UK Budget Summary
The Budget presented by the Chancellor on 3 March prioritises continuing support for a ravaged economy and priming for economic recovery. Whilst it does acknowledge the need to tackle the unprecedented levels of government borrowing it leaves most of that challenge for the future. Various schemes such as furlough, reduced business rates and the VAT cut for the hospitality sector have been extended, along with a new recovery loan scheme and grants to support businesses as they return to work. Government economic support from early last year to late 2021 will take borrowings over 90% of GDP.
Overall, the UK economy is forecast to return to pre-Covid levels by mid 2022, bouncing back from the 10% contraction of 2020 with 4% growth in 2021 and over 7% in 2022. But that overall picture hides the fact that the economic landscape will be different – some businesses have been decimated and may not recover; others have seen a positive effect from the pandemic. It is clear that the government remains committed to a shift towards a lower carbon economy, encouraging more fuel efficient transport and is also targeting investment towards less prosperous areas of the country, in line with its “levelling up” agenda.
Budget measures to promote growth include suspending the HGV levy for another year (to August 2022) and freezing HGV VED rates for 2021/ 22, extending the increased Annual Investment Allowance limit to the end of this year, a new higher capital allowance “super deduction” and Freeports across England. The new capital allowance allows tax relief for 130% of expenditure by companies on new equipment bought from 1 April 2021 to 31 March 2023. As well as unincorporated businesses, there are some other exclusions, for example leased items, but those bought using HP, such as the solution offered by Scania Financial Services can qualify, allowing Scania corporate customers to benefit from these increased tax allowances.
All that support needs to be paid for, although the Chancellor wants to balance allowing recovery over the next 2-3 years against any effect on voting if tax rises come in closer to the next (2024) election. The 2019 manifesto ruled out any increases in the rates of income tax, National Insurance and VAT, but most of the main tax allowances for individuals will be frozen up to 2026. Consequently inflation and pay rises will increase the government’s tax take, with more individuals paying income tax and moving into higher rate bands. Also, the rate of corporation tax will rise from April 2023 for all companies with profits of more than £50,000. The full effect of the increase in the main rate from 19% to 25% only kicks in where profits are more than £250,000; but this is a massive increase and a complete reversal of recent Conservative economic philosophy. Whilst these two measures start to claw back some of the government’s extra borrowings, additional tax rises must surely be on the cards in the longer term and we will need to wait and see who will bear that cost.
If you would like to find out more about the UK Budget please visit GOV.UK
For more information about the Super deduction you can find a factsheet supplied by the HM Treasury here.