The Budget was certainly highly anticipated as the UK held its collective breath to see what it would contain.
The Chancellor found himself between a rock and a hard place when deciding on the contents of the Budget. Government spending has skyrocketed because of the pandemic, but even more ‘fiscal firepower’ is needed to tide the economy through the summer and to kickstart growth once the public health restrictions end.
The message from the Chancellor was clear: this additional spending comes at a cost and repaying the borrowing will require the attention of future Governments for many years to come, and we should expect a tough fiscal environment ahead.
On the positive side one of the most pleasing aspects of the Government’s response to the pandemic has been the ongoing commitment to “do whatever it takes” to support the economy until it can return to normality. The Budget certainly continued this stance, with the Chancellor delivering an extension to the Government’s economic support package, most notably the furlough scheme and the self-employed income support scheme.
These measures, alongside an extension to business rates holidays, a new recovery loan scheme and a grant scheme for those businesses most affected by the pandemic, should give businesses reassurance that they will make it through the crisis.
Another aspect of the Budget was that Rishi Sunak honoured the Government’s election pledge of not increasing VAT, National Insurance or Income Tax. Instead, he focused on Corporation Tax, which will increase to 25% by 2023.
The Chancellor announced a freeze in the personal tax thresholds at 2021/22 levels until 2025/26, alongside a freeze in the Inheritance Tax thresholds, National Insurance thresholds, the annual exempt amount for capital gains and most notably, the pensions lifetime allowance, which will be frozen at £1,073,100 until 2026.
It may seem like a fairly trivial move to freeze these thresholds and allowances, but freezing the personal tax thresholds alone will save the Government over £19bn by 2025/26, and hopefully the freeze will negate or reduce the need for tax hikes further down the line. Commentators have expressed the view that this may just be the start, with further tax increases expected in the near future. The expectation is that Capital Gains Tax will be the next tax to fall under the Chancellor’s microscope.
Clearly, we are not out of the woods yet and the expectation is for continued volatility in the markets, especially in the short term. The good news is that there is a clear pathway to normality as the vaccination programme gathers pace, which should lead to significant economic growth in the latter part of 2021 and into 2022, with the Office for Budget Responsibility projecting GDP to increase by 4% in 2021 and 7.3% in 2022.
As always, Alan and I hope that you and your loved ones are keeping safe. If you have any queries on our commentary, or would like to discuss the impact of the budget, the changing fiscal landscape, how this may impact you in the future and how you can mitigate this, please do not hesitate to get in touch.
Book your free initial consultation: call us on 0141 632 2406 now