Extra stimulus measures
As expected, the furlough is to be extended until September, but businesses will be asked to contribute 10% of staff wages in July and 20% in August and September. Help for the self employed will continue to September too, with grants covering up to 80% of profits up to £7,500. The Universal Credit uplift of £20 a week will continue for another six months, and the national living wage will be increased from £8.72 to £8.91 from April. There will be bigger incentives to hire apprentices, and the government will introduce a new recovery loan scheme to replace bounceback and business interruption loans, with loans from £25,000 to £10m for businesses of any size.
Business rates
The business-rate holiday will continue for the retail and hospitality sectors to the end of June. For the remaining nine months, it will be discounted by two-thirds up to £2m for closed businesses, with a lower cap for those who remain open. For the hospitality sector, the 5% reduced rate of VAT will be extended for six months to 30 September; after then, an interim rate of 12.5% will apply for a further six months, with the standard rate from April next year.
Stamp duty
The stamp duty holiday will be extended so that the £500,000 nil rate band will end on 30 June. To smooth the transition, the nil rate band will be £250,000 till the end of September, and return to its usual level of £125,000 from 1 October. There will be a new policy to guarantee mortgages. Lenders who provide 95% mortgages will get a government guarantee on those loans.
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Other measures
There will be an extra £19m for domestic violence programmes; an extra £10m to support veterans with mental health needs; and the government will back the 2030 World Cup bid. The increase in duties for spirits, wine, cider and beer are all cancelled, meaning all alcohol duty has been frozen for the second year in a row. Planned fuel duty increase is also cancelled.
That’s an additional £65bn of measures over this year and next to support the economy in response to coronavirus. Added to spending review measures, the total spent is £352bn. Including measures from the Spring Budget from last year, the total support amounts to £407bn. So, how are we going to pay for it?
How to pay?
Borrowing is at its highest level since WW2, with underlying debt at 88.8% of GDP this year, peaking at 99.1% in 2023-2024. Interest rates may not stay low forever. Sunak says it is right to help the country through an acute crisis, but in normal times he wouldn’t borrow to pay for everyday spending. He can’t allow debt to keep rising over the medium term, and he needs to watch affordability, with a one percentage point increase costing over £25bn.
Personal taxes
Income tax, National Insurance or VAT won’t be raised, but he will freeze personal tax thresholds and maintain at current levels till April 2026, inheritance tax, the pensions lifetime allowance, Capital Gains Tax allowance and the VAT registration threshold, and employ a thousand more tax inspectors to clamp down on tax evasion. Technically, he hasn’t raised taxes, but this is a clear example of “fiscal drag”, which we explain here in our two minute video.
Corporation tax rise
With over £100bn of support for businesses, they should be expected to contribute to the recovery, argues Sunak. In April 2023, the rate of corporation tax on company profits will increase to 25%. For small businesses with profits of £50,000 or less, the small profit rate is maintained at 19%, and a taper will be introduced above £50,000 so that only profits of over £250,000 will be taxed at the full rate. Over the next two years, the tax treatment of losses will be more generous – companies will be able to carry back losses up to £2m for three years. The government will also review the surcharge on banks to ensure they don’t end up paying over the odds on corporation tax as a result.
“Super-deduction”
Going some way to offsetting this corporation tax hike, Sunak is introducing a new “super-deduction”. When companies invest, they can reduce their tax bill by 130% of cost. The independent fiscal watchdog, the Office for Budget Responsibility (OBR) reckons this will boost business investment by 10%, or £20bn a year.
Green growth
The chancellor announced that the first UK infrastructure bank will open in Leeds. It will invest in public and private projects to finance the “green industrial revolution”, with an initial capitalization of £12bn and an expectation that it will support £40bn of investment, including new port infrastructure for offshore wind projects in Teesside and Humberside.
He introduced a new green retail savings product, and will update the Bank of England’s monetary policy remit , keeping the 2% inflation target but bringing in a target of reducing carbon emissions to net zero.
Smaller firms will be offered management training. Business schools can offer new executive development programmes, with the government contributing 90% of the cost. There will be free digital skills training and a 50% discount on new software up to £5,000.
As for immigration, there will be visa reforms aimed at highly skilled migrants, with a new unsponsored points based visa for STEM. The Treasury will found a new economic campus in Darlington; there will be £1bn for 45 new “town deals” around the UK. And he announced the location of the country’s eight new freeports – special economic zones with simpler planning rules, infrastructure funding, cheaper customs and lower taxes. These will be at East Midlands airport, Felixstowe & Harwich, Humber, Liverpool, Plymouth, Solent, Thames and Teesside.
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