That was a fairly quiet budget in the end. Lots more spending and very little in the way of tax rises in the 2021/22 tax year. Tax rises are planned for the following years; stealth personal tax rises through freezing of allowances is one of the main money grabbers alongside the headline big increase in corporation tax to 25%. Overall, and despite the big planned increase in corporation tax it did seem like a budget aiming to get business spending and also planning for the future.
So another year’s budget is done, though of course there will be probably be another one this later year! I’m not sure whether there was a ‘centrepiece’, except more spending on the COVID response. For the record, GDP growth of 4% is expected this year followed by 7.3% in 2022 – many fund managers expect this year to be better than 4%. Borrowing is expected to hit £355 billion in 2021 and £234 billion next financial year but falling sharply after that. Surprisingly, and you have to wonder whether figures have been massaged, the UK’s debt to GDP ratio peaks at 97.1% in the 2023/24 financial year.
On COVID, and as expected, Rishi Sunak extended the Furlough scheme until September, with some tweaks, and extended the self-employed support scheme for the same period. He also extended the uplift to Universal Credit for another six months. Business rate relief has also been extended until the end of June with a taper after that for the rest of the year. Reduced VAT for hospitality and tourism is also extended, initially until the end of September, at a 5% rate then 12.5% until April 2021.
The key tax increase in the budget was the big increase in corporation tax from 2023 to 25%, although with a smaller business rate of 19% for businesses with profits below £50,000. The other key tax raising measure was the freezing of most personal tax allowances until 2026. Income tax thresholds will increase slightly next tax year, but capital gains tax and inheritance tax levels will remain the same bringing more people into them. Arguably many won’t notice these stealth increases.
Growth was a key part of the speech, with the introduction of the Freeport concept (including Plymouth) the centrepiece. However, for most business the 130% “super deduction” allowance available for the next two years may be of more interest, allowing businesses to invest and offset against tax more than the cost of the investment. The introduction of a UK infrastructure bank was also another key part of trying to unlock investment.
From a personal finance perspective there was very little in the budget, though there may be more in the actual detail including the introduction of a new retail savings product to support green projects. There was no mention of the rates though, too high and the banks will complain, too low and savers won’t be interested. One final non surprise was the extension of reduced stamp duty until the end of June, with a tapering effect for a further three months to avoid a cliff edge. Finally, the ISA allowance remains at £20,000 and the lifetime allowance is frozen for pensions at just over £1 million until 2026.
Ben Yearsley, Investment Director, Shore Financial Planning