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Budget Delivers ‘Short Term Gain but Long-Term Pain’

Budget Delivers ‘Short Term Gain but Long-Term Pain’

Delivering his Spring Budget, the Chancellor Rishi Sunak said he would do “whatever it takes” to protect jobs and businesses from the impact of the coronavirus pandemic. Despite acute damage to the economy, with more than 700,000 people losing their jobs and borrowing at its highest outside of wartime, he said that OBR figures indicate that the UK is on the road to recovery.

With over £280 billion of support already made available since March 2020, Sunak said he wanted to be honest about the government’s plans for fixing the public finances. Alongside the support laid out for businesses and individuals, he also laid out a series of tax increases that would help balance the books.

Here is a summary of the key points from this year’s Budget:

Coronavirus Support

  • £20 weekly uplift in Universal Credit worth £1,000 a year to be extended for another six months
  • Working Tax Credit claimants will get a £500 one-off payment
  • Furlough arrangements to be extended until the end of September
  • Support for the self-employed to be extended and this will now enable 600,000 more self-employed who have filed their tax return to be eligible for support.

Personal Taxation

  • No changes to rates of income tax or National Insurance
  • The personal income tax allowance is to be frozen at £12,570 from April 2022 to 2026 with the higher rate income tax threshold to be frozen at £50,270 from 2022 to 2026
  • Stamp Duty holiday on house purchases in England and Northern Ireland is extended until 30 June meaning that there is no tax charges on sales of less than £500,000.
  • Inheritance tax thresholds, pensions lifetime allowances and annual capital gains tax exemptions are to remain at the 2020-21 levels until 2025-26.

Business

  • Corporation tax on company profits above £250,000 to rise from 19% to 25% in April 2023. The rate will be kept at 19% for smaller companies with profits less than £50,000.
  • Companies operating in the hospitality industry will continue to benefit from the 5% reduced rate of VAT until the end of September. The rate will be gradually increased, at 12.5% for six months, before returning to the standard rate from April 2022.
  • The introduction of a super deduction enabling companies to deduct qualifying investment costs from tax bills, which can reduce taxable profits by 130%. Restart grants for shops and other businesses in England forced to close
  • Schemes to assist small businesses and attract international talent into the UK
  • The 100% Business Rates holiday will continue in England until the end of June 2021. Thereafter, rates will be discounted by up to 75%

Other Announcements

  • All alcohol duties to be frozen for second year running and fuel duty to be frozen for eleventh consecutive year
  • The Chancellor announced the new national infrastructure bank will open in Leeds with £12bn capitalisation from the government. Green projects will be supported through a green recovery bond. The Chancellor says the Treasury will reform the Bank of England’s mandate to include targeting net zero emissions, in addition to the existing 2% inflation target.
  • Regional regeneration funds for 45 English towns and the relocation of a new Treasury campus in Darlington bringing with it 750 civil servants.
  • Freeports – special economic zones with different rules to make it easier and cheaper to do business – will be launched. They will include infrastructure planning, customs and favourable duties and taxes. Sunak announced eight locations in England: East Midlands airport, Felixstowe and Harwich, Humber, Liverpool city region, Plymouth, Solent, Thames and Teesside.

Although the Chancellor was at pains to make the point that the measures announced protect jobs and livelihoods, many commentators have taken the stance that he gave a confident budget that provides many policies to stimulate the economy once people are back in work, but the cost of the pandemic and the wreckage it has caused will be felt for decades to come.

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