Budget 2021

Chancellor Rishi Sunak’s plans to cut £16bn from public spending “do not look deliverable without considerable pain”, the director of the influential Institute for Fiscal Studies thinktank has said.Mr Sunak added £4bn of cuts in yesterday’s Budget to the £12bn outlined in the spending review last autumn, and made no provision for continued costs of the coronavirus pandemic to the NHS beyond next year. But IFS director Paul Johnson said the spending figures looked “implausibly low” and said he would put odds of ten to one against them being achieved.And he accused the chancellor of failing to “level with the people about his choices” by passing the £4bn cut off as a technical change resulting from fluctuations in inflation. Describing Mr Sunak’s plans to cut spending as “pretty shaky”, Mr Johnson said: “How he is actually going to fix the public finances remains to be seen.”Delivering the independent thinktank’s analysis of Mr Sunak’s second budget, Mr Johnson said the chancellor had played Santa with coronavirus support, but turned Scrooge with longer-term tax and spending plans amounting to almost £50bn of belt-tightening compared to pre-Covid plans. Mr Johnson said that Mr Sunak’s “screeching U-turn” on longstanding Conservative low-tax policy would deliver “the highest sustained tax burden in UK history”. And he said the chancellor’s “remarkable” decision to hike corporation tax by six percentage points to 25 per cent from 2023 was “something of a gamble… that it won’t have too terrible an effect on investment”.Inside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayInside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayFreezing income tax personal allowance thresholds will drag an additional 1 million workers into the higher band by 2025.By that point, some 5 million – one in six income tax payers – will be paying the 40 per cent rate on earnings, compared to 3 million when Conservative-led governments came to power in 2010, he said.Mr Johnson also said it was “remarkable” that Mr Sunak chose not to phase out the £20-a-week uplift to Universal Credit from October, but instead to impose a cliff-edge cut of more than £80 a month on some of the country’s poorest families.If the payments – totalling around £6bn a year – must be withdrawn, the case for taking them away more gradually “looks unanswerable”, he said.Details of where the spending axe will fall were not set out in Wednesday’s Budget. But Mr Johnson said that the protection offered to spending on the NHS, schools, defence and aid meant that other areas, such as law and order and local government would once again face real-terms cuts after a decade of austerity.Although the Treasury claims that the additional £4bn of reduced spending was a technical change to take into account lower inflation forecasts, Mr Johnson said that in reality the cut will cause “real additional pain”.And he asked: “Are we really got to spend £16bn less on public services than we were planning pre-pandemic? Is the NHS really going to revert to its pre-Covid spending plans after April 2022. I’d say no, of course not. “There are pressures from all sorts of directions. The NHS is the most obvious – further top-ups seem near-inevitable.“Catching up on lost learning in schools, dealing with backlogs in our court system, supporting public transport, fixing social care will all require additional spending.“The chancellor’s medium-term spending plans simply look implausibly low.”While the chancellor had done “a decent job” of providing support for businesses and workers as the UK emerges from coronavirus, his spending plans for the following years “do not look deliverable, at least not without considerable pain”, said Mr Johnson.“How he is actually going to fix the public finances remains to be seen,” he added.Mr Sunak’s failure to identify where he will find money for post-pandemic priorities like reforming social care and reducing inequality was “a big hole” in the Budget, said the IFS boss.“On … how to deal with the longer-term consequences of a pandemic, he has been just silent,” said Mr Johnson.“No money to deal with post-pandemic priorities. No policies to deal with the inequalities that have opened up over the last year between rich and poor, old and young, more and less well-educated. “This is a big hole in the chancellor’s – and the government’s – policies, a hole which needs to be filled and soon, if we are not to suffer a much worse hangover from this crisis than need be the case.” More

