies with profits between these two thresholds will pay a tapered rate.
- Huge new Solent Freeport announced that will cover both Portsmouth and Southampton ports and also extend inland for up to 20 miles, offering tax free trading opportunities, investment and fast track planning for new developments.
- Hospitality VAT at 5% remains until the end of September and will then be followed by an interim rate of 12.5% to the end of March 2022.
- 130% tax relief for qualifying investments with the amount of the investment plus 30% being deducted from tax bills.
- Contactless payment limit rises to £100 later this year, allowing more cashless transactions to be handled.
- Personal allowances will rise slightly then freeze – The tax-free personal allowance will rise by £70 to £12,570 from April 21 but then remain at that level until April 2026.
- Higher rate threshold will increase then freeze – Like the personal allowance, the higher rate threshold will be frozen until April 2026, but there will be a £270 increase applied this April, taking it to £50,270.
- Stamp duty holiday extended, until the end of June, allowing the current log jam caused by a surge in house purchases to be resolved. This means that there will be no stamp duty payable on the first £500,000 of the value. This threshold will drop to £250,000 at the end of June and run until the end of September, before reverting to normal levels after that.
- IHT, CGT and pensions allowances frozen at their current rates until 2026.
- National Living Wage increased to £8.91/hour from April.
- Planned rises in fuel and alcohol duties postponed meaning there will be no increase on the tax paid on wine, beer, cider or spirits and fuel duty will be frozen. Tobacco duty will rise by inflation plus 2%
Needless to say, the budget, at more than 100 pages plus supporting evidence, contains many more announcements than are outlined above and reach the despatch box. Typically, more information emerges over the following days as economists and accountants across the land pour over the detail. But some other key announcements made during the Chancellors speech were billed as laying foundations for economic expansion in key areas of the UK; perhaps unsurprisingly, with a major focus on the North of England as the Conservative party seek to deliver on their ‘levelling up’ agenda. Amongst these announcements we heard of the creation of a UK infrastructure bank being set up with £12bn of capital and HQ in Leeds, several more Freeports in areas such as East Midlands, The Humber, Teesside and Liverpool and the relocation of 750 civil service jobs, mainly attached to the Treasury, to a new campus in Darlington. There was also £1bn of funding to support regeneration in 45 UK towns, more funding for apprenticeships and support for community groups keen to take over running their local pub, if at risk of closure.
Budget 2021 in Summary
As we anticipated in our preview blog post, this budget was never going to culminate in a puff of smoke and a big reveal of some headline grabbing announcement and in that respect it did not disappoint. But what the Chancellor seems to have pulled off, is the imposition of the greatest tax burden for more than half-a-century and real terms tax rises across the board with little backlash. This is largely down to the fact that many of the measures are delayed and therefore wont really bite until 2022 and beyond. A strategy either designed to give him time to reverse the decisions, if growth outstrips forecasts, or simply giving taxpayers time to swallow a bitter pill.