UK business has been given a shot in the arm to help combat the effects of the Covid-19 pandemic in today’s Spring Budget (Wednesday, 3rd March 2021).
Chancellor Rishi Sunak has announced £280 billion of measures in a ‘Budget for Recovery” aimed at protecting businesses from the effects of the lockdown, safeguarding jobs and boosting economic recovery. “I said I would do everything. I will do,” he promised.
In a pre-Budget survey from iResearch Services, UK businesses expressed broad backing for Rishi Sunak’s policies to help companies combat Covid-19, plus Corporation Tax rises to help balance the books and several initiatives favoured by most respondents were taken up by the Chancellor.
The furlough scheme – which pays 80% of employees' wages – will be extended until the end of September 2021. Although, In July, businesses will be asked to provide a 10% contribution to wages, and in August and September, a 20% contribution.
Almost half (48%) of the 500 business leaders we surveyed backed a six-month extension of the furlough scheme.
Most survey respondents (54.4%) said a rise in Corporation Tax would be fair to bring in more money to help offset the debt mountain – and Rishi Sunak announced Corporation Tax would rise to 25% in 2023. Even then, the UK will still have the lowest Corporation Tax in the G7, says the Chancellor. In addition, a new Small Profits Rate is being created to ensure only businesses with profits of over £250,000 will be taxed at 25%. Businesses can carry back losses for up to three years and can claim additional tax refunds of up to £760,000.
iResearch Services Chief Executive, Yogesh Shah, says, “It is uncanny how accurate the sentiment in our pre-Budget survey proved to be, particularly concerning the furlough scheme extension, Corporation Tax rises and new business investment initiatives. UK businesses still have multiple pressing priorities. We believe that, following these announcements, UK companies will focus on strategies to remain competitive globally, developing digital-first customer propositions, and supporting environmentally and socially-centred initiatives, all while navigating the roadmap out of National Lockdown and the pressures of the pandemic.”
Pandemic pressures take their toll – but there is light at the end of the tunnel
Covid-19 has done “acute and profound” damage to the UK economy, says the Chancellor. Since March 2020, 700,000 people have lost their jobs and the economy has seen its biggest fall in 200 years.
However, the independent Office of Budget Responsibility (OBR) predicts a “swifter and more sustained recovery than expected" with the UK economy likely to return to pre-COVID levels by mid-2022.
In fact, the pace of growth is set to strengthen to 7.3% in 2022, before slowing to a rise of 1.7%, 1.6% and 1.7% in the following years. This means growth is predicted to be around 3% lower by 2025 than previously estimated.
Unemployment is expected to peak at 6.5% next year, lower than 11.9% previously predicted, with 1.8 million fewer people expected to be out of work. Creating and retaining jobs remains the highest priority.
Among the main Budget measures are a range of announcements targeting business, trade, jobs, cost of living, health, productivity, economic growth and furthering the UK’s green agenda. These include:
- The business rates holiday will be extended until the end of June. In 2021, business rates will still be discounted by two thirds, up to a value of £2m for closed businesses, with a lower cap for those who have been able to stay open.
- The 5% reduced rate of VAT will be extended for six months to 30 September followed by an interim rate of 12.5% for another six months. The standard rate will not return until April next year. the VAT registration threshold will remain at £85,000 until 2024.
- Companies that invest in innovation will get a "super deduction" in tax. Currently, a construction firm buying £10 million of new equipment can reduce taxable income in the year they invest by just 2.6 million. With the super deduction, it can reduce that by £13 million. “We’ve never tried this before in the UK. This makes the tax regime truly world leading. It is worth £25 billion, the biggest business tax cut in modern British history.”
- Radically simplified bureaucracy will be introduced for high-skilled visa applications, with quicker processes for entrepreneurs. This will include a non-sponsored points-based visa to attract the best scientific, research and tech minds.
- A set of "help to grow" schemes are being announced, including projects to support people get management training and train small business in digital skills.
