"It is going to take us a long time to fully recover from the damage coronavirus has done to our economy," the chancellor says.


Budget 2021: Rishi Sunak vows to protect jobs but tax hikes loom


Budget 2021: Rishi Sunak vows to protect jobs but tax hikes loom

Rishi Sunak admitted tonight he did not like raising taxes but had been forced to do it to pay off the damage wrought by Covid as he unveiled a Budget that increased the burden to the highest level in more than half a century.

The Chancellor announced that income tax thresholds are being frozen until 2026 and corporation tax is being hiked from 2023 as he attempts to claw back some of the ‘unimaginable’ £407billion the Government has spent on the coronavirus pandemic response.

In a crucial Budget that will set the country’s course for years, the Chancellor said he knew the revenue-raising measures – which will take the burden to the highest since the 1960s – would be ‘unpopular’.

As well as allowing income tax thresholds to be eroded by inflation from April 2022, inheritance tax, VAT registration thresholds, pensions relief and the capital gains allowance are all being put on hold.

In his Budget speech, Mr Sunak said unemployment will be lower – and growth higher – than previously thought as the UK emerges from lockdown later this year, citing forecasts from the OBR watchdog.

But he warned that repairing the long-term economic damage “will take time”, with the economy in five years’ time predicted to be 3% smaller than it would have been without the pandemic.

Despite the £280bn of support already committed to protecting the economy, the harm done by coronavirus had been “acute”, he told MPs.

“Our economy has shrunk by 10% – the largest fall in over 300 years. Our borrowing is the highest it has been outside of wartime.

“It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover.”

The headline rate of corporation tax will go up from 19% to 25% from 2023, although smaller firms will be exempt.

And the freeze on income tax thresholds is expected to bring 1.3 million more people into paying income tax – and a million more into paying at the higher rate.

The Institute for Fiscal Studies said the Budget is set to raise an extra £29bn by 2025-26, which was “big by recent standards”.

And it added that the UK’s tax “burden” is set to rise to its “highest sustained level” ever.

IFS director Paul Johnson said: “Mr Sunak made much of his desire to be honest and to level with the British people.

“The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us, as he attempts to raise the overall tax burden to its highest sustained level in history.”

By 2026 a million more workers will be in the higher rate of tax, and 1.3million more will be paying the basic rate who are currently outside of the system.

But Mr Sunak insisted the alternative of ‘doing nothing’ was not right, pointing out the bulk of the measures will not be implemented until the recovery is well established.

Defending his proposals this evening at a Downing Street press conference, Mr Sunak said the UK could not ‘ignore’ its growing mountain of debt as he said: ‘I know the British people don’t like tax rises, nor do I.

‘But I also know they dislike dishonesty even more, that is why I have been honest with you about the problem we have and our plan to fix it.’

At a Downing Street press conference tonight Mr Sunak was confronted with a chart showing that the Office for Budget Responsibility (OBR) expects the tax burden to be the highest since the 1960s as a proportion of GDP.

‘I guess what your chart doesn’t show is that all the other chancellors, if any of them have had pandemics to deal with,’ he replied.

‘We haven’t had a pandemic like this in over 100 years, so I think remember that’s why we’re having this conversation, that’s the problem that we’re grappling with.’

And in a sign that the Chancellor may not be finished with tax rises, he refused to be drawn on whether there could be a hike in capital gains tax in the future.

Mr Sunak had earlier hailed the impact of the vaccine rollout saying the government’s watchdog now expects the economy to get back to its pre-pandemic level by mid-2022 – six months earlier than previously thought.

The costs of the government's response to coronavirus have racked up dramatically since Rishi Sunak delivered his first Budget last March

Growth this year will be a bumper 4 per cent after the fast vaccine rollout, and unemployment should now peak at 6.5 per cent instead of 11.9 per cent. That means 1.8million fewer people will lose their jobs, according to Mr Sunak.

