Budget 2021 – What You Should Know
Last week’s Budget focused on protecting the economy today and kickstarting the UK’s recovery in the short term, while outlining changes to the Conservative approach to tax in future in order to balance the books after the highest borrowing rates ever seen outside wartime.
This was a Budget positioned in advance around not taxing individuals and about supporting jobs across the UK. A key focus for the Chancellor was keeping investment for growth, with less attention given to the Covid-19 related debts in the short term.
Tax Freezing and Incentives
Whilst the Government kept their manifesto promise of not increasing income tax, national insurance and VAT, the freezing of the income tax threshold means that the revenue raised for the Government will increase as salaries rise.
The most significant tax announcement from the Budget was the change in corporation tax, with the announcement of an increase from 19% to 25% in 2023, with only companies making profits of more than £250,000 per year paying the full amount. However, in the short term the Government have introduced an incentive for companies to spend – super deductions on business investments. Super deduction provides tax relief of 130% (in place of the standard 18% relief) for companies who invest in certain qualifying capital assets from 1 April 2021. It’s hoped that this will stimulate £25bn in business investment in the UK and could be particularly beneficial for the manufacturing and utility sector.
GDP is set to grow to 4% this year and the national minimum wage will also increase. Positive statistics around unemployment were also shared, with the OBR forecasts for unemployment being increasingly optimistic with an anticipated high of 6.5% in unemployment in Q4 2021, falling to 4.4% by the end of 2024. This is well above pre-Covid levels but is also significantly below the feared 11%+ forecasted last year.
Regarding job support, little was mentioned of policies focused on the creation or support of more jobs and particularly entry-level positions. The Chancellor did confirm that the Kickstart programme will continue, at the same time as doubling the financial incentives for businesses taking on apprentices. A further £126 million was also announced to increase traineeships by 40,000 in 2021/22.
There were also potentially significant changes in making apprenticeships work for those people on short-term or atypical contracts, as well as for individuals over the age of 25. In the future, individuals will be linked to an agency and not an employer, with £7million set aside to set up agencies. The suggestion is that this should support those who need flexible work patterns, such as those working in TV or the creative arts sectors. This may provide increased ways for companies to engage apprentices, though details have yet to be finalised.
The Chancellor also announced a ‘help to grow’ scheme focused driving business productivity. The Government will invest £60million in 2021/22 and £75million for each following year in training 30,000 SMEs in business growth and management skills, alongside providing grants to support with the adoption of software and tools designed to enhance business productivity.
The Green Economy
Little was said on the green economy and the Government’s focus on decarbonisation. The Prime Minister went to great lengths in 2020 to stress we will ‘build back better’ and create a sustainable green economy. Details on that so far are lacking, but more news could be expected as COP26 approaches.