In his Budget 2021 announcement this month, Chancellor Rishi Sunak faced a balancing act – of continuing to use public funds to navigate through the coronavirus pandemic, but also finding ways to balance the books after the largest public spending campaign in living memory.
It was billed as a “Recovery Budget”, making no secret of the fact it would involve a certain amount of give and take. Surely enough, Sunak said his Budget would “protect the jobs and livelihoods of the British people” but needed to “begin fixing the public finances”.
That said, Sunak was confident that his 2021 Budget would “begin the work of building our future economy”. Here are some of the ways in which he saw that happening.
In perhaps the most unambiguous display of give-and-take, Sunak announced changes to personal taxation. Under his new programme, the tax-free Personal Allowance and Income Tax higher rate threshold would both increase with inflation for the 2021/22 tax year – to £12,570 and £50,270 respectively – thereby giving workers a little more take-away pay in their pockets.
However, Sunak also said these figures would then be frozen until April 2026 – meaning this increase is highly likely to be outstripped by general cost of living increases as the years go on.
Elsewhere, Sunak’s Budget also included freezes on inheritance tax thresholds, the Annual Exempt Amount for Capital Gains Tax and the pensions Lifetime Allowance – also to April 2026.
In a move that many had foreseen (given the timescale of the government’s roadmap out of lockdown), Sunak pledged to extend the Coronavirus Job Retention Scheme for a further five months, until 30 September 2021.
Originally, furlough had been scheduled to end on 30 April, but lockdown measures are still expected to be in place throughout May and beyond – so the furlough scheme has been extended accordingly.
In another example of give-and-take, Sunak also confirmed that businesses would soon have to shoulder some of the cost of furloughed staff. Under new rules, companies will be required to contribute 10% of the cost (up to £312.50 for each employee) in July, rising to 20% (up to £625 per employee) in August and September.
Furloughed workers, however, will see no change – with the payments continuing to total 80% of their usual salary for hours not worked.
Sunak’s VAT reduction for tourism and hospitality businesses is another that will continue for some months yet, though it will be gradually increased as lockdown measures ease.
Sunak promised to maintain the current 5% VAT rate for the sector – which includes pubs, restaurants, takeaways, hotels and attractions – until 30 September 2021. After this point it will increase to 12.5%, until 31 March 2022.
The VAT reduction – announced at the start of summer last year – allowed businesses to either recoup some losses through reduced outgoings, or pass the savings on to their customers in the hope of driving up business (where it was possible to continue trading, of course).
Elsewhere, Sunak also confirmed a long-term freeze of the VAT registration threshold (currently £85,000) until 1 April 2024.
Super-deduction for investment
In a bid to give businesses the confidence to start investing again, Sunak unveiled a ‘super-deduction’ of 130% on the purchase of certain plant and machinery assets. This will allow a business that spent £1 million on qualifying assets, for example, to deduct £1.3 million when working out its taxable profits.
A Treasury press release confirmed that these assets don’t only cover the likes of tractors, cranes and lorries, but also computer equipment and servers, office chairs, desks, solar panels and smaller tools.
The super-deduction will be in place from 1 April 2021 to 31 March 2023 – and there will also be a 50% first-year allowance put in place for qualifying special rate assets.
Reflecting on his Budget, Sunak insisted that all measures were necessary ones – taken in view of the current national and global situation. It was, he said, “a fair way to do what we need to do”.