The key announcements from the chancellor included:

• An extension to the furlough scheme until the end of September and more support for the self-employed

• The £20-a-week uplift in Universal Credit will continue for another six months

• The rate of corporation tax will rise to 25% in 2023, but with protections for smaller businesses

• A freeze of the income tax personal allowance from next year until 2026, with a freeze in the higher rate threshold over the same period

• A new “super deduction” scheme to allow companies to reduce their tax bill by 130% of the cost of new investments

• The UK economy is forecast to grow by 4% this year and by 7.3% in 2022 but, overall, is set to be 3% smaller than it would have been due to the COVID crisis, according to the Office for Budget Responsibility (OBR).

The chancellor said the COVID crisis had caused “acute” damage to the UK economy and acknowledged it would take “this country – and the whole world – a long time to recover from this extraordinary economic situation”.

But he vowed: “We will recover”.

Other Budget measures include:

  • An increase the limit on contactless payments from £45 to £100
  • Eight ‘freeports’ in England, with lower taxes and “cheaper customs”
  • Business rates holiday in England extended by three months
  • £100m to set up a taskforce to tackle fraud in government Covid schemes
  • More money for vaccine roll-out
  • £5bn to help High Street firms reopen
  • Return of 95% mortgages backed by the government scheme to aid first-time buyers
  • £408m for museums, theatres and galleries in England to help them reopen when Covid restrictions ease
  • £150m to help communities take over pubs in danger of closing

Fears of fresh lockdown as furlough is extended

Rishi Sunak today sparked fears of a future return to lockdown after he extended the furlough scheme to the end of September and announced grants for the self-employed will also continue.

The Chancellor used the Budget to confirm that furloughed workers will continue to receive 80 per cent of their wages for the next seven months.

However, businesses will be asked to contribute more to the scheme, starting with a 10 per cent contribution from July and a 20 per cent contribution from August.

Meanwhile, the Treasury will run two further rounds of its grants for the self-employed scheme, with the fourth round covering February to April and a fifth and final round covering from May onwards.

The fourth grant will provide three months of support at 80 per cent of average trading profits while the fifth grant will be more targeted, with the worst affected still getting 80 per cent while others will get 30 per cent.

Mr Sunak has opted to extend the handouts long beyond Boris Johnson’s target date for a return to something close to normal life in England of June 21.

The moves will therefore inevitably prompt concerns that the PM’s coronavirus roadmap for reopening could be delayed or that there could be another national shutdown in the future.

Furlough: Government wage subsidy scheme will continue until the end of September, sparking fears of third lockdown

A decision by the Chancellor to extend furlough to the end of September, and to extend grants for the self-employed, immediately prompted fears that Boris Johnson’s lockdown roadmap could be delayed. 

The Chancellor used the Budget to confirm that furloughed workers will continue to receive 80 per cent of their wages for the next seven months.

However, businesses will be asked to contribute more to the scheme, starting with a 10 per cent contribution from July and a 20 per cent contribution from August.

Meanwhile, the Treasury will run two further rounds of its grants for the self-employed scheme, with the fourth round covering February to April and a fifth and final round covering from May onwards.

The fourth grant will provide three months of support at 80 per cent of average trading profits while the fifth grant will be more targeted, with the worst affected still getting 80 per cent while others will get 30 per cent.

Mr Sunak has opted to extend the handouts long beyond Mr Johnson’s target date for a return to something close to normal life in England of June 21.

Mr Sunak told the House of Commons: ‘Every job lost is a tragedy which is why protecting, creating and supporting jobs remains my highest priority.

‘So, let me turn straight away to the first part of this Budget’s plan to protect the jobs and livelihoods of the British people through the remaining phase of this crisis.

‘First, the furlough scheme will be extended until the end of September. For employees there will be no change to the terms, they will continue to receive 80 per cent of their salary for hours not worked until the scheme ends.

‘As businesses reopen, we will ask them to contribute, alongside the taxpayer, to the cost of paying their employees.

‘Nothing will change until July when we will ask for a small contribution of just 10 per cent and 20 per cent in August and September.

