Corporation tax raised to 25% from 2023
Rishi Sunak warned during his budget announcement that “it will take a long time to recover from this extraordinary situation”. The Chancellor on Wednesday afternoon confirmed an increase in corporation tax to help restore the nation’s finances in the aftermath of the pandemic. In addition, Sunak announced a continuation of the furlough scheme and the stamp duty holiday, among other policies.
Sunak began by outlining forecasts by the Office for Budget Responsibility (OBR) for the economy to return to its pre-pandemic level quicker than anticipated. The OBR expects the economy to return to its pre-Covid level at the middle of next year, six months quicker than previously thought, Sunak confirmed. The Chancellor also said that the OBR has forecast the UK economy will grow by 4% in 2021, 7.3% in 2022 and 1.7% in 2023.
Sunak announced that government debt would rise to 97% of GDP, comparing the figure to levels seen during World War Two.
The Chancellor announced a hike in corporation tax up to 25% from 2023, up from its present level at 19%. “It’s a tax rise on company profits, but only the larger most profitable companies and only in two years time,” Sunak said.
The lowest income tax threshold will rise to £12,570, while the higher rate threshold will go up to £50,270. Both will then be frozen until 2026.
The UK Government’s furlough scheme will be extended to the end of September. Employees will continue to receive 80% of their salary, while businesses will be asked to contribute as well. The self-employment scheme will also be continued.
The government will continue to raise universal credit by 20% for the next six months, beyond the proposed conclusion of the national lockdown. While grants will be provided to businesses across the UK. Retail and hospitality businesses will receive a special “restart” grant to help them reopen in April.
Sunak said the government’s fiscal support for the UK economy would total £407bn.
The Chancellor pledged to “stand behind home buyers”, extending the stamp duty holiday to June. The point at which stamp duty will be paid will remain at £250,000, double its standard level, until the end of September. The budget also included assurance that the government will guarantee mortgages up to 95% of a home’s value.
Commenting on the extension to the stamp duty holiday and introduction of a government-backed 5% mortgage in today’s Budget, Tom Brown, managing director of real estate at Ingenious, said: “The Chancellor’s decision to extend the Stamp Duty Land Tax (SDLT) holiday and provide a Government-backed guarantee to mortgages with deposits of just five per cent reflect the importance of maintaining optimism in the UK housing market.”
“The support provided by the SDLT relief extension, saving up to £15,000 on property purchases of £600,000 is positive news for our strategy as an alternative lender focused on the affordable end of the market,” Brown added.
The budget included a number of “green” policies aimed at rebalancing the UK economy after the pandemic.
Sunak announced new port infrastructure enabling offshore wind on Teesside and the Humber, in addition to a new “green” retail savings bond. The UK’s new infrastructure bank, located in Leeds, will be armed with an initial £12bn fund to support projects aimed at zeroing out net carbon emissions by 2050.
Chris Holmes, co-lead investment adviser at JLEN Environmental Assets Group, commented on today’s budget:
“We are particularly pleased to see confirmation of a cash boost for the new UK Infrastructure Bank. It is vital for the UK’s post-pandemic and post-Brexit recovery to invest in the sustainable infrastructure and nascent green technologies that will take our country forward, honouring the government’s promise to ‘Build Back Better’ and creating the jobs needed to power the green economy.”
“Environmental infrastructure assets such as wind and solar plants, have on the whole proved to be very robust during the coronavirus pandemic – proving their resilience and reinforcing the investment case for building a sustainable future.”
Finally, Sunak announced that the government would be freezing the pension lifetime allowance. The allowance is the amount people can save in their pension before they are liable to pay tax.
Simon Harrington, senior public policy adviser at PIMFA, commented on the policy.
“We are dumbfounded that the Chancellor has frozen the Pension Lifetime Allowance until 2026. Doing so penalises pension savers looking to secure their future and in the most extreme cases sees people left with no choice but to give up work. Freezing the lifetime allowance could see a number of people inadvertently exceed their allowance and, as we have seen previously with NHS workers, incur a 55% tax hit which they otherwise would not have to pay,” Harrington said.