The chancellor says he would do “whatever it takes” during the pandemic, and that he has done and will continue to do so. He says there has been acute damage to the economy, with more than 700,000 people losing their jobs, the economy shrinking by 10% – the largest fall in 300 years, and borrowing is 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 situation,” he says.
Sunak also says he wants to be honest about the government’s plans for fixing the public finances, and set out plans for the future.
The Adam Smith Institute welcomed the headline grabbing super deduction, but slammed “the silliness of the Mortgage Guarantee”. The ASI’s Matt Kilcoyne said:
“Rishi Sunak’s super deduction will induce investment into Britain’s factories and help businesses bounce back and Britain’s economy boom as we leave the pandemic behind. We’d estimated at 100% full expensing would be worth over £2,214 per worker, going beyond that is a bold move to help the private sector build the recovery. It will benefit most those areas that have been left behind in recent decades. It is the most serious attempt to rebalance the economy a Chancellor has made and it is truly welcome.”
The Institute for Fiscal Studies was doubtful the Chancellor truly levelled with the public on the level of the UK’s new debt. 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.”
The Centre for Policy Studies, welcomed Rishi Sunak’s plan for a business-led recovery, urging him to do more to increase growth in the long term. CPS Director Robert Colvile said:
“The combination of business rate reductions, investment incentives and other measures should help business and the economy rebound powerfully in the next few years – and we are pleased to see our proposal for free ports at the heart of the Chancellor’s speech. But there is the danger of a cliff edge later on as support is withdrawn and taxes increased – or that businesses will anticipate higher taxes and fail to invest.”
The Resolution Foundation’s Director Torsten Bell said that this was a hard budget for Labour to respond to. Bell summarised the outlook as:
‘The recovery could be swifter later this year. In the meantime government has gone big again on pandemic support for firms and households. Further ahead they will massively tax firms, but to soften the blow hand them loads of cash if they invest now’
The Taxpayers’ Alliance said tax hikes risk choking the recovery. Chief Executive John O’Connell said:
“There were some wins for taxpayers today, but it doesn’t gloss over the fact that this was a tax-raising budget. The chancellor is helping to rescue struggling sectors but £30 billion worth of tax increases will hit hard-pressed households and businesses already under the highest tax burden in 70 years. Big tax hikes risk choking off the recovery Rishi wants before it has even started, so let’s hope that other measures in the budget help to boost jobs, spur investment and ultimately revive the economy.”
The Institute of Economic Affairs slammed the “aggressive” move to hike corporation tax, saying the move will be “pass[ed] on to consumers in higher prices, to workers in the form of lower wages and fewer jobs”. IEA Director General Mark Littlewood said:
“After months of damage inflicted by the pandemic and lockdown measures, the Chancellor had the opportunity to deliver a pro-business, pro-growth Budget by lowering and simplifying taxes and slashing unnecessary regulations. Instead, we received a barrage of short-term costly measures which risk depressing economic growth, reducing employment, hampering entrepreneurialism, and ultimately harming the long-term economic recovery. Dialling up taxes was a mistake, and our economic growth will be less impressive as a result.”
The Centre for Social Justice broadly welcomes the budget. Policy Director Edward Davies said:
“We are pleased that the Chancellor is extending the £20 uplift in Universal Credit for another six months. Universal Credit is a lifeline for the poorest people in the UK and today’s decision will make a significant difference to many people. Likewise, the announced increase of the National Minimum wage to £8.91 an hour from April is also welcome and will be a huge help to those working low paid jobs.”
Onward‘s director was effusively supportive of the report. Will Tanner said:
“We’ve recommended much higher tax allowances in three papers to date. Levelling Up (2019) Levelling Up the Tax System (2021) Levelling Up Innovation (2021).”
✅ The budget deficit will be £355bn this year, or 17% of GDP, the highest in peacetime.
✅ Without corrective action, borrowing would remain at very high levels, leaving underlying debt climbing indefinitely.
✅ Sunak says borrowing will fall to 4.5% of GDP in 2022-23, then to 3.5% in 2023-24, then 2.9 and 2.8% in the subsequent two years.
✅ The national debt – the sum total of every budget deficit – will rise from 88.8% of GDP this year to 93.8% next year, it will peak at 97.1% in 2023-24, before stabilising and falling slightly to 97% and 96.8% in the final two years of the forecast.
✅ The OBR estimated a budget deficit in November – the gap between spending and receipts – of £394bn for 2020-21.
