UK Finance Minister Rishi Sunak on Wednesday unveiled tax rises for businesses and employees as he sought to claw back some of the billions spent on mitigating the impact of the Covid-19 pandemic.
In his annual Budget speech to parliament, Sunak said he would raise corporation tax to 25% from 19% from 2023 and introduced a stealth tax rise as he froze personal allowance thresholds.
Sunak said the British economy would return to pre-pandemic levels in the middle of 2022, six months earlier than forecast, but would still be 3% smaller in five years’ time than it would have been without the impact of the crisis.
Most of the Budget measures were widely leaked by the finance minister, called the Chancellor of the Exchequer, regarded by many as a future prime minister who has used social media widely to project his message and reportedly used image consultants to promote his brand as a leader-in-waiting.
The five-month extension of his furlough scheme to protect jobs was confirmed, along with more help for the self-employed, continuation of an emergency increase in welfare payments, and extension of a VAT cut for the hospitality sector.
A freeze on stamp duty payments for home-buyers was also extended until the end of June along with confirmation of a 5% home deposit guarantee for first-time purchasers.
The corporation tax rise is designed to raise £17bn a year by 2025 but will raise eyebrows among many MPs in Sunak’s own Conservative Party who believe in a smaller state with low tax policies. However, he has consistently argued that the £400bn spent on pandemic measures cannot be ignored, especially with rumblings on markets of higher interest rates.
There was some relief for smaller businesses, with the increase applying to firms with annual profits of more than £50,000 and a sliding scale for companies with profits between £50,000 and £250,000.
Sunak also revealed a new super deduction” allowing companies to reduce their tax bill by 130% on any cost of business investment in a move to boost capital spending, although treasury estimates say this could cost £25bn in lost tax revenue.
Despite a pledge not to raise personal income tax, national insurance and VAT in the 2019 election, Sunak imposed a stealth rise on individuals by freezing the threshold at which they start paying until 2026 at £12,500 and £50,300 respectively netting the treasury £8.2bn a year by 2025/26, as wage growth pushes more people into higher tax brackets.
“First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis,” Sunak told the House of Commons.
“Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that. And, third, in today’s Budget we begin the work of building our future economy.”
Growth forecasts for 2021 were cut to 4% from 5.5% by the Office for Budgetary Responsibility (OBR), reflecting the effect of the latest lockdown on the economy which began in January.
Looking further ahead, the OBR forecast gross domestic product would grow 7.3%, 1.7% and 1.6% in 2022, 2023 and 2024 respectively, compared with November forecasts for those years of 6.6%, 2.3% and 1.7%.
Government borrowing is at its highest since World War Two at an estimated 17% of GDP in the current fiscal year, or £355bn and is expected to fall to a still historically high 10.3% in 2021/22 before eventually settling at £73.7bn in 2025.
