Chapters Financial News

Rishi Sunak MP has been Chancellor of the Exchequer for just over a year at the time of writing (03 March), having been promoted to the role on 13 February 2020. I am not sure that even he could have predicted the rollercoaster of a year that we have experienced in terms of the UK's finances and the billions provided to support individuals, businesses and the wider economy through the coronavirus pandemic. He has been balanced in his approach thus far, and it was interesting to listen to his speech from Westminster.

The Budget was originally planned for October 2020; sensibly, though, this was cancelled because of the difficulty of implementing economic measures and changes when the pandemic situation was changing so rapidly.

We often comment at the time of a Budget that the Chancellor of the time is 'stuck between a rock and a hard place'. This has never been a truer statement, and although he has been relatively cautious on tax rises on this occasion, to give the economy more time to recover, we do anticipate a more aggressive stance in an Autumn Statement (or indeed second Budget) later this year.

The Budget was very much about cash flow: encouraging the release of stockpiled cash through new investment to stimulate the economy, jobs and growth, whilst restraining tax increases.

As the Chancellor noted in his three-point plan, the priority continues to be supporting the UK to recover from the deep economic effects of COVID-19. The rapid roll-out of vaccinations is an important element in this recovery – however, the fact remains that Government borrowing is at record levels, as noted below, and this will need to be addressed. The historically low interest rate environment is in the Government's favour, making borrowing extremely cheap, and we do believe that this situation is set to continue for some time, although there are no guarantees. In addition, we may see inflation start to creep up over the short to medium term, which would help to erode the UK's debt. Please note that usually the 'devil is in the detail' for Budget plans and I am sure this will be no different in allowing him to gently raise taxes without any headline changes.

We have put together some key headlines of today's Budget which we hope will be helpful.

Coronavirus

• The furlough scheme will be extended until September 2021 to protect as many jobs as possible. The scheme currently pays 80% of employees' wages for hours not worked, with a cap of £2,500 per month. Employers will be expected to pay 10% towards the hours their staff do not work in July, increasing to 20% in August and September.
  • HMRC data shows that 9.6 million workers were covered by the UK furlough scheme at its peak in the spring of 2020.
• Access to grants for self-employed people will also be extended until September 2021. A fourth grant will cover the period from February until April 2021, and a fifth and final grant from May onwards. These grants will target those who have been most affected by the pandemic: for those whose turnover has fallen by 30% or more, support will be up to a maximum of 80% of average trading profits. For those whose turnover has fallen, but by less than 30%, support will be up to a maximum of 30%.
• High street shops and hospitality firms will be able to apply for a grant from a £5bn fund, up to £18,000 per firm, to help them re-open after lockdown.
• Maintenance of the low VAT rate for hospitality and tourism (see below).
• Recovery packages for the arts, culture and sports were also announced.

Government debt and the state of the UK economy

• The UK's national debt has reached its highest level since 1963 as a result of the cost of support measures over the coronavirus pandemic.
• The Office for Budget Responsibility (OBR) notes that the UK has borrowed £355bn this year, 17% of national income – the highest amount in any year since WWII.
• Borrowing is projected to fall to 4.5% of GDP in 2022/2023, 3.5% in 2023/2024 and 2.9% and 2.8% in the following two years.
• Underlying debt is projected to rise from 88.8% to 93.8% of GDP next year, peaking at 97.1% in 2023/2024 before stabilising and falling slightly to 97% and 96.8% in the final two years of the forecast.
• According to the ONS, unemployment is currently 5.1%, the highest figure for five years, and most economists expect this rate to continue rising in 2021 and to peak at 6.5% next year, lower than the 11.9% previously predicted. Young people have been hit particularly hard by the employment issues caused by the pandemic, with workers under the age of 24 accounting for nearly 50% of the fall in employment.

Personal Finances

• The personal income tax allowance will rise to £12,570 in April 2021, as planned, and will then be frozen from 2022 to 2026.
• The higher rate income tax threshold will rise to £50,270 in April 2021, as planned, and will then be frozen from 2022 to 2026.
• The Inheritance Tax threshold will be maintained at the existing level of £325,000 until April 2026.
• The Lifetime Allowance (LTA) for pension benefits will be frozen at its current level of £1,073,100 until April 2026.
• The annual exempt amount for capital gains (CGT) will be maintained at its existing level of £12,300 until April 2026.
• The adult ISA allowance will remain unchanged at £20,000 and the JISA and Child Trust Fund allowance at £9,000 for tax year 2021/2022.
• The stamp duty holiday (£500,000 nil rate band) has been extended to 30 June – it was planned to end on 31 March. To smooth the transition back to normal, the nil rate band will be £250,000 until the end of September and will return to £125,000 on 01 October 2021.
• For homebuyers who can only afford a deposit of 5%, a new mortgage guarantee scheme will enable all UK homebuyers to secure a mortgage up to £600,000 with a 5% deposit.
• The Universal Credit uplift of £20 will continue for a further six months (and equivalent support for those on working tax credits).
• The minimum wage will increase to £8.91 per hour from April 2021.
• The contactless payment limit will rise to £100 later this year (was £30, raised to £45 less than a year ago).
• A 'green' retail savings product will be available through NS&I in the summer of 2021. This will give UK savers the chance to take part in the collective effort to tackle climate change.

Business finances

• From April 2023, the rate of corporation tax paid on company profits will increase to 25%. The rate of corporation tax will remain at 19% for those businesses generating profits of £50,000 or less. The rate will taper for profits above this level, so only businesses with profits of £250,000 or more will be taxed at the full 25% rate.
• A 'super-deduction' to encourage businesses to use their cash reserves and invest: for the next two years, when companies invest, they can offset 130% of the cost against their tax bill.
• More generous tax treatment of losses for the next two years.
• Restart Grants will be available from April to help businesses reopen and get going again – as noted above, businesses such as hospitality and personal care, which have been more affected by the pandemic and will open later, will be able to apply for grants up to £18,000. Non-essential retail businesses will receive up to £6,000 per premises.
• The 100% business rates holiday in England for retail, hospitality and leisure will continue at 100% until the end of June 2021. For the remaining nine months, a discount of 66% will apply, up to a maximum of £2M, with a lower cap for those businesses that were able to remain open.
• The reduced rate of VAT of 5% for the hospitality and tourism industry will be extended for six months to September 2021. Following this, an interim rate of 12.5% will apply until April 2022, at which point the standard VAT rate of 20% will apply.
• The incentive payment to take on a new apprentice (of any age) will be doubled to £3,000.

UK infrastructure and growth

Eight new English Freeports will be established – these are special economic zones with favourable tax and planning rules to make it easier and cheaper to do business.

Investment in renewable energy projects and infrastructure

Reforms to the UK immigration system to help attract highly skilled workers.

The Treasury and other critical government departments to establish a new economic campus in Darlington.

…and for full details

The notes above are only part of the headlines revealed in today's speech, and full details may be found here: https://www.gov.uk/government/news/budget-2021-what-you-need-to-know

Summary

We hope this update is helpful in looking at today's Budget. If you need help with your own financial planning, then please contact the team at Chapters Financial Limited and please note that no individual advice has been provided during the course of this blog.

Don't forget that the end of this tax year is approximately a month away (effectively falling early this year), which is not long if you need to achieve updates to your financial planning in time.

Keith Churchouse FPFS

Director

CFP Chartered FCSI

Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.