This Budget was always going to be a tricky balancing act for Chancellor Rishi Sunak.
After a year of unprecedented public spending, he had to decide how much longer to extend the nation’s safety net against the realisation that the country needs to begin paying back some of the vast national debt it has accrued.
While there were many announcements, largely leaked in advance, he also delayed some big decisions on tax until a future date, preferring instead to instigate a series of consultations on March 23 which are likely to influence the longer-term tax strategy.
Thanks to the Chancellor’s continued stimulus package and a return of consumer spending, the Government is forecasting an increase next year in GDP growth of 7.3% – the highest for 74 years.
This dramatic rebound would follow a 4% increase in GDP during 2021, downgraded from last November’s forecast of 5.4%. Growth is then expected to be more restrained at 1.7% in 2023, 1.6% in 2024 and 1.7% in 2025.
Other key announcements included:
Corporation Tax will increase from the current 19% to 25% in April 2023 on profits above £250,000. The rate will remain at 19% for 1.5million companies whose profits are less than £50,000. One possible option to negate the impact could be to increase company pension contributions.
Inheritance tax thresholds, pensions lifetime allowances and annual capital gains tax exemptions to be frozen at 2020-2021 levels until 2025-26. We have been advising clients more than ever on lifetime allowances in the last year and these freezes further highlight the need to plan and look at ways of protecting pensions.
The Stamp Duty holiday has been extended to the end of June 2021 with no tax on sales of less than £500,000. This relief will then be reduced to the first £250,000 until the end of September before returning to its pre-pandemic level of £125,000 from October.
Tax-free personal allowance to be frozen at £12,570 from April 2021 to 2026. Higher rate income tax threshold to be frozen at £50,270 from April 2021 levels to 2026. The so-called ‘fiscal drag’ is less of an issue as long as inflation rates stay low, but will become an issue for many people if inflation starts to climb. Having said this, The Office for Budget Responsibility, has disclosed that this policy will bring 1.3million more people into paying income tax and one million more into paying at the higher rate.
Furlough extended until the end of September with the Government committing to continuing to pay 80% of the salaries for the hours employees are unable to work.
There was very little regarding our post-Brexit strategy other than confirmation that eight free ports will be created, offering low-tax zones, including one at the Port of Liverpool. This could prove to be an exciting development if, as the Chancellor hopes, it “unlocks billions” in investment, trade and jobs.
Similarly, hopeful is the Government’s new tax “super deduction” policy, running initially for two years and likely to boost businesses in sectors such as manufacturing and construction. Under the scheme, companies investing in qualifying new plant and machinery assets will benefit from a 130 per cent first-year capital allowance.
National Savings & Investments (NC&I), the Government-backed scheme which also offers Premium Bonds, will be offering a new green savings bond, giving all UK savers the opportunity to invest in projects aimed at helping the country become a net-zero economy.
In summary, fears ahead of the Budget of a potential raid on the wealth of middle-class Britons have not been realised, but the burden of tax on individuals will gradually increase over time.
The Chancellor has remained true to the Conservative Party’s manifesto pledge to not increase the rates of Income tax, VAT and National Insurance, but he has signposted the ways in which he will begin the long journey of re-balancing the books in these unprecedented times.
I am delighted to say that the team at Phillip Bates & Co Financial Services have started to hold a small number of face-to-face meetings at our Neston office as the vaccination programme rolls out at pace.
We look forward to this trend continuing over the coming weeks as the social measures wind down and the UK opens up again.
In the meantime, we will continue to ‘meet’ with our clients in the way that best suits them and meets their requirements.