This was quite understandably another ‘needs must’ Budget to ensure that people continue to be employed and businesses survive under the weight of the prolonged Covid-19 restrictions.
For Rishi Sunak, this Budget represents a calculated risk, not only with regard to the nation’s economy, but also for his own political ambition, something he flaunts with unabashed self-confidence. As part of managing the threat of inflation, the Chancellor has signalled the end of Government borrowing and has begun to outline how we will start to repay the COVID-19 debt. Sunak is also emboldened by OBR predictions that the UK economy is now likely to recover more quickly than expected and has decided against a substantial stimulus as seen in the US.
This is the first chance the Government have had to set out the stall for a dynamic, innovative, growth-oriented economy post-Covid and post-Brexit; and it was a chance Rishi Sunak grasped with both hands. There was a clear focus on the need to build back better as part of our economic recovery from the pandemic and there is no doubt the Chancellor, at least outwardly, appears optimistic about the UK’s future.
It’s clear that he and the government see innovation and technological advances as key to economic growth and job creation. There were thoughts that Sunak – ever the consummate communicator – might pull the proverbial rabbit out of the hat. Even though it wasn’t the wider the tax reform that some fiscal Conservatives might have craved, or the CapEx infrastructure ‘Red Wall’ voters would’ve liked, Sunak was still bold and key innovations widely welcomed.
Putting his faith in UK businesses’ ability to grow and adapt, the Chancellor’s policies to boost growth under the Build Back Better banner were interesting and, to use the Budget’s buzzword, innovative. Clearly wanting to drive investment in innovation, a review of the R&D tax relief and promises to make it easier for entrepreneurs, gives Government and industry the opportunity to develop a framework that actually incentivises research, innovation and development, as well as creating jobs across the country.
While recognising that it will take time to create an economy akin to that of Singapore, the Chancellor is clearly aspirational about what can be achieved if Government enables and incentivises business to invest in technology and skills. Much has been made of the Government’s ability to set its own skilled migration policy now the UK has left the European Union. It’s a difficult political balance for the Government but Sunak is prepared for some short-term risk for greater long-term reward with visa reforms aimed at bringing high-skilled migrants to the UK.
While some compared the Chancellor to a superhero last year when he outlined the significant measures the Government would take to protect jobs and businesses, this year, that superhero has a name: The Super Deductor. Where consumer confidence in the summer of 2020 was key to the Government’s economic strategy, incentivising UK business investment and spend is integral to the UK’s recovery strategy in 2021. Going beyond the wildest dreams of centre right think tanks, companies’ investment can see them reduce their taxable profits by 130% of the cost of the investment.
Freeports have been a pet project of Sunak’s for more than four years and they’re emblematic of the Government’s ambitions for the UK as a global trading power post-Brexit. With cheaper customers, lower taxes and a regulatory framework to make building infrastructure simpler, freeports will make it cheaper and easier to do business. Expect a video of Sunak waving goods from a British business off from Teesside to international markets on your Twitter and Instagram feeds sooner rather than later.
Record spending levels do have to be paid back and Corporation Tax is one of the easiest things to do politically to balance the nation’s finances. People may have been surprised by the large jump to the new 25p tax rate, if only in two years’ time and for those making a profit of more than a quarter of a million. A Corporation Tax rise is yet another policy from the Government one might ordinarily expect from Labour, and it puts Keir Starmer in the invidious position of how to credibly oppose a policy he supported at the last election. It illustrates what unusual times we’re living in that a Conservative Chancellor is raising taxes for business. It is rather ironic that the last time a Chancellor raised Corporation Tax it was Labour’s Dennis Healy in 1974 – before Rishi Sunak was even born. The Budget predicts that from Spring 2023, we will have returned the economy to where it was pre-Covid, and that more money will be coming into the Government coffers than leaving at the same time as accepting that the project to restore the UK’s fiscal position will take decades. Other tax raising measures include freezing the threshold from which people start paying tax at £12,570 and freezing the higher rate band, a decision which will gradually bring more people into the higher tax rate.
The challenge for Sunak is to pull off the ultimate political victory: a budget that responds to the immediate challenges of today and set outs a path for the long-term economic prosperity of tomorrow. Only time will tell if the Chancellor’s gamble pays off. If it does the rewards will be great and many; if it does not, the odds of him moving next door to Number 10 will take a hit.
