Budget 2021 key points: Rishi Sunak’s COVID-19 recovery plan
- UK Chancellor Rishi Sunak extends the furlough scheme and broadens eligibility criteria for self-employed grants
- Treasury launches a new Recovery Loan Scheme for businesses, extends business rates relief and confirms “restart grants”
- Stamp Duty Holiday extended until 30th June to prevent a collapse in property transactions
- Rishi Sunak raises Corporation Tax to 25% to help repair the UK economy
- Pound Sterling (GBP) had muted reaction to UK Budget 2021
UK Chancellor Rishi Sunak delivered his monumental Budget 2021 in the Commons on 3rd March, unveiling a GBP 65BN three-point recovery plan to support jobs, businesses, and livelihoods as the UK prepares to exit the COVID-19 pandemic which swept the nation in March 2020.
Rishi Sunak’s three-point plan to repair the economy and reduce the UK’s COVID-19 debt included:
- Continuing fiscal schemes and programmes to support businesses and families
- Rebuilding the economy with investment-led projects
- Future changes to bring public finances under control
As he unveiled the UK government’s spending and taxation plans in his crucial Budget, Chancellor of the Exchequer Rishi Sunak stressed that his immediate priority is continuing to support businesses and individuals hardest hit by the pandemic.
His Budget focused primarily on an extension to the furlough scheme, self-employed grants, business rates relief, loans, grants and VAT cuts – bringing the government’s total fiscal exposure to COVID to more than GBP 407BN.
Rishi Sunak also detailed measures to boost job opportunities, economic growth and investment, although some will come at a cost to businesses.
Chancellor announces furlough extension and broadens self-employment grant criteria
Keeping in line with UK Prime Minister Boris Johnson’s lockdown exit roadmap, Rishi Sunak vowed to continue providing economic support until all coronavirus restrictions are lifted and even beyond that to support recovery.
Business chiefs welcomed the news that the Chancellor would be extending the furlough scheme and self-employed support grants, both of which have offered a lifeline to many during the pandemic.
During his Budget 2021, Mr Sunak said that the furlough scheme would be extended in full until June-end, after which it will be tapered down until the end of September.
From July, employers will be asked to contribute 10% to furloughed employee wages and 20% in August and September amid hopes that the UK will return to some form of normality by July. The move is expected to provide business with an extra cushion as restrictions wind down and firms begin rescaling operations.
Revolution Bars Chief Executive, Rob Pitcher, praised Mr Sunak on his decision to extend the furlough scheme, stating it will be a “vital ingredient in ensuring the hospitality industry has a future post-pandemic”.
The Chancellor also announced plans to further support self-employed workers through the government’s Self-Employment Income Support Scheme (SEISS).
Self-employed grant criteria expanded to include 600,000 people left behind
The fourth and fifth round of self-employment grants will be extended to include approximately 600,000 workers previously deemed ineligible for the first three rounds of grant pay-outs.
Mr Sunak said applications for the fourth grants would open in late-April. Meanwhile, the fifth and final grant payments, which cover the May to September period, will be made available sometime in July.
Self-employed workers whose turnover has plunged by 30% or more will be eligible for the full grant worth GBP 7,500, while those whose turnover has fallen by less than 30% will receive a reduced payment of 30%.
Chancellor Rishi Sunak also extended VAT cuts for the hospitality and tourism sectors and pushed back the deadline of business rates holiday.
UK businesses to benefit from restart grants and business rate relief
To continue supporting businesses ravaged by COVID-19 lockdown restrictions, Chancellor Rishi Sunak extended the business rates relief holiday for 750,000 retail, hospitality and leisure firms until June end.
These firms will also benefit from an additional nine months of reduced rates, with further relief available for the rest of the year.
Eligible hospitality, leisure, and retail businesses will also be able to claim “restart grants” to help support their reopening.
As non-essential retailers are scheduled to reopen first, eligible businesses can apply for grants worth up to GBP 6,000 per premises. As hospitality, leisure, and personal care firms are expected to reopen in May; these businesses can claim up to GBP 18,000.
The new grants worth GBP 5BN come on top of the GBP 20BN that the UK government has already provided to support these struggling sectors.
The Treasury also extended the VAT cut for the hospitality and tourism sector until September-end to give firms within these sectors a fighting chance to restart post-lockdown.
While other businesses will benefit from the reduced rate of 12.5% until March 31st 2022, to help them transition to the standard rate.
Chancellor Rishi Sunak also unveiled a new Recovery Loan Scheme, which will replace the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) and offer loans of up to GBP 10M.
New Recovery Loan Scheme to further support struggling businesses
The Chancellor of Exchequer unveiled a new Recovery Loan Scheme for businesses during his Budget statement to the Commons today.
According to Mr Sunak, all UK businesses can apply for government-backed loans between GBP 25,000 and GBP 10M until 2021-end.
The new grant will replace the CBIL and BBL schemes, which the government will wind down to close in April.
According to official statistics, 64,409 took advantage of CBILS during the pandemic. The CBILS offered loans between GBP 1,000 and GBP 5M for businesses with an annual turnover under GBP 45M, fee and interest fee for the first 12 months. Meanwhile, BBLS allowed firms to borrow up to GBP 50,000 fee and interest fee for the first year.
