Key points of the Budget

If you have specific questions on the Budget and how it will affect you, your family or business – contact us at david.eaton@smestrategies.co.uk. The freezing of inheritance tax thresholds and the pensions life time allowances will each have a negative impact on a number of our clients. Clients may wish to take pro-active action to mitigate these adverse changes.

Rishi Sunak, the Chancellor of the Exchequer, gave his Spring 2021 Budget on 5 March. This is a summary of the main announcements:

(The full budget as laid before the House of Commons can be found in the Red Book).

Financial help for coronavirus

  • The Furlough scheme will be extended until the end of September 2021
  • Government to continue paying 80% of employees’ wages for hours they cannot work
  • Employers will contribute 10% in July and 20% in August and September
  • Support for the self-employed also to be extended until September
  • 600,000 more self-employed people will be eligible for help as access to grants is widened
  • £20 weekly uplift in Universal Credit worth £1,000 a year to be extended for another six months
  • Working Tax Credit claimants will get £500 one-off payment
  • Minimum wage to increase to £8.91 an hour from April

Public finances & the economy

  • UK economy shrank by 10% in 2020
  • Economy forecast to rebound in 2021, with predicted annual growth of 4% this year
  • Economy forecast to return to pre-Covid levels by middle of 2022, with growth of 7.3% next year
  • 700,000 people have lost their jobs since pandemic began
  • Unemployment expected to peak at 6.5% next year, lower than 11.9% previously predicted
  • UK to borrow a peacetime record of £355bn this year.
  • Borrowing to total £234bn in 2021-22

Taxation

  • No changes to rates of income tax, national insurance or VAT
  • Tax-free personal allowance to be frozen at £12,570 from April 2021 levels to 2026
  • Higher rate income tax threshold to be frozen at £50,270 from April 2021 levels to 2026
  • Corporation tax on company profits above £250,000 to rise from 19% to 25% in April 2023
  • Rate to be kept at 19% for about 1.5 million smaller companies with profits of less than £50,000
  • Stamp duty holiday on house purchases in England and Northern Ireland extended to 30 June
  • No tax charged on sales of less than £500,000
  • Inheritance tax thresholds, pensions life time allowances and annual capital gains tax exemptions to be frozen at 2020-2021 levels until 2025-26

Business & technology

  • Tax breaks for firms to “unlock” £20bn worth of business investment
  • Super-deductions – companies will be able “deduct” investment costs from tax bills, reducing taxable profits by 130%
  • Incentives for firms to take on apprentices to rise to £3,000 and £126m for traineeships
  • Lower VAT rate for hospitality firms to be kept at 5% rate until September
  • An interim 12.5% rate will then apply for the following six months
  • Business rates holiday for firms in England to continue until June with 75% discount after that
  • £5bn in Restart grants for shops and other businesses in England forced to close
  • £6,000 per premises for non-essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
  • The contactless payment limit will rise to £100 later this year
  • New visa scheme to help start-ups and rapidly growing tech firms source talent from overseas

Environment, transport, infrastructure and housing

  • New UK Infrastructure Bank to be set up in Leeds
  • It will have £12bn in capital, with aim of funding £40bn worth of public and private projects
  • £15bn in green bonds, including for retail investors, to help finance the transition to net zero by 2050

Nations and regions

  • £1.2bn in funding for the Scottish government, £740m for the Welsh government and £410m for the Northern Ireland executive
  • 750 UK civil servants to be relocated to new Treasury campus in Darlington
  • £1bn fund to promote regeneration in a further 45 English towns, including Middlesbrough, Preston, Swindon, Bournemouth, Newark, West Bromwich and Ipswich
  • £150m for community groups to take over pubs at risk of closure
  • First eight sites announced for Freeports in England: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside

Education & health

  • £1.65bn to support the UK’s vaccination rollout and £50m to boost the UK’s vaccine testing capability
  • £19m for domestic violence programmes, funding network of respite rooms for homeless women
  • £40m of new funding for victims of 1960s Thalidomide scandal and lifetime support guarantee
  • £10m to support armed forces veterans with mental health needs

Sport and arts

  • Nearly £400m to help arts venues in England, including museums and galleries, re-open
  • £300m recovery package for professional sport and £25m for grassroots football
  • £1.2m to help stage delayed Women’s Euros football tournament in England in 2022