✅ The chancellor says this matters because the amount borrowed is only comparable to the two world wars. “It’s going to be the work of many governments over many decades to pay it back, just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked,” he says.
✅ 5% reduced rate of VAT will be extended until the end of September. Then it will be gradually increased, at 12.5% for six months, before returning to the standard rate from April 2022. Sunak says this is a cut worth £5bn.
✅ The chancellor confirms the £5bn restart grant for businesses to help companies get going after lockdown.
✅ He says total direct cash support to businesses has reached £25bn.
✅ As the government-backed bounce back loan (BBL) and coronavirus business interruption loan scheme (CBILS) come to an end, the Treasury is launching a new loan scheme to run until the end of the year. Loans can be between £25,000 and £10m.
✅ Hospitality and leisure businesses pay no business rates for three months, then rates will be discounted for the remaining nine months of the year by two-thirds, in a £6bn tax cut.
✅ In April 2023, the rate of corporation tax will increase to 25%. Sunak says this will be the lowest rate in the G7.
✅ Sunak says businesses will only be impacted if they are making profits, and the change will only come in once the OBR forecasts the economy will be recovering.
✅ The rate will be tapered so that only businesses with profits of more than £250,000 will be taxed at the full 25% rate; that means only 10% of companies will pay the higher rate. Companies with profits of less than £50,000 will remain at 19%.
✅ “It’s a tax rise on company profits, but only on the larger, more profitable companies, and only in two years’ time,” Sunak says.
✅ The government is investing £25bn by allowing a 130% super-deduction on tax for companies’ investments. This means firms can cut their taxes by up to 25p for every pound they invest.
✅ Alcohol duties will be frozen for the second year in a row.
✅ Fuel duty will also be frozen.
✅ The chancellor says the economy will recover more quickly from the pandemic than previously thought, with the economy returning to its pre-pandemic size six months earlier, by the middle of next year.
✅ The economy will still be 3% smaller in five years than it otherwise would have been without Covid.
✅ GDP will grow by 4% this year, according to official forecasts made by the Office for Budget Responsibility (OBR).
✅ GDP will grow by 7.3% next year.
✅ In November, the OBR said its “central scenario” was for GDP growth of 5.5% in 2021.
✅ It comes after the economy shrank by 9.9% in 2020, the biggest fall since 1709.
✅ Sunak announces the stamp duty holiday will be extended.
✅ As expected, stamp duty holiday on properties up to £500,000 continues until the end of June. It will be kept at double its standard level until the end of September, and then return to normal levels from 1 October.
✅ The chancellor confirms a mortgage guarantee to help first-time buyers access 95% mortgages.
✅ The chancellor says the government will take a “fair” approach to “fixing the public finances”.
✅ The government will not raise national insurance, income tax or VAT, but will freeze personal tax thresholds – as anticipated.
✅ The personal allowance will remain at £12,750 until 2026. The higher-rate threshold will increase to £50,270 next year and also stay at that level.
✅ The inheritance tax threshold, pensions lifetime allowance, annual exempt allowance from capital gains tax and VAT exemption threshold will also be frozen.
✅ The chancellor says unemployment will peak at 6.5%, down from a forecasted peak of 11.9% last July. That means 1.8 million fewer people are expected to be out of work than previously thought, he says.
✅ Sunak confirms the furlough scheme’s extension until the end of September, as previously announced late on Tuesday.
✅ Employees will continue to receive 80% of their wages until the scheme ends, but firms will be asked to contribute 10% in July, and 20% in August and September as the scheme is gradually phased out.
✅ Sunak also confirms the self-employment income support scheme has also been extended. The fourth grant will cover February to April, worth 80% of average trading profits up to £7,500.
✅ The £20-a-week increase in universal credit is extended for six months.
✅ The chancellor confirms the Treasury will establish an economic campus in Darlington, alongside the business, international trade, and housing and communities departments.
✅ Sunak announces more than £1bn funding for 45 new “town deals” across the UK.
✅ 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 announces eight locations in England: East Midlands airport, Felixstowe and Harwich, Humber, Liverpool city region, Plymouth, Solent, Thames and Teesside.
✅ The chancellor announces the new national infrastructure bank will open in Leeds with £12bn capitalisations 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.
✅ Total Covid support package this year and next is £352bn, the chancellor says.
✅ Sunak says the pandemic’s response has been one of the largest and most sustained the country has ever seen.