Chancellors are remembered for their Budgets. They are a chance to demonstrate their innovative ideas, wisdom and endear the country with their generosity, while they set out their own and their party’s vision for the future.
But Chancellor Rishi Sunak is dealing with an ongoing crisis. The government has borrowed c£270bn to fight the pandemic. It needs to support millions out of work or on furlough and the businesses that can’t do business.
His budget had to be less about political grandstanding, and more about firefighting. He pledged in his opening remarks to continue to do “whatever it takes” to protect people from the financial effects of Covid and repair the economy.
But what exactly will it take – and what will it cost you?
What is the damage to the economy?
With more than 700,000 people losing their jobs, unemployment at a five-year high and the economy shrinking by 10%, the Chancellor admitted that there has been acute damage to the economy.
“It’s going to take this country, and the whole world, a long time to recover from this extraordinary situation,” he said.
There is also the government borrowing to deal with. The budget deficit will be £355bn this year, or 17% of GDP – the highest level in peacetime – which will need to be paid off.
However, the Chancellor’s outlook is not all downbeat. He stated his view that the economy will recover more quickly from the pandemic than previously thought, returning to its pre-pandemic size by the middle of next year, with some spectacular growth figures to look forward to.
The Chancellor may be looking at this growth – rather than punitive taxation and a programme of austerity – to provide the way out of the crisis. His budget could be seen as geared to supporting growth, rather than raiding personal wealth as some observers feared.
He said of the debt “It’s going to be the work of many governments over many decades to pay it back, just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked,”.
This suggests that there could be tax increases somewhere in the future – but not yet. So what exactly are the measures he formally recommended to Parliament in the March 2021 budget?
More than 4 million people are on furlough, and the Chancellor clearly believes that the scheme has been vital to getting individuals and employers through the crisis. He confirmed that the furlough scheme will be extended until the end of September. Employees will continue to receive 80% of their wages until the scheme ends, but firms will be asked to contribute 10% in July and 20% in August and September as the scheme is phased out.
The self-employment income support scheme has also been extended. The fourth grant will cover February to April, worth 80% of average trading profits up to £7,500.
More Business support
The chancellor confirmed a £5bn restart grant for businesses to help companies get going after lockdown.
There will also be a new business loan scheme providing between £25,000 and £10m which will run until the end of the year.
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, in a £6bn tax cut.
The 5% reduced rate of VAT for the sectors will be extended until the end of September, rising to 12.5% for six months, before returning to the standard rate from April 2022.
More help with housing
The importance of housing to the economy is not lost on the Chancellor. The stamp duty holiday on properties up to £500,000 is extended until the end of June before being phased out in the end of the summer.
There will also be a mortgage guarantee scheme to help first-time buyers access 95% mortgages.
But no more personal tax?
The Chancellor says the government will take a “fair” approach to “fixing the public finances”.
This means that the government will not raise national insurance, income tax or VAT, but will freeze personal tax thresholds, as widely anticipated.
The personal allowance will remain at £12,750 until 2026. The higher-rate threshold will increase to £50,270 next year, and also remain at that level.
The inheritance tax threshold, pensions lifetime allowance, annual exempt allowance from capital gains tax and VAT exemption threshold will also be frozen.
Making the most of your tax position will still be vital. Contacting your Continuum adviser now might help take full advantage of your 2020/21 tax allowances and start planning for the new tax year.
But more Corporation tax – eventually
In line with the Chancellor’s growth focus, it looks as though it will be business which will feel the first impact of tax increases. In April 2023, the rate of corporation tax will increase to 25%. The rate will be tapered so that only businesses with profits of more than £250,000 will be taxed at the full 25% rate. Only 10% of companies will pay the full higher rate. Companies with profits of less than £50,000 will remain at 19%.
“It’s a tax rise on company profits, but only on the larger more profitable companies, and only in two years’ time.” Chancellor Rishi Sunak
This is a big rise, but its deferment may reduce complaints from businesses who see their own best interests in a thriving economy. Interestingly, the Chancellor is allowing a 130% super-deduction on tax for investments made by companies. This means firms can cut their taxes by up to 25p for every pound they invest. Again, stimulating the economy is the obvious goal.
More Low-carbon investment and levelling up
The environment may be one of the few factors that trumps the crisis. The chancellor announces the new national infrastructure bank will open in Leeds with £12bn capitalisation from the government, and green projects will be supported through a green recovery bond.
This “Green Bond” will be provided by the government-backed National Savings and Investments (NS&I). Details of the rates will be revealed soon. It could have a part to play in a diversified portfolio
There will also be some progress towards the “levelling up” objective to support the development of the economy outside the South East. The Treasury will establish an economic campus in Darlington, alongside the business, international trade, and housing and communities departments among others.
There will be funding available for new “town deals” across the UK.
Freeports – special economic zones with different rules to make it easier and cheaper to do business – will be launched. East Midlands airport, Plymouth, Solent, Thames and Teesside, Felixstowe and Harwich, Humber, Liverpool city region have all been named, and will offer favourable customs duties and taxes.
All may have been chosen to support international trade and it looks as though – if the recovery is coming – the Chancellor could be making it easier for businesses large and small to take advantage of it.
For the rest of us, it could mean opportunities for profitable investment, if you call on some professional help from the Continuum team.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Request a callback
Our services at Continuum are delivered by some of the most qualified advisers in the UK, to create the ultimate client experience.