Rishi to the Rescue: What does the 2021 Budget mean for us?
March 23, 2021
3 min read
What's going on here?
On 3 March 2020, Rishi Sunak announced the 2021 budget, explaining how the government intends to rebalance public finances, with a three-point plan and a pledge to protect jobs and livelihoods.
What does this mean?
The Chancellor’s plan for recovery will cost £65bn in a budget he claims “meets the moment”. The first of his three steps are to pledge billions to support businesses and families through the pandemic. He then outlines investment-led recovery as the UK emerges from lockdown. His final step ensures future changes that will strengthen public finances.
This means that although the UK economy shrank by 10% in 2020, we can expect to see a rebound of 4% this year, with pre-Covid levels making a return mid-2022. This is faster than originally predicted and is significant as Government borrowing has been at its highest, outside of wartime, with an estimated £355bn for 2020 alone.
What's the big picture effect?
So how are business and families being supported? Furlough has been extended until the end of September, with employers being expected to contribute 10% in July, and 20% from August. This increase could lead employers to evaluate the efficiency of furlough, causing redundancies to soar. The Chancellor attempts to offset that with incentives for companies to offer apprenticeships rising to up to £3,000, more than double what they were. There is also £126m being offered for traineeships, which should amount to 40,000 more positions. However, there will be a new visa scheme to help start-ups and rapidly growing tech firms source talent from overseas. As such, the permanent effects of COVID on unemployment in the UK remain to be seen.
In a bid to control unemployment levels, the self-employed grant is being extended to September and now includes those with tax returns for 2019-2020, meaning 600,000 more people will be getting financial aid. It is estimated that 39% of all Universal Credit claims since 2013 were made last year, reflecting the dire impact of the 700,000 jobs lost during the pandemic. Those on Universal Credit are having the continued support of a £20 weekly uplift, with Working Tax Credit claimants finally receiving help with a £500 one-off payment.
As for investment-led recovery, businesses will be able to access around £29bn worth of investment tax-free, which will reduce taxable profits by 130%. This will encourage investment, business development and in turn aid the employment sector. There will also be £5bn available in restart grants for businesses that have been forced to close and £6,000 per premise for all non-essential outlets due to re-open in April.
Finally, how is he planning to strengthen public finances? The current tax-free personal allowance will be frozen at £12,570 from April, until 2026. Sunak is also freezing Higher rate income tax at £50,270. With the minimum wage increasing to £8.91 an hour, over the course of the freeze, approximately 800,000 taxpayers will progress into the higher tax bracket and a further 800,000 will become basic taxpayers. When receiving concerned questions in an interview with Martin Lewis, the Money Savings Expert, Sunak explained that for a person earning £27,000, this would only equate to 77p per week. It also means that nobody’s take home pay will be less than it is now, and the UK’s allowances remain the most generous of any G20 country.
From April 2023, corporation tax, for profits above £250,000 will rise to 25% from 19%. We can see why the Chancellor stated that “those on higher incomes will be contributing more” to the recovery of the economy. Though it is worth noting that this remains the lowest rate of any G7 nation, with just 10% of companies being affected by the rise.
With £1.65bn also being put into the COVID-19 vaccination programme and the Prime Ministers’ roadmap out of lockdown, can we really start to look forward to a “normal” life soon?
Report written by Lauren Kent
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