‘The Government is proud of the furlough, one of the most generous schemes in the world, effectively protecting millions of peoples’ jobs and incomes.’

The furlough scheme has so far cost the UK an estimated £53billion, running at approximately £5billion a month. It had been due to finish at the end of April.

Chancellor extends discounted five per cent VAT rate for cafes, pubs and UK breaks 

Britain is set for a summer spending splurge after the Chancellor extended the discount 5% VAT rate, meaning consumers are set for cheaper coffee, meals out and staycations.

The super-low rate will carry on until September, the Chancellor announced in his Budget today, then move to 12.5 per cent until April 2022 before returning to 20 per cent regular rate afterwards.

The move is intended to boost high streets when non-essential shops are allowed open from April 12 at the earliest, in addition to pubs and restaurants for outdoor dining.

Like many of Mr Sunak’s Covid relief schemes, the VAT cut was due to end on March 31.

The lower rate is likely to lead to lower costs for consumers – as long as shops and hospitality venues do not ramp their prices to make up for lost business.

Chancellor delights would-be homebuyers as he extends stamp duty holiday 

Aspiring homebuyers today welcomed the Chancellor’s announcement that they will receive extra help to get onto the property ladder as he pledged a new mortgage guarantee scheme and an extension of the stamp duty holiday. 

Mr Sunak’s fresh initiative will incentivise lenders to provide mortgages to first-time buyers as well as current home-owners with just 5 per cent deposits to buy properties worth up to £600,000. The Government will offer lenders the guarantee they require to provide mortgages covering the remaining 95 per cent. 

And the stamp duty holiday extension was also welcomed by those hoping to move soon. It comes after the Chancellor exempted most buyers from the levy last July if they completed their transactions before March 31, 2021 – saving people up to £15,000 – and leaving would-be owners racing to meet the deadline. 

That deadline has now been pushed back to the end of June to provide a further boost to the housing market.  The stamp duty policy covers the sale of property worth up to £500,000 and will cost £1billion to implement. A nil-rate band will remain for the first £250,000 until the end of September. 

Critics had argued that failing to extend the holiday would result in a cliff-edge, jeopardising hundreds of thousands of potential sales.  The Government is hoping its new mortgage guarantee scheme will help to turn more of ‘generation rent’ into ‘generation buy’. 

The Treasury said low-deposit mortgages had ‘virtually disappeared’ because of the economic impacts of the pandemic.  The scheme, which will be subject to the usual affordability checks, will be available from April.

It is based on the Help to Buy mortgage guarantee scheme introduced in 2013 by David Cameron and George Osborne, which ran until June 2017 and aimed to reinvigorate the market following the 2008 financial crisis.

Universal Credit: Chancellor bows to growing pressure to extend £20-a-week uplift 

Mr Sunak today bowed to growing pressure from Tory MPs and his political opponents to agree to an extension of a £20-a-week uplift in the value of Universal Credit.

The pandemic uplift had been due to end next month but Mr Sunak said: ‘To support low-income households, the Universal Credit uplift of £20 a week will continue for a further six months, well beyond the end of this national lockdown.’

The decision was welcomed by many Tory MPs but some campaign groups said the six month increase ‘makes no sense’ after they had called for the additional cash to be retained for 12 months or to be made permanent.

They urged the Government to think again, saying families need ‘help and certainty, not a stay of execution’.

Paul Noblet, head of public affairs at Centrepoint, said: ‘Extending the uplift for only six months does not go far enough, given the ending of furlough and the increase in unemployment that we could face before Christmas.

‘The pandemic may be slowing down but the economic impact continues to grow and all the indications are that young people are likely to remain the hardest hit.’

Business rates holiday extended for retail, hospitality and leisure firms

Mr Sunak said that the business rates holiday will be extended until the end of June for hard-hit retail, hospitality and leisure firms before shifting to a two-thirds discount for the rest of the year.

Non-essential shops and hospitality venues have been particularly heavily hit by the impact of the pandemic and remain shut in the face of the nationwide lockdown.

