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Rishi Sunak will use the budget on Wednesday to set out further government support before lockdown ends, alongside steps to reboot Britain’s economy from the worst recession in 300 years.
The chancellor is expected to extend spending measures, tax breaks and government grants to help soften the blow from Covid-19 for businesses and their workers before restrictions are eased in-line with the government’s roadmap over the coming months. Sunak will also aim to lay the foundations for a post-Covid recovery, while addressing the impact of the pandemic on the public finances.
Forecasts Gross domestic product (GDP) shrank by 9.9% in 2020 – the worst performance since 1709 – and the economy remains under pressure. However, official forecasts due on Wednesday from the Office for Budget Responsibility could paint a rosier picture, as progress administering the vaccine paves the way for a swift recovery later this year.
Public finances The budget is expected to pave the way for higher taxes or spending cuts in future as government borrowing hits a peacetime record this year. The budget deficit – the gap between spending and income – is expected to come in at about £370bn for the 2020-21 financial year.
Grants The chancellor will offer £5bn in government grants to businesses in retail, hospitality, accommodation, leisure and personal care. Grants of up to £18,000 each for 700,000 firms will be made available to prevent mass bankruptcies during the latest lockdown.
Rates relief An extension in the temporary 100% tax cut for hospitality, retail and leisure is expected. A fundamental review is rumoured to have been delayed until the autumn, possibly to allow time for an online sales tax to be developed.
Hospitality sector VAT Already extended once, the temporary reduction from 20% to 5% is likely to be extended to the summer, possibly for three months beyond the current 31 March cutoff. A delay could add £800m to the estimated £3.3bn cost so far.
Support for workers
Furlough extension Sunak will announce an extension until the end of September to support the economic recovery from Covid. Employees will continue to receive 80% of their wages until the scheme ends, but firms will be asked to contribute 10% in July and 20% in August and September as the scheme is gradually phased out.
Self-employed Grants of up to £7,500 will be available from next month for three months, including an expansion in the scheme to allow those who started working for themselves in the 2019-20 financial year to make claims.
Universal credit The temporary £20 per week uplift in universal credit benefits is earmarked for a six-month extension. Due to be cut at the end of March, charities warn that a limited extension is insufficient for tackling rising poverty.
Stamp duty A three-month extension until the end of June is expected at a cost of about £1bn to the exchequer. It is designed to avoid a cliff-edge in the property market in March before the economy has recovered.
The government will also launch a scheme to bring back 95% mortgages, which are mainly used by first-time buyers and in short supply due to the pandemic.
Corporation tax A gradual increase has been widely touted, reversing cuts instigated by George Osborne to the current rate of 19%. Among the lowest rates in the wealthy world, it is expected to be raised by anywhere up to 25%. With the US planning a rise from 21% to 28%, the UK would remain the lowest in the G7. Each percentage point rise would provide an extra £3bn in annual receipts.
Income tax Although the Tories promised not to raise income tax, national insurance or VAT before the 2019 election, Sunak is expected to freeze the threshold for the 20% basic rate of income tax at £12,500 and £50,000 level for the 40% rate for three years. It would bring 1.6 million people into a higher bracket by 2024, raising about £11bn.
Pension tax A restriction on the amount wealthier people can put into their pensions to £1m over their lifetime could save £250m in tax relief. About 1.2 million people are projected to exceed the threshold by the time they start drawing on their private or occupational pension.
Green bonds Sunak will unveil what is expected to be the world’s first government green bond. Offered through NS&I it will allow savers to invest in a product that will contribute towards green projects.
Electric cars The budget is expected to roll out further measures to bring down carbon emissions, including a more extensive electric vehicle-charging network. However, fuel duty is set to be frozen.
Arts and sport
Arts and culture Funding worth £410m will be earmarked, including support for museums, theatres and galleries.
Sport Sunak will announce £300m of funding for sport to help the sector through lockdown and into the summer, including for cricket. Funding of £2.8m for a UK and Ireland bid for the 2030 World Cup will also come alongside £25m for grassroots football.
Freeports More than 30 bids were received for 10 freeports – areas with lower tax or customs requirements – to be created around the UK. Sunak is expected to announce the winners in the budget. The chancellor could also reveal a location for the Treasury’s new economic campus – with Darlington thought to be among frontrunners.
National infrastructure bank Plans for a launch this spring will include £12bn of capital funding and £10bn of state guarantees in the budget. The government will also invest £375m more into its Future Fund for fast-growing high-tech companies.
Vaccine rollout A further £1.65bn will be made available to help meet the government’s target for every adult to be offered a Covid jab by the end of July.
Source: The Guardian
Keyword: From forecasts to furlough: what to expect in the budget | Budget 2021