Rishi Sunak announced a further raft of tax and spending measures in the Budget on Wednesday. What are the key points that will affect the economy, businesses and households’ personal finances?
Jobs and the economy
The Office for Budget Responsibility expects the economy to reach its pre-Covid level by the middle of next year – six months earlier than previously thought.
However, it also forecasts that the economy will be 3 per cent smaller in five years than it would have been if the pandemic hadn’t happened.
More than 700,000 people have lost their jobs since March 2020 and the economy went through its worst contraction in more than 300 years.
The arrival of vaccines has allowed the OBR to slash its forecast for future unemployment. It now expects the jobless rate to a peak of 6.5 per cent this year, down from the 11.9 per cent it had previously projected.
Stamp duty holiday and mortgages – The stamp duty holiday for home buyers is being extended for a further three months until the end of June, Rishi Sunak announced. Purchases up to £500,000 will continue to be free from the tax – and homes bought up to a value of £250,000 until the end of September.
The chancellor also confirmed a new scheme to provide mortgages to homebuyers who put forward only a 5 per cent deposit, with a government guarantee.
Both policies will stoke demand in the housing market, which is already booming, raising fears about surging prices.
Income tax thresholds – Thresholds at which people start to pay income tax or move into a new bracket will be frozen. The personal allowance will remain at £12,750 until 2026. The higher-rate threshold will increase to £50,270 next year, then be frozen at that level. The change means many more people will slip into higher tax brackets as wages rise.
Thresholds for inheritance tax and the tax-free allowance for pensions contributions will also be frozen. There was no mention of an increase in capital gains tax rates which had been rumoured to be under consideration. An increase would have levelled up the amount people pay on earnings from buying and selling assets with the amount they pay on wages.
Alcohol and fuel duty rises scrapped – Duties on fuel and alcohol have been frozen. The decision means duty on petrol and diesel has remained at 57.95p a litre since 2011, with planned increases cancelled every year for the past decade.
Universal credit – A £20 weekly increase to universal credit payments will continue for a further six months.
The uplift introduced last April to mitigate the impact of coronavirus on household finances, which was due to end on 31 March, will remain in place until September.
Sunak said working tax credit claimants would receive equivalent support over the next six months through a one-off payment of £500, due to the way that system works operationally.
Minimum wage – The minimum wage will rise in April to £8.91 per hour, equivalent to an increase of £350 a year for a full-time worker. The age at which a worker is entitled to the full minimum wage will be lowered from 25 to 23.
For 18 to 20 year olds, the legal minimum rises from £6.45 to £6.56 while for 21 to 22 year olds it will increase from £8.20 to £8.36.
Corporation tax – In April 2023, the rate companies pay on their profits will rise from 19 to 25 per cent. The higher rate still leaves the UK with the lowest corporation tax rate in the G7.
Smaller businesses will continue paying the lower rate. Only those making £250,000 or more in profit will pay a higher rate that will be tapered from 19 per cent to 23 per cent.
VAT and business rates cut – A VAT cut for the hospitality and tourism industries will be extended for six months until 30 September. The chancellor said 150,000 businesses employing 2.4 million people “need our support” to protect jobs as the coronavirus restrictions are eased.
The government first announced the cut from the standard rate of 20 per cent to 5 per cent last summer, applying to the hospitality industry, hotel and holiday accommodation and admission to certain attractions, as the national lockdown was lifted.
Hospitality and leisure businesses will pay no business rates for three months and then one third of their normal rate for the final nine months of the year.
Freeports – Eight English ports will be granted controversial tax breaks to “unlock billions of pounds of private sector investment”.
The scheme is hugely controversial because it allows goods to be imported temporarily without tariffs, excise duties and other taxes being paid – before the goods are shipped on again.
Restart grants – £5bn of “restart grants” will be available from April to help businesses reopen. Non-essential retail businesses will open first, so they’ll receive grants of up to £6,000 per premises. Hospitality and leisure businesses, including personal care and gyms, will open later can get grants of up to £18,000.
Business loans – A new raft of government backed loans will be launched to replace two programmes that are ending this year: the bounce back loan (BBL) and coronavirus business interruption loan scheme (CBILS).
Businesses can apply for loans of between £10,000 and £25m through participating lenders. Loans will be backed up to 80 per cent by the government as CBILS are currently.
Furlough – The Coronavirus Job Retention Scheme will continue until 30 September with furloughed workers receiving 80 per cent of their pay for hours that they do not work. From July, employers must pay 10 per cent of wages for those hours and in August they must contribute 20 per cent.
Self-employed – A new round of grants will be made available for the self-employed. The fourth grant will cover February, March and April at a rate of 80 per cent of previous trading profits. More than 600,000 people who recently became self-employed and were previously excluded from claiming grants can apply for the new round if they filed a tax return for 2019/20.
A fifth grant will be available from May. Self-employed people whose trading profits have fallen by 30 per cent will be able to claim a grant of 80 per cent of previous earnings. Those whose income has been less affected can apply for a grant of 30 per cent.
Savings and investments
Isas – The annual tax-free threshold will remain at £20,000 and for for individual savings accounts (Isas) and £9,000 for junior Isas.
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