On Wednesday 3rd March, Rishi Sunak announces the 2021 budget. Much of what he has to say has been predicted but what will it mean for business and will it aid or hinder the recovery? Each stage of the well known recovery map will impact business to one degree or other. From 8th March, the picture should start to look better. When schools return, working parents will either return to the workforce or will be able to concentrate a lot better. This, in itself, will be a major step in the right direction for the recovery. Then from 12th April, we start to see a significant reopening of non-essential shops and hospitality. The process culminates in the complete reopening of society on 21st June. However, the Chancellor recognises that this recovery won’t be instantaneous and that’s why the budget is a delicate balancing act.
Extension of furlough
Furlough has been a recurring theme for the last 12 months and the 2021 budget will see an extension of the scheme until September. This is longer than we were predicting but is a recognition that many businesses will still be impacted after reopening. Will this be enough to prevent the widespread increase in unemployment that has been predicted? That is unclear but it will mitigate some losses in retail, hospitality, tourism and events amongst other sectors. The fact is, many businesses have used their financial reserves during lockdown and they will not be able to bring everyone back in one go. We simply don’t know how many people will head back to restaurants once they reopen. So the scheme will continue throughout the Summer. However, the scheme will return to a contributory one from July with 10% of salary covered by employers rising to 20% in August and September. So basically, it mirrors the scheme from last Summer.
Additional grants for business
Another well advertised package of support in the 2021 Budget is the £5 billion package to help businesses who were forced to close, or restrict operations, during lockdown to reopen. Alongside this, there will be a further tranche of payments under the Self Employment Income Support Scheme (SEISS) covering February to April 2021.
In addition to the kickstart scheme, the Chancellor announced an additional £126 million for ‘flexi-apprenticeships’. Employees will be able to work for multiple employers whilst completing an apprenticeship. We echo the CIPD’s call to make the Apprenticeship Levy a ‘flexible training fund’ if the Government want UK plc to enhance skills and productivity.
Corporation tax and Capital investment
Corporation tax will be raised to 25% from April 2023. There will be a new small profits rate of 19% for profits of less than £50k p.a. with tapered increases in rates to £250k profits p.a. Only when businesses make more than £250k profit will they pay 25%.
There is also a new investment tax relief scheme whereby capital investment will be reclaimable at 130% of the amount invested for the next 2 years. For instance investment of £10m could lead to a tax reduction of £13m. This includes computers and office furniture as well as heavy machinery so this could be very good news for expanding businesses.
Further initiatives announced in the 2021 budget are:
- A freeze in alcohol and fuel duty
- Personal income tax thresholds to rise to £12,570 for Basic rate tax and £50,270 for higher rate tax in 2022. They will then be frozen until 2026.
- A new UK infrastructure Bank will be set up in Leeds
- New city growth and freeport schemes have been announced.
- Funding for management development and technical systems has been announced. These are open immediately for expressions of interest at gov.uk.
Overall, this was a budget with few surprises and no immediate tax rises. If the OBR predictions of 4% growth in 2021 and 7.3% in 2022 are realised, perhaps the economy will be strong enough to withstand tax rises in the future.