Budget 2021: What did we get?
Rishi goes back to tax and spend
Today the Chancellor outlined his tax and spending plans for the next year. Most of the contents of the red book have been so widely reported that the Speaker of the House of Commons quipped that he “already knows most of it” when he announced the start of the debate.
Confirming what the Treasury had already revealed overnight, the Chancellor formally announced that furlough was to be extended. Employers will be expected to pay 10 per cent towards the hours their staff do not work in July, increasing to 20 per cent in August and September. Mr. Sunak explained that the scheme’s additional extension was “to accommodate even the most cautious view about the time it might take to exit the restrictions”. A comment aimed at some cabinet colleagues, but also entirely consistent with the government’s newfound message discipline. Under-promising and over-delivering is now their clear tactical objective.
The business rates holiday for retail, hospitality and leisure is set to continue until the end of June and the stamp duty holiday for properties under £500,000 will now end on June 30 when it will be reduced to £250,000, finally returning to £125,000 from October 1. The Chancellor also announced a “mortgage guarantee” for people who can only afford a 5 per cent deposit, a scheme that the Labour leader, responding to the budget, attacked as a failed policy from the Cameron Government and one which had only pushed house prices up.
On VAT, the 5 per cent reduced rate will be extended to the end of September, then an interim rate of 12.5 per cent will apply until April next year when it goes back to 20 per cent. Mr Sunak said the extension was to protect hospitality and tourism jobs.
Self employed support would also continue to the end of September and more people would qualify. The increase of £20 in Universal Credit would be extended by six months. There was an extra £19 million for victims of domestic abuse, an extra £10 million to support veterans with mental health needs and a lifetime commitment of funding for Thalidomide victims.
Freeports were an idea often touted as one of the benefits of Brexit, allowing businesses to import and re-export without having to pay import and export tariffs if goods do not leave a special area. Rishi Sunak announced eight locations in England to designate as freeports and is discussing more locations with the devolved governments. But one of the criticisms of freeports is that without charging any tax (or very little) it’s not guaranteed that they will bring in more money to the exchequer.
As Mayor of London, Boris Johnson was never a fan of reining in spending
After several announcements of extra spending and extensions of generous support schemes, the Chancellor began to preach the virtues of fiscal responsibility. He said that next year borrowing, forecast at £234 billion, was “an amount so large it has only one rival in recent history- this year” (a cool £355 billion) and that “without corrective action” it would “leave underlying debt rising indefinitely”. The Chancellor added, “the amount we’ve borrowed is only comparable to the amount we borrowed during the two world wars, it will be the work of many governments over many decades to pay it back”.
As Mayor of London, Boris Johnson was never a fan of reining in spending, calling on then Chancellor, George Osborne, to abandon the “hair shirt, Stafford Cripps” agenda of austerity in favour of spending to encourage a “spirit of confidence”. The failure of both Theresa May and Boris Johnson to mention the “A” word as Prime Minister means fiscal discipline is now a much harder sell to a public hooked on hand-outs. But perhaps this is why tax rises are seen as the solution to debt rather than reigning in public spending or even ending the furlough scheme when the government expects everything to be back to normal.
In 2023 the rate of corporation tax, paid on company profits, will increase to 25 per cent. The Chancellor insists that the UK will still have the lowest corporation tax rate in the G7 but it’s a far cry from the “Singapore on steroids” hoped for by some Brexiteers (and once threatened by Philip Hammond) for the years after the UK left the EU. Income tax will be subject to a stealth rise. After the threshold rises to £12,570 next year it will be frozen until April 2026 meaning, despite the technically true statement by the Chancellor that “nobody’s take home pay will be less than it is now”, (akin to Harold Wilson’s “pound in your pocket” argument) inflation will gradually increase the income tax burden.
Raising higher taxes has always been an easy way for a government to spend more of its citizens’ money but this is the first time a Chancellor has raised corporation taxes since Dennis Healey in 1974. It has not impressed the remaining free marketeers on the right. The Tax Payers’ Alliance have attacked the “big tax hikes risk choking off the recovery Rishi wants before it has even started” and the IEA are dismayed by an “aggressive” hike to corporation tax. But perhaps the government isn’t too worried what they think? The centre-left Resolution Foundation struggled to think of anything bad to say about it, which may well be a comfort to the “Big Tent” politics currently being pitched beside the Red Wall.
In terms of Brand Rishi’s performance, The Times’ Patrick Maguire noted that the Treasury failed to send the shadow Treasury teams an embargoed version of the Chancellor’s speech. Which was poor show, but may also have been sharp if nervous elbows too.
Speaking to past Tory shadow Treasury team operatives, the verdict was underwhelming. ‘When I did a shadow budget working for Osborne’, one told me, ‘we got the speech and of course it was central to the response. The gaps were numbered and we filled them in as they came up so it could go straight into his response.’ It seems a bit frit for the government to be that worried about what Anneliese Dodds’s team would have got up to if they had received similar courtesies.
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