By Oliver Gibson –
The Coronavirus has cost the UK a great deal in many ways. Alongside the many thousand deaths and millions of total cases, British businesses have taken many hits in the last year, the likes of which have not been seen since the times of the 2008 financial crisis.
The Office for Budget Responsibility has stated that Government borrowing for the period of April 2020 to April 2021 has amounted to £355 billion, a historic high in post-war Britain. Gordon Brown’s government, in the midst of the financial crisis, only borrowed £150 billion as part of his fiscal stimulus program – a move criticised as being irresponsible by the Conservatives while in opposition. Over the course of the 2010s, borrowing had decreased yearly to a low of £45 billion in the 2017/2018 tax year.
The BBC reported last June that the UK’s national debt had risen to 100.9% of GDP – a figure far higher than anything seen during the financial crisis. As Rishi Sunak explained in the House of Commons in his budget speech, ‘while the vaccine provides hope, the economy is going to get worse before it gets better.’
But will the budget achieve this? And what can we expect from it here in West Yorkshire?
Furlough, employment and retail
The Government’s Furlough program, hailed by Rishi Sunak as being ‘one of the most generous schemes in the world,’ is to be extended until September. This means that employees who are unable to work due to the lockdown or to Covid restrictions will continue to be paid 80% of their wages. Employers will be asked to ‘contribute’ ‘10% in July and 20% in August and September’ to the costs of this.
Self-employed workers will continue to receive support from the Government until September, with a further 600,000 being able to access grants.
The minimum wage will see an increase to £8.91 an hour in April, an increase of 20p per hour from last year. The Government will also increase investment in apprenticeships, offering businesses more incentives to hire new staff who might well be in employment for the first time.
As part of the High Street Restart scheme, businesses such as pubs and restaurants will be able to apply for a Government grant of up to £18,000 in order to help them open their doors again when they are able to. In total this scheme will cost £5 billion, a steep price, but could well give businesses a much-needed boost after so many months of inactivity, protecting the high street from further decline.
Extensions to both the VAT holiday and the business rates cuts will also be implemented, allowing businesses to reinvest more of their money in employment or in the development of their services.
Changes to tax thresholds
Despite some serious talk from the Chancellor about addressing the high level of spending of the last year, no changes to the rates of income tax, national insurance or VAT were brought about by the Budget. The ‘tax-free personal allowance’ will remain frozen at its current level of £12,750 until 2026. Likewise, the higher rate of income tax will remain frozen at £50,270 until 2026.
As explained in his speech, it will be the most profitable businesses that will in theory begin to put towards future deficit reduction. Corporation tax on companies with profits above £250,000 will increase from 19% to 25% in 2023, giving businesses the time to make some of the necessary adjustments. While this is seemingly a fairly sizable increase, corporation tax will remain lower in the UK than in any other country in the G7.
Changes to rules concerning house buying
The holiday on stamp duty for house purchases is set to be extended to the 30th of June. No tax at all will be charged on house purchases on sales less than £500,000. Both of these measures could serve to stimulate the housing market and encourage people to buy homes, in some cases for the first time.
This could help to tackle some of the damage that was done to the housing market in the last year due to the various lockdowns, which made the process of buying a house much more complicated. Zoopla estimated last year that the total number of house sales in 2020 was lower by 124,000 than in the previous year, a clear blow to the industry. However, if consumers had less money in their pockets due to being in some cases unable to work then it would be difficult for them to justify buying a house for lack of funds.
UK Infrastructure Bank
There is good news for nearby Leeds in the 2021 budget – the UK’s first ‘Infrastructure Bank’ is set to be established in the Spring. This Bank will form a central part of the ‘build back better’ campaign that has been championed by the Government, channelling ‘billions of pounds into big projects’ and helping the UK to ‘tackle climate change’ according to the BBC.
Rishi Sunak stated that the aims of the bank will be to invest in ‘renewable energy, carbon capture, storage and transportation’ as well as providing loans to ‘mayors and councils’ to fund local projects. With the upcoming election of our first Mayor, this could mean that considerable funds could be made available for projects in our county, which would each provide a welcome boost to the local economy.
The Infrastructure Bank will also create a number of important Civil Service jobs in the North, partially reversing the recent trend of scaling back public sector jobs here. This could perhaps signal a real interest from the Government in rebalancing the distribution of public sector jobs outside of London – which could be good news for Bradford’s HMRC office that is scheduled to be merged with Leeds’. It would certainly be beneficial for various towns and cities in the North to regain some of the Civil Service offices that have closed in the last few decades.
It was also noted by the BBC that the Infrastructure Bank will help to ‘replace low-cost finance’ that the UK used to receive from the EU, which will surely be a boost to the economy in general as well as in West Yorkshire. The Bank will initially have an ‘initial capitalisation of £12bn,’ allowing for a wealth of projects to be funded in the local and national economic interest.
The public will also be able to invest in ‘new retail savings bonds,’ possibly putting some more much-needed cash into the economy while also helping to grow the savings of the investors concerned.
Further Covid-related investments
£1.65 billion has been pledged in the Budget to support the UK’s national vaccine rollout, which has seen some 20 million people vaccinated so far. To support the UK’s testing capabilities, which have come under fire from Sir Keir Starmer and some in the media many times in the last year, an investment of £50 million has been announced.
A poll by Opinium has shown a level of public support of 52% for the budget. Despite this, a number of criticisms have been made from different sides of the political arena. Following Sunak’s Budget speech in the House of Commons, Starmer asserted his view that ‘while we needed a budget to fix the foundations of our economy, to reward our key workers and protect the NHS’, the actual Budget merely ‘papers over the cracks.’
Starmer also asserted that the Budget ‘shows that the Government doesn’t understand what went wrong in the last decade or what’s needed in the next.’ Such strong words demonstrate a fierce opposition from Starmer, who initially pursued a supportive approach to the Government’s lockdown policies, who might be wanting to woo Labour members who were unimpressed by both the Government and his decision to expel Jeremy Corbyn from the Party in October.
Nevertheless, the Budget demonstrates long-term thinking on the part of the Government, an approach that is much needed after the incredibly high spending of the last year. Given that the national debt only began to decrease during Theresa May’s premiership, the ramifications of the Coronavirus in economic terms might well be just as long-lasting as many have feared.