‘Whatever it takes‘
A phrase used repeatedly in Sunak’s opening statement, a broad warning to MP’s and citizens alike, of sacrifices to be made and hard times to come. A budget of this kind would be rarely seen out of wartime, with unprecedented deficits, spending and government support needed for such a crisis. COVID-19 has seen acute damage to the economy, with 700,000 jobs lost and the economy shrinking 10%, the largest in 300 years.
Sunak promises an earlier recovery, with our economy being back to its pre Covid-19 position by the middle of next year. However, with covid rates and lockdown levels rising and falling across Europe, one wouldn’t be unjust to question his confidence in such a claim. Sunak also aims for GDP rates to continue climbing 4% this year, down from the original 5% forecast.
Unemployment has a positive outlook with it dropping to 6.5% down from the original 11.9% July forecast, if this tells true it will be mean a fewer 1.8m people out of work.
‘Borrowing, Spending and the Deficit’
Desperate times call for desperate measures, and the Chancellor has taken a very much ‘head above water’ approach in 2020’s borrowing plan.
During 2020, £355bn (17% of GDP) was borrowed, Sunak aims to reduce this to 3.5% in 2023-24 and to 2.8% by 2026. This means the overall national debt will not stabilise until 2024.
Sunak is conservative about ceasing government support too early in such a crisis, whilst balancing the increasing levels of debt.
‘What this means for your taxes’
For the 2021/22 tax year, the income tax personal allowance increases to £12,570, and the income tax basic rate band increases to £50,270. Both of these limits will be frozen until 2026.
A number of tax thresholds and allowances will be frozen. These include:
- Income Tax Rates
- Inheritance Tax Thresholds
- Lifetime Pension Allowance
- Capital Gains Tax Annual Exemption
- VAT Registration Threshold
‘What if I am furloughed?’
The Furlough Scheme will be maintained until the end of September, with employees receiving 80% of their original salary. If the promise of all British citizens receiving the vaccine by July holds water, then the timing would seem appropriate for the second jab.
However on the employers side, for the month of July they will have to pay 10% of the employee wage, and 20% in August.
For those who are self-employed from February to April 2021, they will continue to receive 80% of average trading profits, up to a maximum of £7,500.
In addition to this extra weekly £20 for universal credit recipients will continue for another 6 months.
The furlough extension schemes are logical moves in line with the current climate. However, it will be hard to foresee how vulnerable the private sector will be if a large majority of furloughed employees are not rehired.
‘What is means for Business’
Sunak has confirmed a £5bn restart grant on top of the £25bn already spent on private business support.
With the closing of applications for both the Coronavirus Business Interruption Loan and the Bounce Back Loan Schemes at the end of March 2021, he has announced a new Recovery Loan Scheme which provides lenders with a guarantee of 80% on eligible loans between £25k and £10m.
Those in the hospitality and leisure industry will pay no business rates for three months, having been hit hardest by the pandemic. After which they will pay a third of the usual rates for the remainder of the 2021/22 tax year.
The discounted 5% VAT rate for the hospitality and tourism sector will be extended until September, then raised to 12.5% for 6 months, finally returning to its standard 20% rate in April 2021.
A VAT deferral payment scheme is also being offered, allowing businesses to pay deferred VAT payments due between 20 March 2020 and 30 June 2020 over a period of between 2 and 11 months. The length of instalments will decrease the later you apply for the scheme.
In an effort repay the large debts incurred by the COVID-19 support measures, Sunak is raising Corporation Tax from 19% to 25%, a large increase but still the lowest rate in the G7. These changes will come into effect in April 2023. The amount of tax deducted will be tapered based on the companies annual profits with companies with profits over £250k paying the new 25% rate, and companies with profits of £50k or less staying on the original 19% rate.
The Chancellor also announced the extension of the normal loss carry-back rules from one year to three years for losses of up to £2 million. This will enable tax repayments to be claimed, providing relief and cash flow support for businesses.
In addition, a 130% Tax Super-Deduction for reinvestments is to be implemented. This will encourage larger companies to reinvest earnings and guardedly grow the economy.