On 12th March 2020, as Rishi Sunak, just weeks into his role as Chancellor, stood at the dispatch box in the Commons, few of us could have imagined the year that the UK, and its economy, would endure. That Budget was dominated by measures to support an economy crippled by efforts to stop the first wave of COVID-19. There was amazement at the financial commitments and spending pledges being made.
We’d truly seen nothing yet.
A year on, the 2021 Budget has presented a unique set of political problems for a Chancellor torn between his instinctive fiscal conservatism and desire for low taxes, and his realism that someone, somewhere, has to pay for the £400 billion spent on attempting to insulate the UK economy from COVID-19. Throw into the mix a Prime Minister who has prioritised ‘levelling up’ the economy across the UK, and whose majority is built on the new wave of ‘Red Wall’ Conservative MPs, and it gives some idea of why few of us would have wanted to occupy the Chancellor’s seat in the Commons at 12:30pm today.
So how did the Chancellor navigate this political and economic conundrum?
A headline grabbing hike in corporation tax, from the current 19% to 25% from 2023, may be cause of concern for some of his more vocal backbenchers. However, the Chancellor has mitigated this with a tapered approach that will ensure that companies with profits below £50,000 will still pay 19%, and only those with profits above £250,000 will pay the highest rate. This allows the Chancellor to point out that those with the broadest shoulders will carry the greatest burden.
The timing of the Corporation Tax increase is notable, and points to the concerns expressed by many that tax rises on business now would blunt the expected economic uptick post COVID. Starting in 2023, it will come well after the expected economic resurgence and, the Government hopes, after a period of rapid investment in the economy promoted by a new 130% super-deduction on investments in plants and machinery. Investment is a theme that runs throughout the Budget, and is further emphasised by the Government publishing its ‘Build Back Better’ plan for growth alongside today’s financial statement.
The Chancellor has demonstrated a commitment to investing with the goal of driving the recovery…an example that he hopes industry will follow.
Below are some of the key takeaways from today’s Budget.
The Chancellor confirmed an extension of the furlough scheme until September, and announced further business rate holidays and an extension of the 5% VAT rate for the hospitality sector. With support extending well past the 21st June target for fully reopening the economy, the Chancellor spared little expense in his efforts to ensure that the economic recovery from COVID doesn’t suddenly find itself going over an unexpected cliff edge.
Boris Johnson was elected in 2019 on a promise to level up the UK economy – improving the prospects of cities and regions of the UK that have often felt neglected. This Budget, with its emphasis on investment, will be seen by many as a major step in that process. From £1 billion for 45 new ‘town deal’s across the country, to the creation of eight new free ports, the Government is banking on significant infrastructure investment providing the basis not only for an economic recovery, but a more equal economy in the long term.
The Government has repeatedly stated its determination to drive not just a recovery from COVID, but a green recovery. Today’s Budget supported that aim, with measures to drive innovation to cut carbon emissions, including a £20 million programme to support the development of floating offshore wind technology, a £68 million competition to implement new energy storage prototypes, and a new carbon markets working group to position the UK and the City of London as the leading global market for carbon offsetting.
Throughout the pandemic, the Government has pointed to the UK’s work on genome sequencing, novel treatments for COVID-19, and vaccine development as examples of this country’s pioneering innovation. The Budget builds on this work, creating ‘Future Fund: Breakthrough’, a new £375 million direct co-investment fund to support the scale up of the most innovative, R&D-intensive businesses. The fund will focus on highly innovative companies such as those working in life sciences or clean tech.
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Written by Jamie Slavin, Senior Account Director, Public Affairs