- A new £5 billion Restart Grant scheme is being introduced in April "to help businesses reopen and get going again". Non-essential retail businesses will receive grants of up to £6,000 per premises, hospitality and leisure businesses will get grants of up to £18,000.
- Apprenticeship incentive payments are to be doubled to £3000 for all new apprentice hires of any age.
- A £150 million fund is being created to allow communities to take ownership of pubs, theatres, shops or sports clubs at risk of closure.
- £700 million will be given to arts, culture and sporting institutions as they re-open.
- “High growth firms need access to capital.” The Chancellor announced that they were launching a consultation to “give the pensions industry better flexibility to unlock billions of pounds from pension funds into innovative new ventures”. The rationale is to incentivise and encourage more investment in UK infrastructure initiatives through pension schemes.
- A new UK Infrastructure Bank is being created in Leeds with an initial capitalisation of £12 billion. Starting in the spring, the OBR expects it to support at least £40 billion of total investment in infrastructure.
- New port infrastructure will be funded and eight new freeports will be created at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
- A "new economic campus" will be set up in Darlington, in one of several measures moving towards the Northern Powerhouse plans of previous Budgets.
- Increased funding to Devolved Administrations by £1.2 billion in Scotland, £740 million in Wales, and £410 million for the Northern Ireland Executive. The Chancellor committed to a “United Kingdom”, saying, “Our future economy demands a different economic geography,” and, “All four nations will benefit from measures announced today.”
- Going further than the sovereign green bond announced in November 2020, a new retail saving product is being introduced for UK savers to support green projects.
- A new group will be created to position the City as a global leader in voluntary, high-quality carbon offset projects.
- There will be an updated Bank of England (BoE) monetary policy remit – it will also reflect the importance of environmental sustainability and transition to Net-Zero.
- New Offshore wind energy schemes were announced with new infrastructure in Teesside and Humberside.
- Specific financial support is being given to green initiatives in Scotland and North Wales, as well as the already announced contribution to Northern Ireland. These include three new growth deals for Scotland and North Wales in clean energy, as well £400 million new deal for Northern Ireland.
- Support for self-employed people and the Universal Credit uplift of £20 a week will both continue until September 2021. The National Living Wage will rise to £8.91 from April.
- On income tax, the threshold for paying the basic rate will rise to £12,570 next year. For higher-rate payers, the threshold will be £50,270. Both rates will stay the same until 2026.
- The up-to-£500,000 "nil-rate band" for Stamp Duty will be extended for three months until the end of June
- First-time buyers will get a "government guarantee" on mortgages if they put down a deposit of at least 5%, as the government looks to back 95% mortgage lenders.
- Fuel and alcohol duty will be frozen to help keep the cost of living lower.
- The UK is set to become a "scientific superpower" with £1.6 billion being added to support the vaccine roll-out programme.
- £125 million is to be provided to combat domestic abuse – “the hidden tragedy of coronavirus crisis”.
- The Armed Forces are to receive £10 million to support veterans with mental health needs.
Environmental, Social and Green Investment
Health and Lifestyle
What about all the borrowing?
Despite the cost of the Budget measures, UK borrowing is set to fall from £355 billion in 2021 to £234 billion next year, Rishi Sunak says. But it will need "many governments over many decades" to pay back what is owed and debt cannot continue to rise, he admits. Although borrowing is affordable now, future rate rises could alter this.
The government says it will continue doing everything it takes to support people and businesses. Through the Budget, the government plans to protect "jobs and livelihoods" and that ministers are committed to "levelling up" the country, the Chancellor says. It also intends to fix the public finances and wants to be honest about plans to do that and to begin the work of our future economy, says the Chancellor. This a "moment of difficulties" but also of "opportunities".
iResearch Services will now be asking company chiefs whether they agree with the measures announced today and what effects the Budget changes will have on staff numbers, investment in technology, business growth and other pressing business priorities. Watch this space!
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