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Chancellor extends furlough but lifts corporation tax
Chancellor Rishi Sunak has taken decisive action in today’s Budget to address the costs of the C-19 pandemic.
*The UK government will extend the furlough program to 30th September 2021 however the contribution paid by employers will be 10% in July and 20% in both August and September. (There were c. 4.7m people on the furlough scheme as at 25th February 2021)
*Support for the UK’s self employed will be extended to 30th September 2021 but 600k more self-employed will have access to grants
*£20 per week uplift in Universal Credit to be extended for six months with working tax credit claimants to get £500 one-off payment
*Minimum wage to rise to £8.91 in April 2021
*C-19 business rates holiday to continue until June 2021 with 75% discount afterwards
The Chancellor pointed out the UK GDP contracted by 9.9% in 2020 and will only return to 2019 levels in 2022 assuming 4% growth in 2021 and 7.3% in 2022.
*The PSBR is expected to be a record £355bn in 2021 and £234bn in 2022.
*UK unemployment expected to rise to 6.5% in 2022
*At least 700k have lost their jobs since March 2020
The Chancellor has re-introduced the pre-2017 tiered system of corporation tax.
*”Smaller companies” (those with profits<£50,000) will keep paying 19% CT however this will rise to 25% by April 2023 for companies not in this band.
*No changes to income tax, NI, VAT or inheritance tax however the personal income tax allowance is to be frozen at £12570 from April 2022 to 2026 and the higher rate threshold is to be frozen at £50,270 for the same period.
*Stamp duty holiday to remain in place until end June 2021. Contactless payments to increase to £100 from £45.
*£1.65bn for the UK vaccination rollout programme ( drug / staff provision etc)
*A new UK Infrastructure Bank will be set up with £12bn of starting capital and be based in Leeds.
*The UK government will issue £15bn in ‘green bonds’ to help finance the transition to net carbon zero by 2050.
*Tax breaks will enable firms to deduct “investment costs” from tax bills reducing taxable profits by up to 130%
*Alcohol and fuel duties frozen
The Budget was reasonably well flagged with investors expecting the furlough program to be extended. The extension to 30th September 2021 allows sufficient time for the C-19 vaccination program to reach the UK adult population.
The rise in corporation tax is a future tax the timing of which will allow the corporate sector to fully recover previous profitability.
The Chancellor pointed out that repairing the long term damage will take time and the UK economic contraction is the largest in 300 years. He also sounded downbeat about international prospects noting the global economic recovery will also take time. Importantly the Chancellor has dampened the notion of a quick recovery with a 4% GDP jump in 2021 just above half of previous expectations.
Overall this Budget was soft with continued assistance for those on furlough. This is only fair, the government mandated lockdowns/ closures so must provide for people not able to work. The measures are aimed at preventing a massive surge in unemployment as the economy re-opens over April and May 2020. This should benefit the banking sector, keeping actual losses down and essential consumer goods/ food retailers etc.