Sunak targets business to recover billions spent on Covid measures
Finance Minister lifts corporation tax, freezes personal allowances
UK Finance Minister Rishi Sunak on Wednesday unveiled tax rises for businesses and employees as he sought to claw back some of the billions spent on mitigating the impact of the Covid-19 pandemic.
In his annual Budget speech to parliament, Sunak said he would raise corporation tax to 25% from 19% from 2023 and introduced a stealth tax rise as he froze personal allowance thresholds.
He said the British economy would return to pre-pandemic levels in the middle of 2022, six months earlier than forecast, but would still be 3% smaller in five years’ time than it would have been without the impact of the crisis.
Most of the Budget measures were widely leaked by Sunak, regarded by many as a future prime minister who has used social media widely to project his message and reportedly used image consultants to promote his brand as a leader-in-waiting.
The five-month extension of his furlough scheme to protect jobs was confirmed, along with more help for the self-employed, continuation of an emergency increase in welfare payments, and extension of the reduced 5% VAT rate for the hospitality sector to September followed by a still-lower rate of 12% until March 2022, allowing pubs currently shut under lockdown to benefit from lower VAT on food and soft drinks when they reopen.
A freeze on stamp duty payments for home-buyers was also extended until the end of June along with confirmation of a 5% home deposit guarantee for first-time purchasers.
The corporation tax rise is designed to raise £17bn a year by 2025 but will raise eyebrows among many MPs in Sunak’s own Conservative Party who believe in a smaller state with low tax policies. The finance minister has consistently argued that the £400bn spent on pandemic measures cannot be ignored, especially with rumblings on markets of higher interest rates.
There was some relief for smaller businesses, with the corporation tax increase applying to firms with annual profits of more than £50,000 and a sliding scale for companies with profits between £50,000 and £250,000.
Sunak also revealed a new super deduction” allowing companies to reduce their tax bill by 130% on any cost of business investment in a move to boost capital spending, although treasury estimates say this could cost £25bn in lost tax revenue.
THE TAX RISE SUNAK DOESN'T MENTION
Despite a pledge not to raise personal income tax, national insurance and VAT in the 2019 election, Sunak imposed a stealth rise on individuals by freezing the threshold at which they start paying until 2026 at £12,500 and £50,300 respectively netting the treasury £8.2bn a year by 2025/26, as wage growth pushes more people into higher tax brackets.
The increases, which will see any pay rises eroded by more tax, are set against a backdrop of stretched personal finances and many people insecure about their employment futures.
The Conservatives have conveniently side-stepped the fact that most will face a 5% rise in council tax next month as councils, still feeling the impact of Tory austerity policies championed by every finance minister since George Osborne in 2010, look for ways to make up millions in funding cuts from central government, hitting much-needed local services.
Growth forecasts for 2021 were cut to 4% from 5.5% by the Office for Budgetary Responsibility (OBR), reflecting the effect of the latest lockdown on the economy which began in January.
Looking further ahead, the OBR forecast gross domestic product would grow 7.3%, 1.7% and 1.6% in 2022, 2023 and 2024 respectively, compared with November forecasts for those years of 6.6%, 2.3% and 1.7%.
Government borrowing is at its highest since World War Two at an estimated 17% of GDP in the current fiscal year, or £355bn and is expected to fall to a still historically high 10.3% in 2021/22 before eventually settling at £73.7bn in 2025.