The Budget 2021 explained
Introduction:
The Budget is a set event in the political calendar, usually held in March or April, and sees the present Chancellor of the Exchequer present his Budget to Members of Parliament. A Budget begins with the Chancellor reviewing the nation's finances and discussing the present economic climate before moving on to his proposals for taxation and policy. The tax measures introduced in the Budget are then subject to debate over the next four days in a process called ‘Budget Resolutions'.
The 2021 budget has followed the summer economic update and spending review in November, which set Government spending priorities to cover Covid-19 pandemic impacts. The Chancellor announced that government has borrowed £280 billion since March 2020, which is the highest level borrowed since World War II, but will continue to do “whatever it takes to support the British people and businesses through the Covid-19 pandemic”.
A range of measures have been announced, covering skills and employment support, recovery support for businesses, taxation, housing, green growth and infrastructure.
Skills and Employment Support
Crucially for many, the Chancellor has announced an extension of the Coronavirus Job Support Scheme to September 2021 across the UK. Employees will remain entitled to 80% (capped at £2,500) of their normal monthly earnings, but from 1 July employers will be required to contribute to this payment. Between 1-31 July 2021, employers will need to pay 10%, with the government paying 70%. From 1 August to 30 September, employers will be required to pay 20%, with the government paying 60%. Employers will continue to be required to pay employer National Insurance Contributions and pension contributions on furlough payments.
The Chancellor also announced an extension of the UK-wide Self Employment Income Support scheme to September 2021, with 600,000 more people who filed a tax return in 2019-20 now able to claim for the first time.
The budget additionally confirmed a six-month extension of the £20 per week Universal Credit uplift in Great Britain, with the Northern Ireland Executive receiving additional funding to match the increase. There will also be a one-off payment of £500 to eligible Working Tax Credit claimants across the UK.
The government bolstered support for apprenticeships with an extension of the apprenticeship hiring incentive in England to September 2021 and an increase of the incentive payment for firms taking on apprentices to £3,000. They also announced £7 million for a new “flexi-job” apprenticeship programme in England, that will enable apprentices to work with a number of employers in one sector, and an additional £126 million for 40,000 more traineeships in England, funding high quality work placements and training for 16-24 year olds in 2021/22 academic year.
This budget also announced plans to invest £10 million to support veterans with mental health needs across the UK and £19 million to tackle domestic abuse in England and Wales, with funding for a network of ‘Respite Rooms' to support homeless women and a programme to prevent reoffending.
Further, it was confirmed that SME employers in the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay (SSP) costs per employee from the Government.
The Chancellor also announced new reforms to the immigration system, which the government hopes will help ambitious UK businesses attract the brightest and best international talent. Further details on a new ‘elite' points-based route are expected in July and these reforms are anticipated to be made through immigration rule changes and secondary legislation over the next year.
Recovery Support for Businesses
The budget also announced £5 billion for new Restart Grants - a one off cash grant of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England - and a new UK-wide Recovery Loan Scheme to make available loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million, to help businesses of all sizes through the next stage of recovery.
The Chancellor also announced a new ‘Help to Grow' scheme which the government anticipates will offer up to 130,000 companies across the UK a digital and management boost.
Additionally, the Chancellor announced sector-specific support:
- an extension of the Film & TV Production Restart scheme in the UK, with an additional £300 million to support theatres, museums and other cultural organisations in England through the Culture Recovery Fund;
- £90 million of funding to support government-sponsored national museums in England due to the financial impact of Covid-19; and
- £300 million of funding for major spectator sports, supporting clubs and governing bodies in England as fans begin to return to stadia.
To further support the cashflow of businesses, the government committed to extending the loss carry back rules worth up to £760,000 per company.
And in response to a small minority of individuals exploiting support schemes, the budget set aside £100 million of funding for a new Taxpayer Protection Taskforce to crack-down on “Covid fraudsters”.
Taxation
The budget announced an extension to the VAT cut to 5% for hospitality, accommodation and attractions across the UK until the end of September, followed by a 12.5% rate for a further six months until 31 March 2022.
The Government also confirmed that 750,000 eligible businesses in the retail, hospitality and leisure sectors in England will benefit from business rates relief.
However, under pressure to raise revenue while maintaining an internationally competitive tax system, the Chancellor announced that the rate of Corporation Tax will increase to 25% from 2023. 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. The government has highlighted that despite this increase, corporation tax will remain the lowest rate in the G7.
