Budget Summary from the Institute

Yesterday the Chancellor gave his much anticipated Spring budget announcement. We have summarised the key points from his speech below to help you skim to the key announcements relevant to you.

Our broad summary

On the back of the success in vaccination rollout across the UK, the Chancellor was able to share good news from the Office of Budget Responsibility, (OBR). The OBR now predicts the economy will recover by mid-2022, six months earlier than they predicted back in November 2020.

Rescue packages to ameliorate the impact of the pandemic will continue to September in most instances and extra funds have been found for certain sectors including sports, arts and culture as well a package for charities.

Pointing out that the level of debt is the highest since World War Two, the plan for decreasing that debt will be large tax rises, but not until 2023, well before the end of the Parliament. Business will be shouldering much of the cost through an increase in corporation tax to 25% for the most profitable large companies. Employees will also contribute substantially over time, as allowances will be frozen on personal taxes including income tax and capital gains tax.

The levelling up agenda received a nod to the North of England and beyond with promised stimulus through eight new Freeport zones.

All in all, the Chancellor seems focused on trying to get a large scale recovery in GDP and he is banking on that recovery being well on its way before tax hikes kick in. He is judging that deferring to 2023 will not decrease corporate investment in the short term nor prevent the unemployment rate falling.

Headlines

The Office of Budget responsibility predict the economy to grow 4% this year, 7.3% in 2022 then by 1.7%, 1.6% and 1.7% in the last three years of their forecast.

COVID-19 protections

• Furlough scheme extended to end of September. Businesses will start to contribute to the cost by 10% in July and 20% in August and September.
• Self-employed support also extended though two extra grants to cover to April and then to September. Once lockdown eases in the Summer the grant will be decreased for people whose turnover has decreased by less than 30% will receive a 30% grant rather than the 80%. Grants are available to 600,000 more people provided they had filed their first tax return by midnight, second of February.
• People on Universal Credit will continue to receive £20 extra until September.
• Incentive payments for hiring new apprentices double to £3000 and £126m to triple the number of apprentices.
• Extra £1.6 billion to continue the vaccine roll-out and improve future preparedness.

Protecting businesses

• Restart grants will be available from April to help business’s reopen. Non-essential retail will receive grants of up to £6000. Hospitality and leisure can receive up to £18,000.
• £700m will be available to support the arts, culture and sport.
• A new Recovery Loan Scheme to provide loans from £25,000 up to £10m to the end of this year, with government providing the guarantee to lenders of 80%.
• Business rates holiday continues to the end of June at 100%. Rates will then be discounted by two thirds up to £2m for businesses which were closed.
• The 5% reduced rate of VAT will be extended to the end of September, followed by an interim rate of 12.5% until April 2022.

Homebuyers

• Stamp duty holiday on properties up to £500,000 to continue to the end of June, decrease to £250,000 to the end of September then return to £125,000.
• 95% mortgages to return for those who cannot afford a higher deposit benefiting from a government guarantee.

Borrowing

• Forecast to reach £234 billion or 10.3% of our GDP next year, predicted to fall to 4.5% of GDP in 2022-23, the falling below 3% in the following two years (2.9% and 2.8%).
• Underlying debt to peak at 97.1% in 2023 – 24 before falling slightly to 96.8% in 2025 – 26.

Tax

• Income tax allowance to be frozen from next year to April 2026 at £12,570
• Higher Rate tax threshold will also be frozen at £50,270 from next year.
• Inheritance tax and pension lifetime allowance will be frozen at current levels
• The annual exempt amount for capital gains tax will also remain the same until 2026.
• The VAT threshold will remain at £85,000 from April 2022 – 2024.
• A new HMRC taskforce will be set up to clamp down on tax avoidance.

Tax changes for business

• Corporation tax to increase to 25% from 19% from April 2023 for companies with profits of £250,000 or more
• Small businesses with profits of £50,000 or less will remain on 19% tax, around 70% of all companies.
• The tax rate will taper for companies with profits between £50,000 and £250,000.
• Additional tax refunds will be available. Businesses will be able to carry back losses of up to £2m for three years amounting to refunds of up to £760,000.
• The 8% bank surcharge is to be reviewed.
• A new ‘Super Deduction’ policy will encourage companies to invest by reducing their taxable profits by 130% of the cost for the next two years.

Duties

• All alcohol duties will be frozen for the year
• Fuel duty will be also be frozen for the year

Green investment

• A new UK Infrastructure Bank will be set up to invest in public and private projects to finance the green industrial revolution with an initial capitalisation of £12 billion
• A new port infrastructure to build offshore wind projects
• A new retail savings product for green projects
• The aim of positioning the city as a global leader for high quality carbon offset markets.
• Bank of England monetary policy remit will remain at 2% but also reflect the importance of environmental sustainability and the transition to net zero.

Skills and training

• A new set of UK wide schemes to support small businesses called Help to Grow announced to improve small business skills and provide training from the Autumn, gov.uk/HelpToGrow.
• These include support for management training with government contributing 90% of the cost.
• Help to Grow Digital will provide digital skills training and a 50% discount on software worth £5000.

Growing innovative companies

• Consultation launched on research and development tax relief
• Consultation launched on Enterprise Management Incentives
• A new unsponsored points-based visa to attract talent in science, research and tech.
• Better visa processes for scale ups and entrepreneurs.
• Simplified bureaucracy for high skilled visa applicaitions.
• A Future Fund Breakthrough will give the pension industry more flexibility to invest in innovative new ventures.

Devolved Nations

• £1.2 billion for Scotland in total:
• Three Scottish City and Growth Deals in Ayrshire, Argyll and Bute and Falkirk.
• The Aberdeen Energy Transition Zone as well as the Global Underwater Hub and North Sea transition deal.
• £740m for Wales in total
• City and Growth deals in Wales for North Wales, Mid Wales and Swansea Bay.
• Funding for the Holyhead hydrogen hub.
• A Global Centre of Rail Excellence in Neath Port Talbot.
• £410m for Northern Ireland in total
• £400m for a New Deal for Northern Ireland.

Regional investment

• £1 billion for 45 new Town Deals.
• £150m to fund communities to own pubs, theatres, shops, local sports clubs at risk of loss.
• The launch of the first round of the Levelling Up Fund
• Eight Freeports which will be special economic zones with rules to make it easier and cheaper to do business in East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.