Expert comment: Spring Budget 2021
5/03/2021 - Larking Gowen
Honesty is the best policy, we’ve always been told, and in his Budget announcement, the Chancellor was definitely honest about the scale of the continuing support for individuals and businesses affected by COVID-19. He was also honest about the ‘medicine’ that will be administered in the future in terms of freezes in allowances and tax rises to pay for that support.
The Budget contained an eye-watering array of support extensions and announcements of additional help for businesses and individuals to try to get through the next few months of restrictions.
These measures include an extension of furlough for employees, who will continue to receive 80% of their wages until the end of September, but with employer contributions of 10% in July and 20% in August and September.
Also announced were the fourth and fifth rounds of the Self-Employment Income Support Scheme grants, which will now apply to all self-employed individuals who submitted a 2019/20 tax return. However, the fifth grant will be restricted to those whose turnover is not affected by a minimum of 30%.
For those receiving the additional £20 per week Universal Credit grant, this was also extended until the end of September.
Business rates – long the thorn in the side of many businesses – saw an extension of the 100% holiday until the end of June 2021, with a further 66% reduction until March 2022, which is a real shot in the arm for all businesses. Coupled with the newly announced ‘Restart’ grants of up to £6,000 per premises for non-essential retail and up to £18,000 for hospitality and leisure businesses (these businesses will be closed for longer) you could be forgiven for thinking the Government is really doing as it says – “all it takes” – to provide support.
In a further measure to help the tourism industry, the Chancellor confirmed that the reduction in VAT for tourism, leisure and hospitality businesses from 20% to 5% has been extended by six months until 30 September. It will then rise to 12.5% for the following six months before returning to the standard rate of 20% in April 2022.
A newly announced Recovery Loan Scheme will replace the Coronavirus Business Interruption Loan Scheme (CBILs), with loans available of between £25,000 and £10m. These loans have an 80% government backed guarantee – although evidence here is that there are doubts as to whether the banks will actually lend the funds; time will tell, and of course, a loan has to be paid back.
House buyers have seen the “cliff edge” of the end of the Stamp Duty Land Tax holiday averted for the moment, with the 0% band up to £500K extended until the end of June, tapering to £250K until the end of September and then settling at its original threshold of £125K from 1 October onwards. I suspect this will just push the cliff edge effect into the future, but any relief from the expense of moving house should be welcomed. Government guarantees will also be available for house buyers with 5% deposits from April. NatWest, Barclays, Lloyds, and Santander, amongst others, will be offering these loans.
Whilst casually mentioning in his Budget speech that a 1% increase in government borrowing rates will increase government debt interest payments by £25bn per annum, the Chancellor moved swiftly onto how the above measures will be paid for and funded.
Of course, with a manifesto commitment not to increase headline rates of income tax, National Insurance and VAT hanging over him and his party, no increase in the rates of these taxes was announced in the Budget. But the story does not end there.
The increase in the personal allowance (the amount a person can earn before paying tax) pencilled in for April 2021 will go ahead and increase to £12,570. In addition, the extension of the basic rate (20%) tax threshold to £50,270, above which the higher rate tax rate of 40% will apply, will also be implemented in April 2021. However, both of these will be frozen and remain at that level until 5 April 2026.
Make no mistake, this is a massive tax hike, with millions more paying tax, or paying tax at the higher rate of 40%, by 2026, to the tune of raising an additional £8bn a year – as intimated above, this is medicine indeed!
Freezing of the inheritance tax nil rate band, capital gains tax annual exempt amount, and pension lifetime allowance will also raise around £1bn a year between them by 2026.
But the biggest losers by far from the Budget are the corporates, with a rise in the corporation tax rate from 19% to 25% in 2023. Yes, there was a sop to small companies with a 19% rate up to £50K of profits and a tapering rate up to the main rate of 25% up to profits of £250,000, but again, do not be fooled; this increase in the corporation tax rate will raise upwards of £17bn a year in additional tax. And ultimately, we are all consumers, so this tax increase will probably end up being taken out of our pockets.
I suppose it could be argued that the new “super deduction” of 130% for capital expenditure for the next 2 years, meaning a £10m spend on capital investment will receive an enhanced tax deduction of £13m, will compensate somewhat, giving around £3bn back per annum, but only for 2 years. And having quickly reviewed the “super deduction” draft legislation, that age old tax saying that the devil is in the detail most certainly applies; the deduction may be somewhat less than super in a lot of cases.
One ray of light concerned alcohol duty for those who like a tipple – and it seems we do, particularly in a lockdown, with alcohol duty raising £800m more than budgeted. Alcohol duty will be frozen for 2021/22, as will fuel duty.
So, driving to an essential retail outlet to buy an alcoholic loosener, with which to contemplate what the freeze in income tax thresholds will do to your tax bill, won’t cost you any more, phew!
I’m not sure this is “jam now”, but the new and extended support measures are very welcome as restrictions are lifted. However, make no mistake: we will all be paying for them before too long.
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