UK Budget 2021: A summary of key announcements
Chancellor Rishi Sunak has announced his Spring 2021 Budget promising further support for Covid-hit businesses and workers. As well as supporting and boosting industries ravaged by the coronavirus pandemic, the announcement also looked ahead to the difficult process of repairing the public finances.
At a Glance
The UK furlough scheme, business rates relief, and stamp duty holiday will all be extended. A tax-cutting scheme to encourage business investment was announced along with a new loan guarantee programme. The locations for the Government’s northern hubs and eight new freeports were also announced.
However, Mr Sunak indicated his intent to shore up the public finances in 2023 via a tax hike for large businesses. This tax rise is deemed to be feasible thanks to an optimistic report from the Office for Budget Responsibility (OBR) that predicts a swifter economic recovery than previously thought; with growth higher, unemployment lower, and UK GDP returning to pre-Covid levels by 2022.
Over £280bn has already been allocated to propping up the UK economy, but the spending continues. The chancellor extended the furlough scheme to September, with the government continuing to pay up to 80% of worker’s wages. Employers will have to start paying 10% towards their employees’ furlough pay from July and then 20% from August.
Mr Sunak also announced further grants for the self-employed, widening the Self-Employment Income Support Scheme (SEISS) to include 600,000 who were not previously entitled,
The Treasury has confirmed extra funding for apprenticeships with a cash incentive to take on apprentices increased from £1,000 to £3,000 per hire. The £20 boost to weekly Universal Credit payments was also extended for a further six months.
The government has spent a record amount on protecting the economy, but the announcement also initial steps towards clawing back this sum. It is a harsh reality and Mr Sunak laid out the situation starkly:
“Our economy has shrunk by 10% – the largest fall in over 300 years. Our borrowing is the highest it has been outside of wartime.
“It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover.”
Corporation tax will rise from 19% to 25% in April 2023. However, Mr Sunak maintained that the UK would still have the lowest rate in the G7 and it is likely that only one in ten companies would pay this new rate. Small firms with profits under £50,000 will still enjoy the lower rate of 19%.
The Chancellor also announced that income tax thresholds will be frozen until 2026 after next year’s planned increases. This will bring 1.3 million more people into paying income tax and a million more into paying at the higher rate
The Budget also featured a new “super deduction” – a tax relief intended to drive business investment. This relief will cut taxes by 25p for every pound invested. There was also announcement of an extension to the carry back of trading losses for corporation tax made in accounting periods that end between 1 April 2020 and 31 March 2022. In combination, these measures could generate substantial tax savings and tax repayments for companies to reinvest.
Business rates relief for the sectors hit hardest by the pandemic has been extended for three months in full. For the remaining nine months of the year, business rates will be discounted by two-thirds. The reduced VAT rate of 5% for the hospitality, accommodation and tourism sectors will also be extended until the end of September. The rate will then be 12.5% for a further six months.
A new “restart grants scheme” for businesses will provide £5bn in handouts ranging from £6,000 to £18,000 for affected business. Business interruption and bounce back loans will be replaced with new state-backed “recovery loans” of £25,000 up to £10m.
However, despite 600,000 new self-employed people becoming eligible for government support, directors of limited companies still do not qualify for the SEISS, even though many are de facto freelancers with no employees.
A new UK Infrastructure Bank will be established in Leeds. It will be given £12bn of capital and £10bn of government guarantees to help drive business investment. Almost £400m will be invested alongside the private sector in high-growth start-ups.
Eight new free ports will be set up which will enjoy lower taxes and cheaper customs. They will be located at East Midlands airport, Liverpool, Felixstowe, Plymouth, Thames, Teesside, Humber and Solent.
With this budget, much rides on the accuracy of the more positive OBR economic forecast. There has been support for the short-term focus on business survival and growth rather than addressing the debt but also a worry that eventual business tax hike will choke off recovery. Indeed, the corporation tax rise is likely to be key the talking point for some time to come. To explore the implications of the 2021 Budget for your business more fully, please feel free to contact Briars.