Anthony Browne MP on the Budget 2021: ‘It is a process of Rescue, Recovery and Repair’
Opinion / The Conservative MP for South Cambridgeshire writes for the Cambridge Independent to deliver his verdict on last week’s announcements from the Chancellor, Rishi Sunak.
My various jobs as economics journalist, in charge of London economic policy, as head of the British Bankers’ Association and now on the Treasury Select Committee means I have been involved in almost every Budget for the past quarter century.
I cannot think of one as clear in its objectives as the one last week. As I said in my speech in the Budget debate, it has three parts, which I dubbed Rescue, Recovery and Repair. We are still in the middle of a pandemic, which has to be addressed, but within touching distance of the end, so we can start preparing for life afterwards, and also start tackling the long term consequences.
In terms of Rescue, it continues the support for individuals and businesses mostly until September – well beyond the end of the pandemic (fingers crossed). This will be a huge relief to many who are still struggling. The Chancellor also extended support grants to the newly self-employed, helping 600,000 people who weren’t getting help before.
In terms of Recovery, it focussed on policies to boost growth as we come out of the economic crisis, with a whole package of measures to boost small businesses, and tackle unemployment, such as the subsidies for companies to take on apprentices. Guaranteeing 95 per cent mortgages for first time buyers will help them on the housing ladder, but also help the housing market. But the most notable policy was the “super-deduction” tax relief for business investment, which enables companies investing in their future to reclaim 25 per cent from the government.
Counterintuitively, companies as a whole have saved up cash over the last year, meaning they do have money to spend, so this tax break really should unleash a waterfall of investment, creating jobs and growth. Most of the witnesses we have had at the Treasury Select Committee, such as the governor of the Bank of England, now expect growth to bounce back rapidly.
Finally, in terms of Repair, the Budget takes the first steps to mend the nation’s balance sheet. With two “once in a century” events in little over a decade – the financial crisis and the pandemic – we now have an astronomical national debt, the same size as our GDP. When I was economic correspondent at the BBC we used to look in horror at countries like Italy and Greece that had such debts, and now we are the same.
The only upside is that it is currently affordable, in that rates are so low the interest payments on our debt are tiny. But it is extremely risky – just a one percent rise in rates will mean we have to make annual interest payments the same size as our entire schools budget.
After the financial crisis, the government responded to the mounting debt mainly by cutting spending, but there is no public and political appetite to do that to any extent now (although the freeze on MPs pay is probably one popular measure). I prefer lower taxes to higher taxes, but even I have to accept that the only way to stop the debts mounting now is to raise taxes. It would be wrong to hike taxes just now, as it would choke off the economic recovery, but the Chancellor has set out how he will raise taxes in the coming years when growth has returned.
On the Treasury Select Committee, we have been taking evidence on the options for the Chancellor, and the two major tax rises he has chosen are ones that we were supportive of in our report published before the Budget.
The first is the increase in corporation tax from 19 per cent to 25 per cent from 2023. I am very reluctant to raise tax on business because of the impact it has on growth, but we will still have just about the lowest company tax in the G7 major industrial economies. It is only paid by companies that are profitable, so those struggling with losses will not pay anything extra. He has also brought back a lower tax regime for small companies, so those with profits of under £50,000 will not pay any extra.
The second major tax raising measure is freezing the thresholds for individuals paying the standard rates and higher rates of income tax. In cash terms, the amount deducted from your wage bill each month will be exactly the same. But if you get a pay rise, more of your income will fall into high tax bands more quickly than it otherwise would, so your tax bill will end up higher. This is an incredibly fair way to raise taxes – the lowest paid will not pay anything extra, and the highest paid will face the biggest increases.
These two big measures and a host of smaller ones (such as freezing the threshold on inheritance tax) means that the UK’s national debt will stabilise in two years’ time as a share of GDP, before coming down. That is immensely reassuring. We are getting a grip on the problem.
There are lots of things to like in this Budget, and very little to dislike. As I said in my Parliamentary speech: “I commend this Budget to the House.”
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