I listened to Rishi Sunak’s budget speech today and here is a summary of some parts of it with some comments from me.
He said that £280 billion of support had been provided, but the damage to our economy despite this has been acute. However our response to the coronavirus epidemic is working. Employment support schemes are being extended and business rates holidays also. The OBR is now forecasting a swifter recovery but the economy won’t be back to normal until the middle of next year. Unemployment is expected to rise to 6.5% but that is less than previously forecast.
There will be another £65 billion of support for the economy when we have borrowed £355 billion this year which will be a record amount.
The stamp duty holiday is extended to September. That should please my oldest son as he is trying to move house at present and delays are happening in the chain because of local authorities not responding to inquiries. There will also be a new mortgage guarantee scheme which as Keir Starmer pointed out may simply encourage a rise in house prices – OK if you already have one but not otherwise. Fuel duty will be frozen as will beer, wine and spirit duties.
Now the bad news: personal allowance tax thresholds will be frozen at the end of the next tax year until April 2026. That effectively implies a rise in tax equivalent to inflation over that period. Inheritance tax thresholds will be maintained at their current levels until April 2026 and the adult ISA annual subscription limit for 2021-22 will remain unchanged at £20,000. There is no mention of changes to capital gains tax as widely rumoured and the pension Lifetime Allowance will be maintained at its current level of £1,073,100 until April 2026 when it really should be increased to match inflation (high earners already have problems with the current limit).
Corporation tax will rise to 25%, but there will be a taper for larger companies. Only 10% of companies will pay a higher rate. Comment: that will still be a competitive rate.
The Chancellor said we need an investment led recovery. Therefore for the next 2 years companies can reduce their tax bill by 130% of the cost of capital expenditure. This is the biggest business tax cut in history he claimed.
There will be a new UK infrastructure bank and a new handout for small businesses to fund IT investment and obtain management support (see https://helptogrow.campaign.gov.uk/ for details). He also mentioned a review of R&D tax reliefs which are quite generous at present. It is planned to cap the amount of SME payable R&D tax credit that a business can receive in any one year at £20,000 (plus three times the company’s total PAYE and NICs liability), but a review is also mentioned.
There are a number of hand-outs for greening of the economy, as one might expect, but there are also more hand-outs to protect jobs and to support Covid-19 vaccination roll-out and research projects.
The FCA will be consulting on Lord Hill’s review to encourage companies to list in UK markets.
There will be more Freeports with 8 locations already identified.
In summary, this budget should be good for business but small software companies may be concerned about the changes to R&D tax credits.
More details of the Chancellors speech here: https://www.gov.uk/government/news/budget-2021-sets-path-for-recovery
Postscript: Reaction to yesterday’s budget was generally negative, but nobody likes higher taxes. The general view is that the Chancellor has just kicked the bucket down the road. More borrowing in the short term to finance the recovery and keep people in employment, but much higher taxes later. I think the budget is a reasonable attempt to keep the economy afloat and could have been a lot more damaging for business if he had taken a tougher line.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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