Listening to the Spring Budget this week, I was hugely encouraged by the Chancellor of the Exchequer, Rishi Sunak MP, who laid out the blueprint for how we begin to fix our challenging public finances which, due to the impact of the COVID-19 pandemic, has resulted in our economy shrinking by 10%—the largest fall in over 300 years. But it’s been our financial prudence in the last 10 years which has meant we can weather the storm of the last year and will hold us in good stead for the difficult decisions ahead. There is hope on the horizon with the vaccine roll out - construction is back to last February levels and around 600 thousand vacancies are out there, according to the ONS.
Public finances and our recovery outlook are a subject many constituents are naturally very concerned about - tax rises and duties being two of these. Therefore, I believe it’s important, following the Budget announcement, to outline key measures and my own thoughts concerning the Budget, and the announcements concerning these matters:
- The Government are maintaining the income tax Personal Allowance and higher rate threshold from April 2022 until April 2026. In the Budget, the Chancellor explained why the Government took this decision:
- “The rate of corporation tax will increase from April 2023 to 25 per cent on profits over £250,000, which will remain the lowest rate in the G7 - this will not take effect until 2023.” Furthermore, the Chancellor has said only ten percent of companies will pay the higher rate.
- Maintaining the income tax Personal Allowance and higher rate threshold from April 2022 until April 2026. In his Statement, the Chancellor stated the following:
- “We have nearly doubled the income tax personal allowance over the last decade, making it the most generous of any G20 country. We will of course deliver our promise to increase it again next year to £12,570, but we will then keep it at this more generous level until April 2026. The higher rate threshold will similarly be increased next year to £50,270 and will then also remain at that level for the same period. Nobody’s take-home pay will be less than it is now as a result of this policy, but I want to be clear with all Members that this policy does remove the incremental benefit created had thresholds continued to increase with inflation. We are not hiding it; I am here explaining it to the House, and it is in the Budget document in black and white. It is a tax policy that is progressive and fair.”
- The business rates holiday is to be continued. In the Chancellor’s words:
- “This year, we will continue with the 100% business rates holiday for the first three months of the year—in other words, through to the end of June. For the remaining nine months of the year, business rates will still be discounted by two thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open—a £6 billion tax cut for business.”
- A combined level of bank taxation would be too high and the Government will therefore review the bank surcharge.
- The Chancellor stood by his commitment not to raise national insurance, income tax, or VAT
- Income tax personal allowance and the higher rate threshold will rise next year as planned and will then be maintained at that level until April 2026.
- Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19% and a taper above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.
- Maintaining inheritance tax thresholds at their current levels until April 2026.
- Fuel duty will be frozen for the 11th consecutive year.
- The inheritance tax nil-rate bands will remain at existing levels until April 2026. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
- Nobody’s take home pay will be less than it is now says the Chancellor and the UK’s allowances remain the most generous of any G20 country.
- Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22
- The pensions lifetime allowance, the annual exempt amount in capital gains tax, and for two years from April 2022 the VAT registration threshold, which, at £85,000, will remain more than twice as generous as the EU and OECD averages.
- The government will invest over £100 million in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud within COVID-19 support packages, including the CJRS and SEISS, representing one of the largest responses to a fraud risk by HMRC.
- In addition, the government will raise awareness of enforcement action in order to deter fraud and will significantly strengthen law enforcement for Bounce Back Loans.
Business Capital Allowance
- From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130 per cent first-year capital allowance. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest
Alcohol and fuel duties
- Alcohol duties will be frozen across the board for the second year running saving those partaking £1.7 billion.
- I know this will come as a welcome relief to pubs, bars and businesses across the hospitality sector – I am pleased to see this Government continue to stand by this vital sector of our economy in what have been incredibly challenging times.
- Fuel duty will be frozen for the 11th consecutive year
- Several constituents have been in touch on this matter, and I hope they will be pleased to see the cost of driving will not be increasing.
- The adult ISA annual subscription limit for 2021-22 will remain unchanged at £20,000.
