Britain’s finance minister Rishi Sunak on Wednesday announced a costly extension of his emergency aid programmes to see the economy through its current coronavirus lockdown, and flagged a tax hike for companies from 2023.
Delivering an annual budget speech on Wednesday, Sunak also announced a future tax squeeze on businesses and individuals as he began to focus on the huge hole in the public finances.
Below are details of the policies Sunak announced:
Sunak said the economy would regain its pre-pandemic size in mid-2022, six months earlier than previously forecast, helped by Europe’s fastest vaccination programme. But it will remain 3 per cent smaller in five years’ time than it would have been without the health shock and extra support is needed now as the country remains under coronavirus restrictions, he said.
Britain will seek to incentivise more business investment in items such as new equipment over the next two years by boosting the amount firms can offset against tax.
“First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis,” Sunak told parliament.
“Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that. And, third, in today’s Budget we begin the work of building our future economy.”
Among new support measures were a five-month extension of Britain’s huge jobs rescue plan and more help for the self-employed, the continuation of an emergency increase in welfare payments, and an extended VAT cut for the hospitality sector.
A business rates exemption for retail, hospitality and leisure businesses was extended until the end of June, by when Prime Minister Boris Johnson hopes he will have lifted most COVID-19 restrictions.
An existing tax break for home-buyers will also now run until June 30 and will then apply for cheaper homes until the end of September.
Sunak will borrow significantly more in the coming financial year than thought just a few months ago – 234 billion pounds, or 10.3% of gross domestic product, compared with a previous estimate of 164.2 billion pounds, or 7.4% of GDP.
To bring borrowing under control, Sunak announced future tax rises that will increase the tax burden to its highest level since the 1960s, rising from 34 to 35% of GDP by the middle of this decade.
Announcing forecasts by the Office for Budgetary Responsibility (OBR), Sunak said the economy was likely to grow 4% in 2021, slower than a forecast of 5.5% made in November, reflecting the current lockdown which began in January.
Looking further ahead, the OBR forecast GDP would grow by 7.3%, 1.7% and 1.6% in 2022, 2023 and 2024 respectively. In November, the OBR had forecast growth in those years of 6.6%, 2.3% and 1.7%.
Sunak promised to do “whatever it takes” to steer the economy through what he hopes will be the final months of pandemic restrictions. He has already racked up Britain’s highest borrowing since World War II, with the deficit reaching an estimated 17% of GDP in the 2020/21 financial year that ends in April and set to fall to a still historically high 10.3% in 2021/22.
JOB PROTECTION SCHEME EXTENSION
Britain will extend its job-protecting furlough programme by five more months until the end of September and expand support for the self-employed too.
LOW-INCOME HOUSEHOLD TOP-UP
A top-up of 20 pounds ($28) per week to a state benefit for low-income households will remain in place for a further six months, Sunak said.
PROPERTY SALES TAX, MORTGAGES
Sunak extended tax breaks for home-buyers until October, keeping many property purchases exempt from stamp duty land tax. He also announced a government-funded mortgage guarantee scheme for first-time buyers who cannot afford large deposits required by lenders.
CORPORATION TAX HIKE
In a first move towards higher taxes, Sunak announced he would raise corporation tax to 25% from 19% from 2023, by which time the crisis should be over.
“Even after this change the UK will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France,” he said.
Businesses with profits of 50,000 pounds or less would pay a new Small Profits Rate, maintained at the current rate of 19%.
To offset the hit, Sunak increased incentives for investment in items such as new equipment over the next two years. “This will be the biggest business tax cut in modern British history,” he said.
COMMERCIAL PROPERTY TAX HOLIDAY
Britain will extend a year-long business rates exemption for retail, hospitality and leisure businesses to the end of June, he said.
FREEZE ON PERSONAL TAX
Britain will freeze the amount of money that people can earn tax-free and also the threshold for the higher rate of income tax until 2026.
Sunak said that while a basic income tax rate of 20% and a higher income tax rate 40% would not be increased, the thresholds for the “personal allowance” of tax-free earnings and at which the higher tax rate kicks in would not rise with inflation.
Sunak said that the freeze was part of an approach to fix public finances as he looks for ways to raise funds following unprecedented measures to support jobs and the economy during the coronavirus pandemic.
“This government is not going to raise the rates of income tax, national insurance or VAT. Instead our first step is to freeze personal tax thresholds,” Sunak told parliament.
“We will, of course, deliver our promise to increase (the personal allowance) again next year to 12,570 pounds ($17,545) but we will then keep it at this more generous level until April 2026.”
He added that the higher rate threshold would also increase next year to 50,270 pounds, as previously promised, but would then also be frozen for the same length of time.
The personal allowance threshold and higher rate threshold in England and Northern Ireland had previously been 12,500 pounds and 50,000 pounds a year respectively.
NEW £300M VIRUS-AID SCHEME FOR ENGLISH SPORT
Sunak also announced a new £300 million ($419 million, 347 million euros) recovery package for sport in England as part of a plan to assist the wider economy in coping with the fall-out from the coronavirus pandemic.
He said £700 million was being made available to art, culture and sporting institutions to aid their response to the impact of Covid-19.
Britain’s Treasury, or finance ministry, tweeted that there was “£300m to back clubs and governing bodies across a wide range of sports in England”.
Sunak, following comments from British Prime Minister Boris Johnson published Tuesday, underlined the government’s support for a potential joint bid from England, Scotland, Wales, Northern Ireland and the Republic of Ireland to host football’s 2030 World Cup.
“We’re making available £700 million to support our incredible art, culture and sporting institutions as they reopen, backing the UK and Ireland’s joint 2030 World Cup bid, launching a new approach to apprenticeships in the creative industries, and extending our £500 million film and TV production restart scheme,” Sunak told lawmakers in the House of Commons while delivering his budget statement.
Wednesday’s announcement follows a £300m sport ‘winter survival package’ announced by the government in November.
(with inputs from agencies)