Budgeting your way to recovery
22nd March 2021
On 3rd March 2021, almost one year after the initial lockdown, Rishi Sunak delivered his budget speech. Over the past year, the coronavirus pandemic has hit the UK economy and public finances hard. The government has had to borrow billions of pounds to help cover costs and support jobs and businesses. This year’s budget was always going to be an interesting one, as we learn what the government’s plans are for the economic recovery.
The Main economic response to a year after Coronavirus
- The government have set aside £1.65bn to support the rollout of the coronavirus vaccine.
- The furlough scheme that the government implemented to help businesses pay employee’s wages will be extended to the end of September.
- The minimum wage will increase from £8.72 an hour to £8.91 an hour.
- There has been a sharp rise in unemployment by 700,000 which has contributed to the decline in the economic growth by 10%, the largest fall experienced in 300 years with borrowings higher compared to that experienced during a period of war.
- There has been an extension on the temporary £20 per week increase to the Universal Credit Allowance for a further six months.
- Rishi Sunak presented the UK economy’s future path to parliament with a £65bn boost for businesses and workers impacted by covid.
- Businesses will have the opportunity to receive support through new loans issued by the Treasury, which will continue until the end of the year; loan limits can range from £25,000 to £10m. Giving businesses the vital support needed to survive.
Income Tax, National Insurance and Pension
- There will be no changes to the rates of income tax or national insurance.
- The personal allowance will increase to £12,570 from April 2021, but that figure will remain until 2026.
- The higher rate income tax threshold will increase to £50,270 from April 2021, but once again, that figure will remain the same until 2026.
- The pension lifetime allowance will remain at the current figure of £1,073,100 until 2025-26.
Capital Gains Tax
- As with pensions, the tax-free allowance and rates for Capital Gains Tax will remain the same at £12300 for the next few years. It has been quite a concern as people still do not know how much it will increase by and whether they should liquidate assets and pay the current rate of tax on them now before the rates get worse (source FT March 3rd)
- £5bn grant for high street businesses and businesses in the hospitality sector – £18,000 per business to assist them in re-opening once lockdown eases.
- Corporation tax has not changed this year; however, it is set to increase in 2023, bringing the rate up from the current 19% to 25%. Only businesses with profits of over £250,000 will use this rate.
- The VAT cut of 5% that was meant to last until the end of March will now be exempt until the end of June for non-essential businesses, at which point they will pay a discounted figure (one-third of the normal charge) up to a maximum of £2m for closed companies. The chancellor called it a £6bn tax cut.
- Large retail supermarkets that were allowed to stay open and paid £2bn of the relief they received back to the government have said they are happy to continue to do it this tax year, which helps evens out the playing field and allows for more money available to be spent on more disadvantaged, smaller businesses who are struggling more.
Arts and sport
- A significant sector affected by the pandemic, the entertainment industries will receive help.
- There will be £390 million to help arts venues in England, including theatres, museums, and galleries, to reopen after lockdown.
- £90 million to help national museums and cultural bodies.
- A £300 million recovery package will aid the professional sport, and there will be a further £25 million for grassroots football.
Alcohol, tobacco, and fuel
- All alcohol duties are frozen for another year.
- Fuel duty is frozen for the eleventh year in a row.
- No further rises in tobacco duty.
Future Economic Growth (GDP)
Economy to recover to pre covid levels summer 2022, six months earlier than previously thought. Corona has caused damage that is still ongoing, and this has stunted the UK economic growth as it is expected to be 3% below the forecasted rate in five years. Therefore, Sunak explained the UK has a long road ahead in its recovery.
Economy growth (GDP) The Office for Budget Responsibility expects growth this year by 4%.