Examples of growth
I would like to cite two areas of growth in two sectors which I know many of my constituents work in, which is deeply encouraging, namely: services and health. These sectors acted as key contributions to growth in December, the former increasing by 1.7%, as a number of consumer-facing industries reopened following the easing of restrictions in December. The strong growth in health sector can be put down to the coronavirus testing and tracing schemes, and the Government will continue to invest in our vaccination and testing programmes in the weeks and months ahead, in the form of an extra £1.65 billion cash injection to ensure the Covid-19 vaccination roll-out in England continue to be a success. This also includes £33 million for vaccine testing and development against future variants and £22 million for study into combining vaccines.
In 2020, the Government spent over £280 billion in order to protect businesses, jobs and livelihoods across the UK. In addition to unprecedented measures like the Coronavirus Job Retention Scheme, much of this financial support has been provided to public services like the NHS, local governments, public transport and the welfare system. Over the course of the financial years 2020/21 and 2021/22, the Government's total fiscal response to Covid-19 will amount to £407 billion.
The public health crisis brought on by COVID-19 has created a significant economic contraction, with The Office for National Statistics confirming UK GDP shrank by 9.9% in 2020. In percentage terms, this represents the largest annual fall since the Great Frost of 1709, and has had serious implications for tax receipts.
Despite the incredibly difficult time for public finances, I have been encouraged by real gross domestic product (GDP) increasing by 1.2% in December 2020, following a revised 2.3% decline in November, when there were more extensive restrictions to activity.
As the IMF, Bank of England and OBR have all confirmed - our plan is working. As a result of our interventions, unemployment is now estimated to peak at far lower levels than previously expected, and our economy is now forecast to recover faster than previously thought.
Ultimately, I believe it is the Government’s responsibility to ensure Britain has a strong economy backed by sustainable public finances, so the country will continue to have the space to fund vital public services and prepare for future economic shocks.
Through these interventions and decisions on restoring public finances, I remain confident this country will bounce back stronger from the seismic shock of COVID-19.
Further information and feedback
The Office for Budget Responsibility (OBR)
On March 3rd, after the Chancellor finished his Budget speech, the Office for Budget Responsibility published its forecasts for the economy and the country’s public finances. The key points were:
- The OBR forecasts that government borrowing will fall from its current peacetime high of 16.9 per cent of GDP (£355 billion) in 2020-21 to 10.3 per cent (£234 billion) in 202122 and to 4.5 per cent (£107 billion) and 2.8 per cent (£74 billion) in 2025-26.
- Taxes will increase from 34 to 35 per cent of GDP. More than half of this increase is attributed to increases in the headline rate of Corporation Tax.
- The freezes to the income tax personal allowance and higher rate threshold for four years bring 1.3 million people into the tax system and create 1 million higher rate taxpayers by the financial year 2025-26.
The Chancellor’s statement
Turning to public finances, the Chancellor said the following in the House of Commons:
“Our fiscal decisions are guided by three principles. First, while it is right to help people and businesses through an acute crisis like this one, in normal times the state should not be borrowing to pay for everyday public spending. Secondly, over the medium term, we cannot allow our debt to keep rising, and given how high our debt now is, we need to pay close attention to its affordability. Thirdly, it is sensible to take advantage of lower interest rates to invest in capital projects that can drive our future growth”.
The full Statement can be accessed here: https://hansard.parliament.uk/Commons/2021-03-03/debates/C8618796-C14D-4695-8DC0-20BC6C6DDED4/FinancialStatement
Institute for Fiscal Studies
I just wanted to finish by including the positive, opening remarks from IFS Director Paul Johnson:
“Another £65 billion or so of support for the economy this year and next, on top of the £270 billion already announced. Mr Sunak is not stinting on his immediate response to the economic damage caused by the virus and the lockdown. Keeping the furlough scheme going through to September and business rates support and VAT reduction for hospitality still partially in place to the end of 2021-22 is erring on the side of generosity. We have that support to thank for the now remarkably modest OBR forecasts of unemployment”.
To view this statement, please visit https://ifs.org.uk/budget-2021
I will be updating my website on a regular basis in the days and weeks to come on specific sectors mentioned in this Budget, so I would encourage constituents to regulalrly check for further updates.