Budget 2021 reaction: ‘A spoonful of sugar before we take our medicine’
Rishi Sunak has unveiled his 2021 Budget to mixed reviews.
The Chancellor extended the furlough scheme and Universal Credit increase and as he announced a £65billion lifeline to help revive the economy in the wake of the pandemic.
The national minimum wage will rise to £8.91 an hour from April and the business rates holiday will continue for the hard hit retail, hospitality and leisure sectors.
There was also an extension to the stamp duty holiday for properties under £500,000.
But to pay for the schemes, the tax burden will be at its highest for more than 50 years.
Corporation tax will rise from 19% to a maximum of 25% in 2023.
A new “small profits rate” will maintain the 19% rate for firms with profits of £50,000 and there will be a taper above £50,000 so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate – around 10% of firms.
And while the point at which people begin paying income tax will increase by £70 to £12,570 in April, this threshold will be maintained until April 2026, which will pull more workers into contributing.
The 40p rate threshold, meanwhile, will increase by £270 to £50,270 and then be frozen.
Mr Sunak said: “Nobody’s take-home pay will be less than it is now, as a result of this policy.”
But he acknowledged that it “does remove the incremental benefit created had thresholds continued to increase with inflation”.
‘Not a Budget for the long-term’
Cambridge’s Labour MP Daniel Zeichner was not impressed with the Conservatives’ approach.
“This wasn't a Budget for the long term and wasn't a Budget that learnt from past mistakes,” he said.
“I fear the housing plans will push Cambridge prices ever higher and result in a boom for developers but frankly hard times for everyone else.
“Meanwhile, there was no help for people renting and no help for hundreds of people in Cambridge hit by the cladding scandal.
“There was no long-term plan for the NHS and social care and no pay rise for the key worker heroes we clapped for. We learnt that the government will cut Universal Credit for the poorest people in a few months time. Mean-spirted and wrong!
“The Chancellor also failed to make changes for the long-term to put us on the path to sustainable green growth. What a missed opportunity for a major green stimulus.”
Businesses given ‘spoonful of sugar, before the medicine’
Hazel Platt, partner at Grant Thornton in Cambridge, described it as “an ambitious Budget with business being served a spoonful of sugar today, with the medicine to follow tomorrow”.
“Pushing the well trailed rise in corporation tax to 2023 may make it a little easier swallow but it’s still a large relative increase and a potential threat to inward investment in the long term,” she said.
“The best way to eat away at the record levels of borrowing is to stimulate growth, and so the new Super Deduction of 130% on capital expenditure, alongside other measures to support digitisation and innovation in the mid-market, is welcome news.
“Felixstowe being named one of the eight new Freeport locations and an incoming consultation on R&D tax credits, signals that more incentives for innovation and growth could be on the horizon.
“While the Chancellor is continuing to use fiscal firepower to help businesses get through the pandemic – with the new Levelling-Up fund, Recovery Loans scheme, and the extension of furlough - the fact that all this must be paid for in the medium term was clearly delivered.”
Relief for retail, hospitality and leisure sectors
The business rates holiday for the retail, hospitality and leisure sectors will continue until the end of June, with a two-thirds discount for the remaining nine months of the year.
And the 5% reduced rate of VAT for the tourism and hospitality sector will continue to the end of September, with an interim rate of 12.5% for another six months after that.
Philip Woolner, managing partner at Cheffins, said: “It will come as a sigh of relief to the struggling retail and hospitality sector that the Chancellor has decided to extend the business rates holiday. These are the businesses which were most badly affected by the pandemic, and we should be doing all we can to keep as many of them as possible afloat as we try to rebuild our failing high streets and the extension of business rates exemptions is a vital part of that effort.
"For retail and leisure operators, the double whammy of rents and rates payments would have been incredibly difficult for many just as we begin to emerge from restrictions, in spite of the restart grants for high streets. With the rates holiday not to be reviewed until the end of June, we hope that many leisure and retail operators will have enough time to get back on their feet before they have to start forking out once more.
"Following the vaccine rollout, we should be encouraging the UK population to do as much as it feasibly can to support our high streets, in whatever shape they may evolve. Hopefully this will be buoyed by the restart grants and, in time, we ought to see bustling town and city centres again as we follow the government’s ‘roadmap to recovery’.”
Freeports will aid the region
James Palmer, mayor of the Cambridgeshire and Peterborough Combined Authority, welcomed the creation of eight new freeports in England, which will act as special economic zones with rules making it cheaper and easier to do business.
The new enterprise hub will be focussed on Suffolk’s Port of Felixstowe and Harwich International Port in Essex.
A public and private sector partnership, it will carry out business inside the UK’s land border but with different customs rules applying, making it easier and cheaper to trade.