The Government’s three-part plan to protect the jobs and livelihoods
- Doing whatever it takes to support the British people and businesses through this moment of crisis
- Once we are on the way to recovery, we will need to begin fixing the public finances
- Begin the work of building our future economy
Sunak reiterated his pledge to do whatever it takes to protect jobs and livelihoods; something proved by the confirmation the Government have spent more than £400 billion responding to the pandemic. The Government has reaffirmed its commitment to the hospitality, leisure and non-essential retail sectors. This includes extending the furlough scheme, the business rate holiday and the VAT cut for at least 6 months, with staggered returns to normal levels and thresholds for business rates and VAT.
The Government recognise that, despite a roadmap for easing restrictions, it’s not as simple as clicking your fingers and immediately businesses will reopen and operate at 100% immediately. As businesses reopen the Government will support them with re-start grants – up to £6,000 for non-essential retail and up to £18,000 for hospitality, leisure and personal care businesses – and a restart programme to encourage taking on apprentices, doubling previously announced incentives to £3,000.
While the Budget contained few specific health policy announcements, the overall context and tone of the announcements were dominated by the pandemic. The Chancellor’s comments were prefaced by noting that the economy has shrunk by 10% and more than 700,000 are out of work as a result of the pandemic and the UK’s response.
The Government announced £1.6bn to fund the continued rollout of the COVID-19 vaccination programme, reiterating that everyone over 18 will be offered their first dose before the end of July. This includes a £9m to create a “library” of mRNA vaccines to support rapid response to new variants, £28m to boost UK vaccine testing capacity and £22m for additional COVID-19 vaccine research, including the viability of triple doses. With a focus on innovation and research – across a range of sectors, there was additional support and funding including access to a new £375m Future Fund: Breakthrough to support R&D focused businesses. It is unclear whether this will be administered by the new Advanced Research and Invention Agency (ARIA), which was introduced via legislation earlier this week. A consultation on R&D tax relief has been launched alongside the Budget to better target these measures. Finally, high skilled immigration into the life sciences sector will be supported via a new “Global Talent” and “Innovator” visas enabling fast tracking of paperwork allowing talented researchers to come to the UK.
With the charge to Net Zero high on the domestic political agenda and set to dominate the international agenda at the G7 and COP26 meetings this year, the Government has used this Budget as an opportunity to reaffirm the importance of environmental sustainability as part of the transition to net zero. Following the release of the Government’s energy white paper late last year, today’s announcement focused on funding for innovation with the Government planning to set out its long-term plans in its net Zero Strategy later this year.
The Government have said that includes ensuring the UK has a financial system which supports and enables the move to an environmentally sustainable net zero economy by expanding the supply of green finance, and an economy that is resilient to the physical and transition risks that climate change presents. The government will introduce mandatory climate-related financial disclosure requirements and implement a ‘green taxonomy’, classifying what the Government mean by ‘green’ to help firms and investors better understand the impact of their investments on the environment.
The new UK Infrastructure Bank (mentioned above) will be headquartered in Leeds and will partner with the private sector and local government to increase investment to help tackle climate change and promote economic growth across the country. With a focus on capital investment, there is £20 million for a competition to develop floating offshore wind demonstrators, £68 million to fund a UK-wide competition to deliver first-of-a-kind long-duration energy storage prototype, £4.8 million for a hydrogen hub in Holyhead, Wales to pilot the creation of hydrogen using renewable energy and its use as a zero emission fuel for Heavy Goods Vehicles and £4 million for a UK-wide competition for the first phase of a biomass feedstocks programme, to support the rural economy in making improvements to the production of green energy crops and forestry products.
In a budget dominated by the Governments continuing response to the COVID-19 pandemic, there was not much in the way of radical housing policies. As expected, the Chancellor did extend the temporary stamp duty holiday until 30 June 2021. From 1 July 2021, the Nil Rate Band will then reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.
The most eye-catching new announcement was the introduction of a new mortgage guarantee scheme in April 2021. This scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000.
The ambition of the scheme is to increase the availability of mortgages on new or existing properties for those with small deposits, to help younger first-time buyers get on the housing ladder. Major lenders such as Lloyds, NatWest, HSBC and Santander have already agreed and will start offering the 95% rate from April.
The policy has already been criticised by Labour leader Keir Starmer however, who pointed out the similarities with a failed Government scheme from 2013 which has said ‘fuelled a housing bubble, pushed up prices and made owning a home more difficult,’.
In general, both these policies are demand side reforms, and with the planning reforms some time away from being implemented, the government could be accused of increasing demand without increasing the number of houses available, an accusation supported by the notable absence of any increase in local council funding for housebuilding.
Despite widespread criticism of the Government’s previously announced package of £3.5bn for the removal of cladding on high rise buildings in February, there was also no additional funding announced. Arguments around further cladding remediation will be postponed until the Building Safety Bill, to be introduced in the next session of Parliament in the spring.