Britain will be paying the bill for Covid for decades to come after Rishi Sunak’s Budget set the nation on track for the highest tax burden in more than 50 years to pay for total spending of £407bn on pandemic support. The chancellor announced a further £65bn lifeline for firms and workers, extending furlough, business rate relief and VAT breaks. The £20-a-week universal credit uplift has also been extended for another six months.But he reversed 10 years of tax-cutting Conservative policy on corporation tax by announcing a hike from 19 to 25 per cent, to be introduced in 2023. And he froze income tax personal allowance thresholds until 2026, dragging 1.3 million low-paid people into paying it as their earnings increase.The Institute for Fiscal Studies described it as the biggest tax-raising budget since 1993, increasing the state’s net take by £29bn in 2025-26.The overall tax burden of 35 per cent of GDP will be the highest since Roy Jenkins was chancellor in the 1960s. And IFS director Paul Johnson said it can be expected to remain high for years, warning: “We are in a new phase of UK economic history. Taxes likely to be at their highest sustained level in history.”Meanwhile, the Office for Budget Responsibility (OBR) warned that Mr Sunak’s plans make no provision for pandemic spending after 2022.Inside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayInside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayIndeed, the Treasury’s figures suggest that rapidly falling Covid-19 expenditure will allow a £30bn drop in overall health and social care funding in 2021/22 – something which Labour warned would “increase pressure on staff and do nothing for patients stuck on growing waiting lists”.Labour leader Sir Keir Starmer accused the chancellor of “papering over the cracks” in a Budget which delivered no new money for social care, health or schools and set other spending departments up for cuts in the coming years.But Mr Sunak said he was “using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people” after the worst economic contraction in 300 years.The success of the UK’s vaccination programme allowed the OBR to bring forward the date at which it expects the economy to return to pre-Covid levels by six months to mid-2022 and slash its forecast of peak unemployment from 11.9 per cent to 6.5 per cent. Its growth forecast for next year was up from 6.6 to 7.3 per cent.But predicted GDP growth was cut for every other year until 2025. And the official forecaster’s projection of long-term “scarring” remained unchanged, with the economy expected to be 3 per cent smaller in five years than it would have been if the pandemic had not happened.Mr Sunak told MPs he wanted to be “honest” with British voters about the scale of “corrective action” needed to rebalance the public finances, with borrowing at £355bn – 17 per cent of national income – the highest since the Second World War.Under his plans, this will tumble to just 0.9 per cent of GDP by 2025-26. But the underlying national debt will continue to rise from a historic high of £2.2 trillion now to more than £2.8 trillion at the end of the forecast period, peaking as a share of GDP at 97.1 per cent in 2023-24.“The amount we’ve borrowed is comparable only with the amount we borrowed during the two world wars,” said the chancellor.“It is going to be the work of many governments, over many decades, to pay it back.“Just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.”In one of the most comprehensively trailed Budgets in history, Mr Sunak had few surprises in his red box.He announced a “super-deduction” mechanism, which will cut companies’ tax bill by 25p for every pound they invest in new equipment over the next two years, designed to unlock a £118bn corporate cash pile built up during the pandemic to be spent in the immediate period after coronavirus restrictions are lifted.He named the first eight areas – East Midlands airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside – to take on freeport status, which he said would generate jobs and unlock billions in private sector investment, but which critics argue will relocate rather than create economic activity.And he sparked controversy with a £4.8bn “levelling up fund”, which includes his own constituency, as well as those of cabinet colleagues Robert Jenrick, Brandon Lewis, Simon Hart and Alister Jack, as priority areas to bid for cash, ahead of deprived authorities like Barnsley, Flintshire, Coventry, Plymouth, Salford and the Wirral.Other measures included: – Stamp duty holiday for properties less than £500,000 extended until the end of June, followed by a lower £250,000 threshold until the end of September.- State-backed guarantee for mortgages of up to £600,000 with a 5% deposit.- Furlough worth up to 80 per cent of wages extended to September, with employers expected to contribute from July.- Temporary 5 per cent VAT rate for tourism and hospitality sector extended to the end of September, with an interim rate of 12.5 per cent for six months after that.- Business rates holiday for the retail, hospitality and leisure sectors extended until the end of June, with a discount applying for the rest of the financial year.- “Restart grants” totalling £5bn worth £6,000 to non-essential retail businesses as they reopen and £18,000 to pubs, restaurants and gyms. – Freeze on alcohol and fuel duties.Mr Sunak avoided breaking the “triple tax lock” promise in the Conservatives’ 2019 manifesto, which pledged not to increase rates of income tax, national insurance or VAT.But his personal allowance freeze will rake in an additional £8.2bn a year by 2025-26 by forcing workers into higher bands as their earnings rise.The point at which income tax becomes payable will increase by £70 to £12,570 in April, but stay at that level until April 2026. Meanwhile, the 40p rate threshold will increase by £270 to £50,270 before being frozen. The change will mean 10 per cent of adults paying the higher rate, compared to around 8 per cent now. It will result in the richest fifth of households paying £826 per year more on average, compared to £56 for the bottom 20 per cent, according to calculations by the Resolution Foundation think tank.The Institute for Fiscal Studies said about 1.3 million people would be brought into the income tax system, with about 10 per cent of adults brought into the higher 40p rate.The corporation tax increase to 25 per cent will raise £17.2bn in 2025-26, although only firms with profits of £250,000 or more will pay the full rate.Mr Sunak insisted the UK would still have the lowest effective corporation tax rate in the G7 group of industrialised economies.But Tony Danker, director-general of the Confederation of British Industry, said the move would “cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK”. More