The mayor suggested this would have a knock on effect for Cambridgeshire and Peterborough, as the freeport would act as a major magnet for domestic and international investment into the East Anglian region.
He said: “It’s fantastic news that Freeport East has secured one of only eight allocations. It’s a huge boost for the East of England, a vote of confidence in our future prosperity. One of the strengths of the Freeport East bid was commitment to wider growth and real cutting-edge innovation of the type Cambridgeshire is a world leader in.
“With our strong, existing links to the proposed Freeport East area – along the A14 and our freight rail links too – we are ideally placed to contribute to, and benefit from, the expansion of trade and innovation this new status will bring about.”
In addition, it will massively strengthen the case for improvement and expansion of the Ely Railway Junction and further upgrades to the A14.
This is a launchpad for the future, for investment, and the most joined-up regional growth in many generations.”
More needed to supercharge digital infrastructure
The Chancellor has announced a new UK Infrastructure Bank.
But Lloyd Felton, chief executive of County Broadband, which is building new full-fibre broadband infrastructure in South Cambridgeshire and across the East of England, funded by a £46m private investment, said the government needs to go further.
“Whilst we welcome the announcement of a new UK Infrastructure Bank, we see this as more of a ‘fund’ rather than a transactional bank, operating in a similar way and, directly replacing, the European Infrastructure Bank that British businesses no longer have access to post Brexit,” he said.
“We suspect the majority of any funding available from this will be more focussed on non-digital infrastructure such as the power sector and will not impact the rollout of full-fibre in the UK.
“The digital infrastructure sector has already demonstrated its ability to raise private investment supported by significant existing government support from the Gigabit Voucher Scheme and Outside-In Programme recently launched.
“The biggest hurdle we face is widespread confusion in the consumer market. Existing superfast broadband networks are promoted as ‘fibre’ despite their copper limitations, creating apathy towards real full-fibre which holds back progress. Why would consumers buy something they think they already have? If the government is serious in its commitment to deliver next generation connectivity by 2025, then we must implement stricter rules over how different broadband services are promoted.
“Existing networks are reaching their limit and over the coming months and years the demand for data will soon outstrip capacity. Only new hyperfast full-fibre networks can deliver the future-ready speeds and reliability we need.
“We must increase the rate at which we are building full-fibre hyperfast networks now if we are to meet the government’s gigabit coverage targets of 2025.
“If we wait until the last minute it will already be too late. As the rest of the world races ahead, we don’t want to be left pedalling a bicycle.”
Looking for a greener tinge
There was some disappointment that the Chancellor did not go further in promoting a green economy.
Laura Mansel-Thomas, partner at Ingleton Wood, a property and construction consultancy based in Cambridge, said: “While we welcome the renewed pledge to accelerate the green industrial revolution we are disappointed by the lack of flagship support. We wanted to see more of a green tinge to the Chancellor’s Budget to drive more sustainable job creation and economic recovery.
“We’re often left frustrated by insufficient clarity on who exactly holds the purse strings when it comes to funding green energy. This hinders projects and stifles investment. It’s a handbrake that must be lifted on our roadmap to a greener future.
“Whilst we welcome the Chancellor’s comments on having a real commitment to green growth, our expectations were that the government would go further, even despite the current Covid-related economic circumstances.
“We note the general desire with the formation of a new National Infrastructure Bank, which is set to have £12bn in capital with the aim of unlocking £40bn worth of public and private sector projects, to support a green industrial revolution.
“The devil will be in the detail and we need to see this backed up by concrete plans and transparency over access to funding and investment in order to provide adequate timescales for the sector to maximise the potential.
“We are committed to helping East Anglia become a flagbearer for renewable energy and will continue to help unleash our region’s huge potential for green energy, from electric vehicle charging to offshore projects in the North Sea.”
Other key announcements
In his Budget, the Chancellor also
- Extended the stamp duty holiday for properties less than £500,000 until the end of June, then a new £250,000 threshold will apply until the end of September before the £125,000 starting point is reintroduced. Cheffins said this would lead to pandemonium in the housing market.
- Confirmed the extension of the furlough scheme until the end of September, although employers will be expected to make a contribution from July.
- Announced the temporary £20-a-week increase in Universal Credit payments will continue for a further six months.
- Set out a new Recovery Loan Scheme to replace previous coronavirus loan packages, allowing businesses of any size to apply for loans from £25,000 up to £10 million through to the end of the year, with the Government providing lenders with an 80% guarantee.
- Froze all alcohol duties for the second year in a row and scrapped a planned increase in fuel duty.
- Revealed a new “economic campus” for the Treasury and other Whitehall departments in Darlington.
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