Rishi Sunak extends financial support for struggling businesses
Additional giveaways for hospitality firms, the housing market and an extension to the furlough scheme were some of the measures announced for new government policy.
Tax hikes were also introduced, while other support schemes such as the Self-Employment Income Support Scheme (SEISS) was also extended.
According to reports, insiders dubbed the Spring Budget as “two big slices of bread with very thin jam”.
Slice one includes a GBP 30BN support package covering the furlough scheme, business rates relief, Universal Credit and stamp duty holiday, all of which were extended.
However, sources have said that the amount of spending the Treasury has dedicated to funding those measures has left little room for spending elsewhere.
Meanwhile, slice two comprised tax hikes, and government spending cuts to bring the UK’s public finances to a more sustainable level.
According to official predictions, the UK’s budget deficit could hit GBP 400BN for the 2020/21 financial year – equivalent to approximately 20% of output.
With a budget deficit of GBP 130BN expected to remain even after the UK economy recovers from the covid pandemic, the Treasury will have to tighten fiscal policy to stabilise public borrowing.
The Institute for Fiscal Studies (IFS) said: “Even if the Government were comfortable with stabilising the debt at 100% of national income, it would still need a fiscal tightening worth 2.1% of total output, or £43billion.”
To bring public finances under control, the Chancellor of Exchequer announced raised taxes, with a hike in corporation taxes from 19% to 25% until 2023.
Sunak introduces tax hikes to bolster UK public finances
Chancellor Rishi Sunak has the challenge of restoring Britain’s public finances with policies that help foster economic growth and support jobs.
However, this inevitably will come at a price, and the Chancellor has been met with criticism amid claims that he wanted to hike corporation tax in the March Budget to fix public finances.
There were also talks of Mr Sunak raising Capital Gains Tax (CGT), which critics warned would act as a deterrent against investing and saving.
Government officials said Mr Sunak justified tax hikes by using the US example. According to recent reports, newly-elected President Joe Biden plans to dismantle his predecessor’s signature tax law and raise US business taxes to help close the income gap.
However, as Mr Sunak is keen to ensure business taxes are “competitive” with other G7 countries and ensured corporation tax rates did not rise above 27%, which is the G7 average.
Government officials signalled an increase to 25%, which ranks Britain among the lowest G7 economies for business tax rates.
That said, there has been some cross-party backlash over the plans to raise taxes. Mr Sunak was also pressured to maintain the freeze on fuel levy’s and slash alcohol duties to support pubs and bars, which COVID-19 lockdown restrictions have battered.
Fuel tax prices remain frozen
It was rumoured that Chancellor of Exchequer, Rishi Sunak, was considering raising fuel taxes by 5p, which would have affected millions of drivers in the UK.
The proposal was heavily criticised by Leading Eco Groups, as the levy would also apply to new electric vehicles and diesel and petrol cars.
The groups backing the “Green Britain Needs You” campaign said green products should not be penalised by new tax policy as this counters the UK’s net-zero mission.
In a letter addressed to Express.co.uk, a representative of the group wrote: “Now is the moment for the Chancellor to make it affordable for all UK citizens to take action in support of a climate-safe and greener world.”
They also urged Rishi Sunak to scrap VAT tax on green products and services such as “solar panels, insulation and retrofitting homes to make them low carbon, to help kick-start the UK’s green recovery.”
The Treasury responded, stating that all taxes are kept under review and that officials are exploring ways to fund the transition to net-zero.
Chancellor Rishi Sunak is also reportedly examining and reviewing more dramatic plans for additional stimulus injections for the UK economy later into 2021.
According to reports, the Chancellor will unveil a giveaway Budget that could include shopping vouchers worth GBP 150 for all adults in a “Shop to Help Out” scheme to revive high street stores.
Mr Sunak also froze alcohol duty for restaurants, bars and pubs to support their recovery into the summer. The Social Market Foundation (SMF) said that lowering alcohol duty for pubs, bars, and restaurants could boost sales by 100 million pints a year.
Mr Sunak could also reintroduce last summer Eat Out to Help Out scheme to give the UK’s hospitality industry a fighting chance to restart.
With an estimated GBP 150BN in household savings accumulated during the pandemic, the raft of incentives could unleash a consumer spending boom, which would buoy economic growth and drive pound Sterling exchange (GBP) rates higher.
Pound Sterling sees mild gains
Having been recognised as one of the best-performing currencies during early 2021, the British pound (GBP) retreated against a host of major currency peers as vaccine developments were no longer enough to buoy Sterling.
GBP/EUR had advanced to EUR 1.17 as of 5th April, defying consensus expectations having been rather subdued over previous weeks. Economists believe the reason for the increase was due to the UK being on the brink of seeing the economy reopen earlier this week, 12th April.