Similarly, the Chancellor announced a freeze in the income tax Personal Allowance and higher rate threshold from April 2022 until April 2026. As wages typically rise with inflation, this will raise revenue for the government by fiscal drag; in short, more people moving up through the tax thresholds.
It was announced that the inheritance tax thresholds and Lifetime Allowance (£1,073,100) will also be frozen at their current levels until April 2026, and the adult ISA annual subscription limit for 2021-22 will remain unchanged at £20,000.
Fuel duty will also be frozen for the 11th consecutive year, and alcohol duties will be frozen across the board for the second year running - which the government anticipates will save drinkers £1.7 billion.
In regards to research and development, the government announced that they will be capping the amount of SME payable R&D tax credit that a business can receive in any one year at £20,000 (plus three times the company's total PAYE and NICs liability), however they will be launching a review of R&D tax reliefs “to make sure the UK remains a competitive location for cutting-edge research”.
The Chancellor also announced that, beginning April 2021, a new super-deduction will cut companies' tax bill by 25p for every pound they invest in new equipment. The government estimates that this will be worth around £25 billion to UK companies over the two-year period the super-deduction will be in full effect.
Housing
The Stamp Duty Holiday is extended until the 30th June 2021, at a nil rate band of £500,000. This will change to £250,000 until September and then £125,000 to October. The government will support house buyers through government guaranteed mortgages: buyers who can only afford a 5% deposit will be able to mortgage the remaining 95%. Large banks, such as HSBC and NatWest are set to roll out schemes next month.
Green Growth & Infrastructure
The Chancellor highlighted the need for a “real commitment to green growth”. With that in mind, the UK's first infrastructure bank will be effective from this spring, with £12 billion initial capital. This is expected to support a further £40 billion investment, stimulating public and private projects across the UK.
A retail savings product was announced to give all UK savers a chance to support green projects. Additionally, the UK's competitive advantage in wind energy generation was recognised, with more funding for offshore wind projects announced.
Furthermore, ambitions for growing the voluntary carbon offsetting market were expressed and the Bank of England will update its monetary policy to reflect the importance of environmental sustainability.
A range of schemes released from the 2021 Budget built on the Energy White Paper and 10 Point Plan for a Green Industrial Revolution, covering green growth and innovation. These include a £375 million Future Fund Breakthrough; a £20 million develop floating offshore wind demonstrators; a £68 million for a competition on unique energy storage technology; a £4million biomass feedstocks programme; and at least £15 billion of green gilt issuance this financial year, aiming to help finance climate change and environmental challenges.
In the West Midlands, it was pleasing to see that £50 million was awarded to kick start a major development around Solihull's HS2 Interchange and additional funding was attributed to opening new railways stations across Birmingham and the wider West Midlands.
The GBCC Response to the 2021 Budget
The Chamber welcomes a number of the announcements made in the 2021 Budget. In particular it was pleasing to see that the Treasury heeded the calls we made in our Back our Businesses Plan - in particular around the extension of the furlough scheme through to the Autumn, additional support for the self-employed, further financial assistance to help businesses reopen and of course, easing the severe financial pressures are facing by extending VAT cuts and business rate relief. However, we feel the Chancellor's Plan would have been strengthened by helping directors of limited companies or those firmed embedded in the supply chains of businesses that have been forced to close by the crisis.
Offering greater incentives to businesses that invest in technology in the form of tax incentives should also be cautiously welcomed - especially if they provide a much needed shot in the arm to productivity levels, however, it remains to be seen if similar incentives will be offered to those investing in digital technology as opposed to plant & machinery. The importance of infrastructure investment was also at front and centre of the announcements and whilst there was much fanfare around free ports, green investment bonds and a new National Infrastructure Bank, details around support for Birmingham Airport and the wider aviation industry was sadly lacking. In addition, there was scant detail around supporting businesses that had been impacted by the Brexit transition.
The Chancellor also spelt out the severity of the debt crisis facing the economy moving forward and used the Budget to announce long term corporation tax rises in a bid to restore parity to the public finances - although smaller firms with smaller profit margins were rightly spared any sharp increase which would dented business confidence and put the breaks on any short term recovery. Overall, much of the Chancellor's plans are predicated on a sharp rise in consumer spending once lockdown measures ease and we would urge the Government to learn the lessons from the past and make sure both the economic and epistemological strategies are aligned in order to allow businesses to emerge from this crisis with a semblance of confidence intact.
Further Support:
Please visit our Covid-19 Support Grid for further information on how you can access the various support packages which have been introduced by Government to help businesses during the pandemic. Full details can be found on our website.
Image credit: Cubankite/Shutterstock.com