Rishi Sunak has been accused of “naked pork-barrel politics” after billions of pounds of Budget handouts appeared to favour Tory-held constituencies.At a Downing Street press conference, the chancellor was asked why 40 of 45 places receiving £1bn of towns fund grants are represented by his own party’s MPs.Meanwhile, the leafy Richmondshire borough – which falls within Mr Sunak’s north Yorkshire seat – has been given higher priority for a new £4.8bn “levelling up fund” than struggling Barnsley.Mr Sunak was asked to reassure the public that he was using “fair criteria” to assess eligibility – or “whether this looks a little bit like naked pork-barrel politics”.In reply, he insisted decisions were made “based on an index of economic need which is transparently published”. The cabinet minister later admitted the decision was made by Jake Berry, a fellow minister – while he approved a grant to Mr Berry’s constituency. Inside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayInside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayIn this Budget, 45 towns have shared a further £1bn of grants, of which only five are in opposition-held seats, an analysis by The Financial Times found.Meanwhile, the £4.8bn levelling up fund will “support town centre and high street regeneration, local transport projects, and cultural and heritage assets”.Labour protested that four other authorities in the seats of cabinet members – Newark and Sherwood (Mr Jenrick), Pembrokeshire (Simon Hart), Dumfries and Galloway (Alister Jack) and Great Yarmouth (Brandon Lewis) – had top priority.Yet the much-poorer Barnsley, Flintshire, Coventry, Plymouth, Salford and the Wirral had all been relegated to the second tier for priority.The government was “diverting the money to serve their own party’s needs,” alleged Steve Reed, the shadow local government secretary.“Just months after the government was criticised for diverting funding away from towns that desperately needed it, we discover that cabinet ministers’ own constituencies now stand to benefit ahead of more deprived areas,” he said. Challenged at the press conference, Mr Sunak said: “The formula for grant payments for the new fund, to give them some capacity funding to bid for projects, is based on an index of economic need which is transparently published.”He said it was “based on a bunch of objective measures so that will be there for people to have a look at”.The chancellor added: “Remember, that’s only the areas that have received some capacity funding to bid.“No area is excluded for bidding – it’d just that those areas, on the basis of this formula, might need a bit of extra help, so we’re giving those local areas some money to put their bid together to help them.” More

Rishi Sunak’s Budget speech paid a lot of attention to support for the economy during the pandemic, to changes to company tax and the national debt, but for most of us there is one immediate question: how will it affect my finances?Whether you are looking to buy a house – and so will benefit from the three-month extension of the stamp duty holiday – or rely on minimum wage, which will rise by £350 a year for full-time workers in April to £8.91 per hour, the economic changes today will be felt by many. Not forgetting a string of other influential policies the chancellor outlined earlier including the extension of furlough until September, duties on alcohol and fuel being frozen, a six-month extension on the £20 weekly increase to universal credit payments, VAT cuts for the hospitality and tourism sectors to remain, and £5bn worth of “restart grants” to be made available from April to help businesses reopen after lockdown restrictions ends. It was also revealed that, for the first time since 1974, the rate companies pay on their profits will rise from 19 to 25 per cent in 2023 – the higher rate still leaves the UK with the lowest corporation taxes in the G7.Clearly, there is a lot to consider. But the online calculator below, created by accountants Blick Rothenberg, offers a quick reckoner as to how the latest raft of changes will affect you, broadly speaking.Input a few details and it will offer an indication as to how much better or worse you will be following the chancellor’s announcements.Inside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayInside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekday More

The stamp duty holiday for housebuyers is being extended for a further three months until the end of June, Rishi Sunak announced.Purchases up to £500,000 will continue to be free from the tax – and homes bought up to a value of £250,000 until the end of September. The Chancellor also confirmed a new scheme to provide mortgages to homebuyers who put forward only a 5 per cent deposit, with a government guarantee.“A policy that gives people who can’t afford a big deposit the chance to buy their own home,” he told MPs. “As the prime minister has said, we want to turn generation rent into generation buy.”The stamp duty cut is hugely expensive – the three-month extension costing an estimated £1bn, at a time when the government is slashing overseas aid and, in October, Universal Credit.But the property market was worried about around 160,000 home sales stuck in limbo and at risk of falling through if the holiday was not extended. Inside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayInside Politics newsletterThe latest news on Brexit, politics and beyond direct to your inbox every weekdayMr Sunak told MPs: “I can announce today the £500,000 nil rate band will not end on 31 March, it will end on 30 June.“Then, to smooth the transition back to normal, the nil rate band will be £250,000, double its standard level, until the end of September – and we will only return to the usual level of £125,000 from 1 October.”And on the “mortgage guarantee”, the Chancellor said: “Lenders who provide mortgages to homebuyers who can only afford a 5 per cent deposit will benefit from a government guarantee on those mortgages.“I’m pleased to say that several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95 per cent mortgages from next month, and I know more, including Virgin Money, will follow shortly after.”Mr Sunak also* Confirmed the extension of the furlough scheme until the end of September, although employers will be expected to make a contribution from July.* Extended the 5 per cent reduced rate of VAT for the tourism and hospitality sector to the end of September, with an interim rate of 12.5 per cent for another six months after that.* Continued the business rates holiday for the retail, hospitality and leisure sectors until the end of June, with a two-thirds discount for the remaining nine months of the year.The Chancellor also unveiled forecasts suggesting the economy will return to its pre-Covid level by the middle of next year – six months earlier than they previously thought.But he told MPs that, despite the £280bn of support already committed to protecting the economy, the damage done by the virus has been “acute””.“Our economy has shrunk by 10 per cent – the largest fall in over 300 years. Our borrowing is the highest it has been outside of wartime.“It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover.” More