Budget 2021: Rishi Sunak’s tax raid on families and big businesses amid record borrowing of nearly £600billion

Joe Murphy and Nicholas Cecil
·8-min read
<p>Rishi Sunak </p> (PA)

Rishi Sunak

(PA)

Rishi Sunak announced tax raids on families and big business today - after admitting to eye-watering borrowing of nearly £600 billion over just two years.

In a Budget shaped by the Covid-19 pandemic, the Chancellor gave away another £65 billion in lifelines to struggling companies, hospitality venues and workers.

But he also answered the burning question of how and when the massive sums spent will start to be repaid. “It is going to be the work of many governments, over many decades, to pay it back,” answered the Chancellor.

His second Budget package gave with one hand – extending the £20 uplift in Universal Credit, along with furloughing and the stamp duty holiday – all funded with eye-watering borrowing of £600 billion over two years.

But then it started clawing back money with the other hand, shocking business leaders with a jump in Corporation Tax from 19p to 25p in the Pound in 2023, raising a projected £16 billion a year from profits and killing off the notion of Brexit Britain as a low-tax Singapore-style offshore haven.

For ordinary taxpayers, Mr Sunak took a more stealthy approach to increasing his tax take, announcing a four-year freeze in the tax-free personal allowance and the 40p higher rate tax threshold, which will suck millions of people into paying more tax. To comply with the Conservative election manifesto, there will be no hike in tax rates and a one-off rise in the thresholds this year.

Watch: Budget round-up - The key points

The Chancellor was given a warm but quiet cheer from Tory MPs when he rose in a Commons that was relatively quiet due to social distancing.

He pledged: “We will continue doing whatever it takes to support the British people and businesses through this moment of crisis.

“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.”

But in his response, Labour leader Sir Keir Starmer accused him of just “a quick-fix, papering over the cracks”. Sir Keir went on: “The party opposite spent a decade weakening the foundations of our economy, now they pretend they can rebuild it.”

Mr Sunak’s announcements were overshadowed and shaped by new figures spelling out the jaw-dropping cost to Covid-19 to the public finances.

The Government will borrow £355 billion this year and £243 billion next year, and Mr Sunak warned it will take “decades” to repay.

Overall British taxation levels will rise to the highest levels seen since Roy Jenkins was Chancellor of a Labour government in the 1960s.

“The amount we’ve borrowed is only comparable with the amount we borrowed during the two world wars,” he said. “It is going to be the work of many governments, over many decades, to pay it back.”

The Government has spent an astonishing £352 billion on help so far, rising to £407 billion after the new measures, he said.

“Coronavirus has caused one of the largest, most comprehensive and sustained economic shocks this country has ever faced,” he told MPs.

“And, by any objective analysis, this Government has delivered one of the largest, most comprehensive and sustained responses this country has ever seen.”

Watch: COVID-19 - What support measures were announced and extended in the Budget?

In key measures:

* Help for families and firms: Mr Sunak began his speech by drawing attention to the Covid rescue measures. “I said I would do whatever it takes; I have done; and I will do,” he said. He then extended the stamp duty holiday as well as furloughing and the £20 Universal Credit boost until the end of September, meaning help will continue after the June 21 date when the economy is due to reopen in the roadmap. He also revealed extra help for 600,000 self-employed people, who will get grants of up to £7,500.

* Income tax: Direct taxation will rise in a series of stealth taxes, starting with a freeze on thresholds at which people start paying the basic and higher rates of income tax. These will rise to £12,570 and £50,270, but then stay at that level until 2026. It means millions will pay more tax without rates having to go up. “We are not hiding it,” said Mr Sunak, who called it “progressive and fair”. In another stealth raid, he froze inheritance tax thresholds and the pensions lifetime allowance, meaning people who save more could be liable to penal charges.

* Corporation tax: The hike in corporation tax, paid on the profits of major firms, was a surprise as most experts had expected a gradual rise. Small businesses will be exempt from it. One top economist expressed shock at the “risky” scale of the corporation rise hike, from 19p to 25p. “That’s a huge increase in rate of corporation tax,” tweeted Paul Johnson of the Institute for Fiscal Studies. “Right at top end of expectations. Extraordinary reversal of longstanding policy. Risky.”

