Spring 2021 Budget
On Wednesday, 3 March 2021, Rishi Sunak presented what was one of the most eagerly awaited budgets in modern times - perhaps of all time.
Budget 2021 was all about a ‘Once in a 300-year event – the pandemic.
A year on from when COVID-19 really started to bite and with the UK still in the grips of its third coronavirus lockdown, the Chancellor gave us around 50 minutes of his time to provide an update on what the pandemic has meant for the UK economy and what we should all expect next.
What we got was politically charged (from both the Chancellor and opposition leaders) and effectively came down to the country hammering the national credit card for a bit longer.
Coronavirus support stays, and we’ll worry about paying for it later.
As many expected, the UK will continue to borrow; heavily, for now.
Kent based Accountants, ATN Partnership, kept a close eye on what the Budget meant for businesses across Kent and Medway and offers its views on, what for many, was a bit of a non-event.
The numbers are the numbers
Budget 2021 took a long-term view with established fiscal constraints being paused due to the uncertainty. What remained central is that borrowing must be repaid.
It really was a budget of two halves - the next two years and the following three years.
According to ATN Partnership, the next two years represent a significant cooling in the Chancellor's generosity; but that’s simply providing the good news first.
Niyi Idowu, Partner with Kent Accountants, ATN Partnership, said:
“Ignoring the coronavirus aspects, Budget 2021 is worth about £790 million to the Kent and Medway economy over each of the next two years, so, around £1.58 billion in total.
“That is a marked reduction when you consider that last year alone the fiscal budget was worth over £4 billion to the region. Again, I’m ignoring coronavirus support.
“If you look at the two areas that we are most heavily engaged in as Accountants - Gravesham and Dartford, then the total coming in from the Treasury into those areas, over the next two years, is down a combined £351 million.”
But as mentioned, that’s the best bit. What will follow is a fiscal punch in the face.
Niyi continued:
“It’s early days but our initial calculations suggest that the combined tax increases and reductions in public expenditure for the three years from April 2023 will cost Kent and Medway a similar amount - around £535 million each year for three years.
“So in summary, the county will receive around £1.58 billion over two years and lose around £1.6 billion over the next three.”
What COVID has cost...
In total, the bill for the support that the Treasury has provided and will continue to provide over this year and next, will be around £407 billion.
Depending on what basis you use for your calculation, this means that Kent and Medway will have received up to £9.6 billion in coronavirus-related support.
It is important to acknowledge, however, that some have received nothing at all in the way of meaningful (or any!) support. This was not the Budget that the “Excluded” had been hoping for.
What struck many observers as odd is that the mix of support measures will continue long after COVID-19 restrictions have been lifted.
Although it is hoped that 21 June will be the date all lockdown restrictions end, furlough, Small Business Rates Relief and help for the self-employed, will all continue for months after.
The ‘good’ news
The government is extending the various coronavirus support measures well beyond the hoped for date at which all restrictions should be lifted.
Niyi Idowu, Partner with Kent Accountants, ATN Partnership, said:
“These are seen as short term commitments and the Chancellor clearly thinks that avoiding a cliff edge in support now, is desirable. They will be funded by increasing borrowing, a further £355 billion this year and £243 billion the year after.
“For Kent and Medway, this broadly means that the Chancellor is borrowing around £14 billion to help us through in terms of coronavirus support.”
Key points:
- Coronavirus Job Retention Scheme (Furlough) - extended to 30 September
- Self-employment Income Support Scheme (SEISS) - extended to 30 September
- Some self-employed people previously excluded from SEISS are now eligible
- £20 uplift in Universal Credit extended for a further six months
- Working Tax Credit claimants to get a £500 one-off payment
- Reduced VAT rate of 5% for hospitality businesses extended to 30 September; 12.5% for six months thereafter
- Stamp duty reduction extended
In addition, the Chancellor announced that there would be no increase in Income Tax, National Insurance or VAT rates.
You can find our summary of the key budget points on the main budget proposals page of our website.
The bad news…
The Chancellor was walking a tightrope between honouring the government's manifesto pledges and raising much needed revenue to tackle the fiscal issues COVID-19 has raised.
Personal income tax allowances will still rise next year as promised. The point at which someone starts paying tax will be £12,570 by April 2022 and the higher rate threshold will also increase to £50,270 - but both will then be frozen until at least April 2026.
Although the freezing of income tax allowances is not seen as a tax rise politically - the term “fiscal drag” is preferred. ATN Partnership says that this will mean that around 30,000 additional people across Kent and Medway will enter the tax system over the next five years while around 14,000 will be taken into the higher rate tax bands.
25% Corporation Tax
One of the more eye watering announcements was that Corporation Tax would be rising from 19% to 25% - a move that would have been a cruel blow to many of those already excluded from receiving COVID-19 related financial support.
However, the Chancellor announced that limited companies that make less than £50,000 in net annual profits will continue to pay Corporation Tax at the current rate of 19%.
Niyi said:
“When we first heard that Corporation Tax was increasing to 25% there was a collective intake of breath from all of us.
“Business owners who choose to operate through their own limited companies have been almost completely excluded from any financial support through the pandemic and increasing tax on them would have been an extremely difficult pill to swallow.
“Regardless of the rhetoric from the Chancellor or (increasingly) the Chief Secretary to the Treasury, millions of taxpayers remain excluded from financial support.”
ATN Partnership also flagged that the new Corporation Tax regime was essentially a return to the past where larger businesses paid a higher rate of tax than smaller ones and all may
not be as simple as the Chancellor likes to claim.
Niyi added:
“The Chancellor spoke about there being a tapered rate for companies that make annual profits of between £50,000 and £250,000 - we need to look at this carefully as under the old system there were anomalies where businesses that fell in between the two rates ended up paying a higher rate of corporation tax than the highest rate.”
Unemployment and economic outlook
One area of concern is that unemployment is set to rise in the near term.
Although the Chancellor was very vocal about how the government policies had successfully subdued the increase in the rate of unemployment, people will be losing their jobs.
The Office for Budget Responsibility had originally forecast that the UK unemployment rate would peak at 11.9%. It now forecasts a peak of 6.5% - meaning 1.8 million fewer people will become unemployed.
But the unemployment rate currently stands at 5.1%, which means that an additional 500,000 people are likely to lose their jobs if the rate is to rise to 6.5%.
ATN Partnership calculates that this would mean an additional 10,000 people becoming unemployed across Kent and Medway over the next two years.
In terms of the economy, the coronavirus shock which has seen the economy shrink by around 10%, will be offset by around 4% growth in 2021 and over 7% in 2022 before falling back to more familiar levels of around 1.7% per year.
However, the economy as a whole will now be approximately 3% smaller in 5 years’ time than was expected pre-COVID-19.
You can find a detailed breakdown of Budget 2021 on our Spring Budget page on the ATN website.
Talk to us
ATN has already released its Budget 2021 summary which is available free of charge by contacting the office (01474 326 224). Alternatively, visit the website; tweet @atnpartnership or email info@atnpartnership.co.uk.