Alcohol, tobacco and fuel

  • All alcohol duties to be frozen for second year running
  • No extra tax on spirits, wine, cider or beer
  • Fuel duty to be frozen for eleventh consecutive year
  • Tobacco duties rose in November but no further rise in this Budget

 

Reactions to the Budget from the Institute of Chartered Accountants in England & Wales (ICAEW)

Michael Izza, ICAEW Chief Executive, said:

“This Budget was an opportunity for the Chancellor to build a bridge to economic recovery. To a significant extent, the extension to the furlough scheme and to other financial support measures did that, and this will enable companies to plan effectively over the next six months. In the longer term, the incentives for investment, such as the super deduction, will help to make the UK competitive in the post-crisis global economy, perhaps offsetting the effect of the planned increase in corporation tax. However, businesses will be wondering why there was very little on post-Brexit trade.

“We previously heard that recovery will come from consumers spending the savings they have accumulated during the lockdowns, but there wasn’t much in the Budget to kick-start this. On growth, the best estimate is that in five years’ time the economy will be 3% smaller than it would have been without the pandemic. The impact of COVID-19 will be with us for a decade.”

On business-related measures, Iain Wright, ICAEW Director for Business and Industrial Strategy, said:

“For most of the post-war period business investment in the UK has been low relative to our economic rivals. The super-deduction on capital expenditure for businesses could therefore be a game-changer which helps ensure our recovery from the biggest economic shock in the past 300 years is business-led, and helps improves our productivity performance and competitiveness.

“However, the Treasury’s Red Book shows that business investment over the lifetime of this Parliament will be reduced overall. Exports are also expected to be subdued, with forecast rising trade deficits and international trade acting as a drag on economic growth for the medium term. With the national tax burden at its highest since the late 1960s, it’s clear both consumers and businesses will have to pay for the recovery – and this still might not be enough to ensure sustained recovery and get public finances and the national debt, forecast to reach £2.8 trillion by 2025, back on track.”

On the tax measures, Frank Haskew, ICAEW Head of Tax, said:

 “This Budget was unlikely to bring major tax changes, as the Chancellor’s hands are tied by the ‘triple tax lock’ which undertook not to raise income tax, national insurance or VAT. However, the Chancellor has taken the opportunity to freeze personal tax allowances between 2022 and 2026, which will bring in about £10bn.

“We were disappointed that there wasn’t more announced on helping to simplify the tax system, to decrease the administrative burdens on businesses and taxpayers. This is an important measure and we hope long-term plans for this will be provided with tax legislation later this month.”

On the public sector measures, Alison Ring, ICAEW Director, Public Sector, said:

 “While the deficit for the current financial year will come in £39bn below what was previously expected, this is forecast to be offset by an increase to the deficit of £70bn in 2021-22. This increase reflects both the continuation of support schemes for people and businesses, as well as sizeable stimulus measures to support economic recovery. The additional resources being provided to HMRC to tackle fraud will be needed to provide proper scrutiny of claims for the Help To Grow and super-deduction schemes in particular.

“While the Chancellor did take action to restrain the growth in debt over the next five years, he did not fully address how he plans to deliver sustainable public finances in the longer-term. The Chancellor chose to focus on an alternative metric of ‘underlying debt’ in his speech, rather than the official measure for public sector net debt which is predicted to peak at close to 110% of GDP in 2025. Whichever measure is used, further difficult choices will be needed in future Budgets to address the fundamental challenges facing the public finances.”

On the recommendations on UK Listing made by Lord Hill, also announced today, David Petrie, ICAEW Head of Corporate Finance, said:

On dual class shares

“Companies with dual classes of share were not eligible for Premium listing in London, which kept them out of the main FTSE indices and meant that a lot of institutions wouldn’t buy this stock. The recommendations by Lord Hill should change that and make these shares more appealing to funds.

“Founders of companies with dual class shares are typically strong, enigmatic characters looking to retain significant control over what they still regard as their business, so investors will need to keep a close eye on its strategy, to ensure they are comfortable with its direction.”

On the free float rule

“The 25% free float rule is somewhat out of date. Provided a company is big enough, a lower percentage free float should be fine, as long as it is large enough to ensure liquidity. If so, the share price will be a fair reflection of company value.”

On SPACs

“Good companies ought to be able to list at full value without doing so via a SPAC.

“Investors in SPACs are asked to believe companies’ value can be transformed into something much higher, but this is big ask, particularly because SPACs will often be competing with other listed companies or private equity for acquisition targets.”

Link to ICAEW Budget reports

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