* “Sin taxes” cancelled: Fuel duty will remain frozen for the 11th consecutive year at 58p per litre for petrol and diesel. At the same time the Chancellor cancelled the usual annual rises in tax on beer, spirits and wine, explaining: “This is a tough time for hospitality.”

* Investment: A series of incentives for investment were promised to sweeten the tax pill for business. More generous tax relief will go to firms that invest in new plant, in what the Chancellor called a “pro-business tax regime”, He told MPs: “While many businesses are struggling, others have been able to build up significant cash reserves. We need to unlock that investment, we need an investment-led recovery.” Under a “super deduction”, for the next two years companies can reduce their tax bill by investing. The OBR believed it could boost business investment by 10 per cent, or around £20 billion extra per year, Mr Sunak said.

* Freeports: Eight new English Freeports, which will boost jobs with tax advantages, will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.

* An extra £1.65 billion for the Covid-19 vaccination roll-out in England.

* £5 billion restart fund for cash grants of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses.

* Extension of the Film & TV Production Restart scheme in the UK, with an additional £300 million to support theatres, museums and other cultural organisations to re-open.

* Extension to the VAT cut to five per cent for hospitality, accommodation and attractions across the UK until the end of September, followed by a 12.5 per cent rate for a further six months until 31 March 2022.

* Business rate holidays at 100 per cent for eligible firms in the retail, hospitality and leisure sectors continue until June and then being scaled back for those that can re-open.

Watch: Chancellor promises 'fairer and more just' country in memory of lives lost to coronavirus

* In a landmark reform, Mr Sunak also announced that the Bank of England would be given a new role in ensuring the UK meets the “net zero” target by 2050.

Having unveiled a string of measures, the Chancellor added: “Underpinning all of this will be an updated monetary policy remit for the Bank of England. It reaffirms their 2% inflation target. But now, it will also reflect the importance of environmental sustainability and the transition to net zero.” Britain is hosting the COP26 environmental summit in Glasgow in the autumn, amid warnings that the world is running out of time to tackle global warming.

* 750,000 eligible businesses in the retail, hospitality and leisure sectors in England will benefit from business rates relief.

* Extending the apprenticeship hiring scheme to September 2021, with an increase of payment to £3,000

* An extra £19 million to tackle domestic abuse in England and Wales, with more support for homeless women and a programme to deter re-offending.

Spelling out his vision of the future, Mr Sunak rhapsodised to MPs: “I see innovative, fast-growing businesses hiring local people into decent, well-paid, green jobs. I see people designing, manufacturing and exporting incredible new products and services. I see people putting down roots in places they are proud to call home. I see a people optimistic and ambitious for their future. That, Madam Deputy Speaker, is the future economy of this country.”

Forecasts by the OBR show the economy will grow more slowly this year than hoped – but then bounce back in 2022 with bumper growth of over seven per cent.

Many of Mr Sunak’s measures were trailed in advance by the Treasury, prompting Speaker Lindsay Hoyle to jibe at Boris Johnson during Prime Minister’s Questions: “I think I already know most of it.”

Mr Sunak released a picture of himself raising his scarlet box with Treasury ministers socially distanced down the staircase at No 11.

After his speech, he was due to hold a rare Budget Day news conference at 10 Downing Street, before being grilled again by Conservative MPs in private.

Earlier the Chancellor briefed the full Cabinet on his package, which he called “Protecting the jobs and livelihoods of the British people”.

A Downing Street spokesman said: “The Chancellor said that, while we face challenging times, we will rise to that challenge and we can be optimistic about the recovery.

“He said the Budget will begin the work of building our future economy.”

Read More

Budget analysis: Little cheer for London as Rishi Sunak forced to dig deep to balance books

Budget exposes Labour’s existential dilemma: it can’t decide its view on the economy

Budget news LIVE: Rishi Sunak reveals £407 billion cost of Covid recovery as Chancellor hikes business tax and freezes income tax thresholds

What did Rishi Sunak say in his Budget 2021? Key points explained

95 per cent mortgages: first-time buyers to lenders, what we know about Budget 2021’s guarantee scheme

Festival and clubbing scenes ‘welcome’ new Budget support - but renew calls for Government insurance scheme to avoid ‘mass cancellations’

Budget 2021: Rishi Sunak announces stamp duty holiday extension until the end of June