Retail, hospitality and leisure firms will now see the current business rates holiday – which was due to expire at the end of this month – extended until the end of June, when restrictions are intended to be wound down.

Mr Sunak said: ‘This year, we’ll continue with the 100% business rates holiday for the first three months of the year – in other words, through to the end of June.

‘For the remaining nine months of the year, business rates will still be discounted by two-thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open.’

Chancellor freezes alcohol and fuel duty    

Mr Sunak handed Covid-weary Brits a boost as he used his Budget to freeze tax on booze and fuel.

The Chancellor cancelled planned increases in duty on beer, cider, wine and spirits for the second year in a row in today’s Budget.

The amount of tax on a tankful of petrol and diesel will also remain the same for the 10th year in a row.

The moves came after a year in which many pubs and restaurants have been forced to remain shuttered and the majority of Britons have been working from home.

But smokers will have to cough up more for tobacco, as the price will rise in line with inflation as expected this evening.

UKHospitality chief executive Kate Nicholls said: ‘The Chancellor has listened to the concerns of the hospitality sector. Details are yet to be pored over but it looks like crucial support will help businesses at a critical time.

‘The Chancellor has announced support to help our sector get back up and running, now it is vital that the Government sticks to its date of June 21st for a full reopening of the sector.

‘Delay would see more businesses fail, more jobs lost and undo much of the good work the Chancellor has done to date.’

Contactless payment limit to more than double to £100

The Budget will see the legal single contactless payment limit raised from £45 to £100.

While legally in force from Wednesday, the increase will not happen immediately as firms will need to make systems changes. The banking industry will implement the new £100 limit later this year.

The Government said the increase has been made possible by the UK’s exit from the European Union, which means it is no longer bound by EU rules on the maximum limit for contactless payment, which is currently set at £45.

‘Tap and go’ contactless cards initially had a limit of £10 in 2007, and this was increased to £15 in 2010, £20 in 2012 and £30 in 2015. The limit was raised to £45 last April, in the early months of the coronavirus pandemic.

Mr Sunak said: ‘As we begin to open the UK economy and people return to the high street, the contactless limit increase will make it easier than ever before for people to pay for their shopping, providing a welcome boost to retail that will protect jobs and drive growth across the UK.’

Business leaders praise Sunak’s support package

Business leaders praised the Chancellor for going ‘above and beyond’ to protect companies still suffering from the coronavirus crisis, although he was warned that thousands of smaller firms are on the brink of collapse.

Tony Danker, director general of the CBI, said the Budget had succeeded in protecting the economy and kickstarting a recovery, leaving open the question of competitiveness in the long term.

He said: ‘The Chancellor has gone above and beyond to protect UK businesses and people’s livelihoods through the crisis and get firms spending.

‘Thousands of firms will be relieved to receive support to finish the job and get through the coming months. The Budget also has a clear eye to the future; to ensure finances are sustainable, while building confidence and investment in a lasting recovery.

‘But moving Corporation Tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK.’

Jonathan Geldart, director general of the Institute of Directors, said the Budget delivered a solid platform for many businesses to relaunch as the economy reopens.

‘The extension to the furlough scheme will provide a vital cushion to support jobs as restrictions unwind and firms begin the costly process of rescaling.

‘Restart grants and ongoing business rates relief give a cashflow boost to many firms that will struggle to make full productive use of their properties as restrictions linger.

‘Widening income support for the self-employed is a step forward, but the Chancellor missed a trick by not providing grants for company directors who continue to be left out in the cold.’

Dr Adam Marshall, director general of the British Chambers of Commerce, said there was much to welcome, adding: ‘The Chancellor has listened and acted on our calls for immediate support to help struggling businesses reach the finish line of this gruelling marathon and to begin their recovery.

‘Extensions to furlough, business rates relief and VAT reductions give firms a fighting chance not only to restart, but also to rebuild.

‘This Budget provides reassurance to businesses, provided that they are able to restart and rebuild according to the Government’s road map.’

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