Unsurprisingly, given the stay-at-home messaging, the Budget was thin on transport announcements. As expected, the Chancellor confirmed there would be no increase to Fuel Duty, and produced no rabbits from the hat elsewhere, tinkering with increasing Air Passenger Duty rates and Vehicle Excise Duty and updating investment in intra-city transport.
Elsewhere, the major announcements were further details about UK infrastructure Bank (mentioned above) and locations of Freeports. The locations for eight freeports were announced as East Midlands Airport, Liverpool, Felixstowe, Humber, Plymouth, Thames, Teesside, and Solent; some of these locations will be key battlegrounds for the Conservative Party (and a test of support for the Government) in the upcoming local elections in May.
The Government also announced up to £30m towards the construction of the Global Centre of Rail Excellence, a train testing facility, £135m to accelerate the start of construction on the A66 Trans-Pennine upgrade to 2024 and £50m to develop proposals for transport improvements around the High Speed 2 Birmingham Interchange Station, and £59m towards the construction of five new stations in the West Midlands.
The Chancellor has set about further strengthening London’s position as a global financial hub as the UK builds its financial services sector post Brexit. Firstly, the Treasury is taking forward the recommendations of Lord Hill’s review into reforms to UK Listing rules which include modernising listing rules to allow dual class share structures, enhanced voting rights for directors and founders as well as reducing the amount of shares that are open to investors from 25% to 15%. The reforms could also include an annual report into the ‘State of the City’, delivered by the Chancellor to Parliament.
The Lifetime Allowance on pensions has been frozen at the existing level of £1.073m until April 2026, saving the Treasury £300m over the period. For consumers, the Government has increased the contactless payment maximum to £100.
The UK will also release its first ever Sovereign Green Bond, totalling a minimum £15billion, helping to fund projects that tackle climate change, support infrastructure investment and green jobs. It will be complemented by a green retail savings product through the NS&I this summer. Finally, a new group will be established with the aim of positioning the UK and the City of London as the leader of the global voluntary carbon markets for high-quality offsets, which can play an important role in addition to international efforts to reduce carbon emissions.
Economy, business and tax
- Corporation tax to rise to 25% from 2023
- Personal allowance and higher rate of tax to be from frozen next year until 2026
- Darlington will be the home of the new Treasury North campus
- Furlough scheme extended until the end of September.
- Business rates relief will be extended, with eligible retail, hospitality and leisure businesses paying no business rates for 3 months, with up to 66% relief for the rest of the year.
- VAT cuts for the hardest hit sectors will remain in place until the end of September, rising to 12.5% for another six months before then returning to a full 20%.
- A further 600,000 self-employed people will be eligible for help as access to grants is widened.
- £5bn of new grants to help British businesses reopen when lockdown begins to ease.
- A “super-deduction” that provides a tax break for firms that invest.
- Announced the locations of the eight UK freeports: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
- Doubling the incentive payments for new apprentice hires, with £3,000 for each new apprentice hired between the 1st April to 30th September 2021.
- Visa reforms to attract “top level talent” to the UK.
- Stamp Duty holiday extended until end of June with tapered extension till end of September.
- New mortgage guarantee scheme
Energy & Environment
- Green sovereign savings bond for retail investors
- Funding for Holyhead Hydrogen Hub, Aberdeen Energy Transition, and North Sea Oil Transition deal.
- New port infrastructure for offshore wind in Teesside and Humberside
- UK Infrastructure Bank, located in Leeds, with initial capital of £12bn.
- 8 Freeport locations have been selected across England, including East Midlands Airport, Teesside and Liverpool City Region.
- Fuel Duty to be frozen.
- £1.6bn to continue the rollout of the COVID-19 vaccination programme and improve future preparedness
- Science & Research
- High skill visa reforms to attract talent
- Two consultations on R&D tax credits and enterprise management incentives
- Doubling incentives for employers to take on new apprentices to £3000
- £126m to triple the number of traineeships
- £700m for arts, culture and sporting institutions
- An extension of the 5% reduced rate of VAT for hospitality and tourism businesses until the end of September, as well as a further six month interim rate of 12.5%
- A Restart Grant of up to £18,000 for hospitality and leisure businesses
- Investment into helping small businesses with digital skills
- An additional £2.4bn for the devolved administrations in Scotland, Wales and Northern Ireland through the Barnett formula.
- New retail green savings bonds
- Mortgage guarantee scheme to encourage lenders to offer higher LTV products to homebuyers
- A working group to establish London as a leading market for carbon offsetting
- Extension of Universal Credit increase
- £19m additional funding to support victims of domestic abuse