The new loan, which has a higher threshold than the previous schemes, should support access to finance for UK business as they adapt and recover from the disruption caused by the COVID pandemic.
To support and protect jobs further, the Chancellor has also dedicated GBP 126M to create more than 40,000 traineeships and double the cash incentive to firms who take on an apprentice to a GBP 3,000 payment per hire.
Mr Sunak went on to say that the National Living Wage will rise to GBP 8.91 from April and that the GBP 20 per week Universal Credit uplift will be extended by an additional six months.
He also unveiled a new 5% mortgage guarantee scheme that allows first-time buyers and current homeowners to make a 5% mortgage deposit on property worth up to GBP 600,000.
The Budget included plans to extend the stamp duty cut until September amid fears that an abrupt end to the tax cut would plunge the UK property market into chaos.
Stamp duty holiday receives an extension
The UK property market welcomed news that Chancellor Rishi Sunak pushed back the stamp duty holiday’s deadline in his Budget speech.
The exceptional measure, which was due to terminate in March, will be extended in full until June. After this, the property threshold will gradually reduce to GBP 250,000 in September before returning to its original rate of GBP 125,000 in October.
Rishi Sunak said he decided to extend the stamp duty cut due to the “sheer volume of transactions we’re seeing; many new purchases won’t complete in time for March.”
He added: “We’re using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people.”
News of the stamp duty holiday extension saw housebuilders shares on the FTSE 100 surge, with Barratt Developments up 7.07%, Permission by more than 6%, Berkeley by 3.77% and Taylor Wimpey higher by 5.38% at the time of writing.
Chestertons Chief Executive, Guy Gittins, said: “The Chancellor’s confirmation of a stamp duty holiday extension comes as a relief to hundreds of thousands of people who will be able to complete their property transactions with substantial tax savings.”
Mr Sunak also hopes that the new 5% deposit mortgage scheme, which replaces the Help to Buy scheme, will boost activity in the UK property market, especially as loans will be available to current homeowners and first-time buyers.
The scheme, which rides on the back of UK Prime Minister Boris Johnson’s vow to turn “generation rent” into “generation buy”, is expected to receive high praise from real estate agents.
However, measures outlined by the Chancellor have not been solely about fiscal firepower and “tough decisions” have been made to fix public finances and reduce the UK’s COVID debt.
Rishi Sunak raises corporation tax to repair economy
Chancellor Rishi Sunak delivered the highly anticipated verdict on future taxation during the Spring budget.
In his address to the Commons, he said income tax personal allowance and the higher rate threshold would rise as planned next year and be frozen at that rate until the end of 2025/26 financial year – meaning no one’s earnings will reduce for the next five years at least.
The thresholds for inheritance tax, capital gains tax, and pensions lifetime allowance, are also being frozen.
Several business lobbying groups, including the Confederation of British Industry (CBI), welcomed the Chancellor’s announcements.
However, concerns were raised over the sharp rise in corporation tax, with the CBI stating: “Moving corporation tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK.”
Treasury Committee Chair Mel Stride also commented on the corporation tax increase, stating that it is “quite a hike.” However, Mr Stride said the move was necessary and that the UK will remain “internationally competitive” as the Chancellor is launching other schemes to attract new investments.
Mr Sunak unveiled a new “super deduction” scheme, which commences April 1st and cuts firms tax bill by 25p for every GBP 1 they spend on the cost of new investments material and equipment.
Nonetheless, the Office for Budget Responsibility (OBR) has revised UK growth forecasts lower for 2021 from 5.5% to 4%, citing England’s first national lockdown as the reason for weaker growth projections.
However, UK gross domestic product (GDP) for 2022 has been revised higher from November’s forecast of 6.6% to 7.3% amid expectations of a robust economic rebound in the second half of 2021.
While the OBR predicts economic growth to decrease in the following years, they expect a recovery in activity will allow the UK economy to return to its pre-pandemic size by mid-2022 – half a year earlier than previously forecast.
Pound Sterling has muted reaction to Budget 2021
Despite the swathe of fiscal support announced by UK Chancellor Rishi Sunak during his Budget unveiling, the British pound (GBP) had a relatively muted initial reaction.
However, this came as little to surprise to some foreign exchange (FX) market participants, as a considerable degree of the Budget’s contents was revealed ahead of the official announcement.
After briefly breaching the USD 1.40 level, the British pound to US dollar (GBP/USD) exchange rate fell back to USD 1.38 and has since fallen even further as the outlook for the US economy continues to strengthen. At the time of writing the British pound to US dollar exchange rate stands at USD 1.3758.
Meanwhile, the British pound to euro (GBP/EUR) exchange rate at EUR 1.1519, also seems to have lost bullish conviction.
However, this may have less to do with the Budget 2021 and more to do with a slowing down of the UK’s vaccination programme.
As GBP has become increasingly correlated with risk appetite, shifts in sentiment tend to weigh on the UK currency. If the currency backdrop persists, this could lead to a more defensive US dollar (USD) and dampen any potential upside in the GBP/USD cross.
That said, economists believe that the British pound’s (GBP) losses against the euro (EUR) and US dollar (USD) will be short-lived as the UK prepares for an expected sharp rise in consumer spending as non-essential businesses reopen this week.