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Budget 2021: key points at a glance

Richard Partington and Peter Walker
·9 min read
<span>Composite: Shutterstock</span>
Composite: Shutterstock

Sunak’s opening remarks

The chancellor says he would do “whatever it takes” during the pandemic, and that he has done and will continue to do so. He says there has been acute damage to the economy, with more than 700,000 people losing their jobs, the economy shrinking by 10% – the largest fall in 300 years, and borrowing is 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 situation,” he says.

Sunak also says he wants to be honest about the government’s plans for fixing the public finances, and set out plans for the future.

Peter Walker, political correspondent: Two likely repeated tropes make an early appearance. First, Sunak stresses the “acute” damage that coronavirus has done to the economy, a not-very-coded warning of difficult decisions to come. There is also an outing for a Brand Sunak buzz phrase – that he will do “whatever it takes” to protect people from the economic impact of Covid.

Growth

  • The chancellor says the economy will recover more quickly from the pandemic than previously thought, with the economy returning to its pre-pandemic size six months earlier, by the middle of next year.

  • He says in five years time the economy will still however be 3% smaller than it otherwise would have been without Covid.

  • GDP will grow by 4% this year, according to official forecasts made by the Office for Budget Responsibility (OBR).

  • GDP will grow by 7.3% next year.

  • In November, the OBR said its “central scenario” was for GDP growth of 5.5% in 2021.

  • It comes after the economy shrank by 9.9% in 2020, the biggest fall since 1709

PW: Yet more caution-and-context from Sunak, who stresses how coronavirus has done “profound damage” to the UK economy. Again, this is a warning to MPs and the public to expect tax rises, if not immediately then in the near future.

Furlough

  • The chancellor says unemployment will peak at 6.5%, down from a forecasted peak of 11.9% last July. That means 1.8 million fewer people are expected to be out of work than previously thought, he says.

  • Sunak confirms the extension of the furlough scheme until the end of September, as previously announced late on Tuesday.

  • 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.

  • Sunak also confirms the self-employment income support scheme has also been extended. The fourth grant will cover February to April, worth 80% of average trading profits up to £7,500.

  • The £20-a-week uplift in universal credit is extended for six months.

PW: The extension of furlough and the extension of support to self-employed people are among the many pre-trailed elements of this budget, and none of this is a surprise. Similarly, the six-month extension of the universal credit uplift was also briefed in advance. Politically, this is still the (relatively) easy part of Sunak’s job. By the time of the next budget, he – or another chancellor – could be facing a significant jobs crisis.

Business support

  • The chancellor confirms the £5bn restart grant for businesses to help companies get going after lockdown.

  • He says total direct cash support to businesses has reached £25bn.

  • As the government-backed bounce back loan (BBL) and coronavirus business interruption loan scheme (CBILS) come to an end, the Treasury is launching a new loan scheme to run until the end of the year. Loans can be between £25,000 and £10m.

  • Hospitality and leisure businesses pay no business rates for three months, then rates will be discounted for the remaining nine months of the year by two-thirds, in a £6bn tax cut.

  • 5% reduced rate of VAT will be extended until the end of September. Then it will be gradually increased, at 12.5% for six months, before returning to the standard rate from April 2022. Sunak says this is a cut worth £5bn.

PW: Yet more money being sprayed around to support businesses recovering from Covid. Once more, a fair bit of this was known in advance. We are almost 15 minutes into the speech, without any big surprises. We are a long way from the era when every detail in a budget was kept locked away until announced in the Commons.

Housing

  • Sunak announces the stamp duty holiday will be extended.

  • As expected, stamp duty holiday on properties up to £500,000 continues until the end of June. It will be kept at double its standard level until the end of September, and then return to usual levels from 1 October.

  • The chancellor confirms a mortgage guarantee to help first-time buyers access 95% mortgages.

PW: Without wishing to sound like a broken record, the extension of stamp duty cut and help for 95% mortgages were both widely trailed. It is more or less an annual feature of recent budgets that they promise to extend the ability of people to buy properties, but very little seems to change, as prices rise ever more.

Spending

  • Total Covid support package this year and next is £352bn, the chancellor says.

  • Sunak says the response to the pandemic has been one of the largest and most sustained the country has ever seen.

PW: It is not the norm for Conservative chancellors to boast about how much money they have spent. But these are very much not normal times.

Borrowing

  • Sunak says the budget deficit will be £355bn this year, or 17% of GDP – the highest level in peacetime.

  • He says without corrective action, borrowing would continue at very high levels, leaving underlying debt rising indefinitely.

  • Because of the actions he is taking, he says borrowing will fall to 4.5% of GDP in 2022-23, then to 3.5% in 2023-24, then 2.9 and 2.8% in the following two years.

  • The national debt – the sum total of every budget deficit – will rise from 88.8% of GDP this year to 93.8% next year, it will peak at 97.1% in 2023-24, before stabilising and falling slightly to 97% and 96.8% in the final two years of the forecast.

  • In November, the OBR estimated a budget deficit – the gap between spending and receipts – of £394bn for 2020-21.

  • The chancellor says this matters because the amount borrowed is only comparable to the two world wars. “It’s 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,” he says.

PW: If anyone listening might have briefly forgotten that Sunak is in fact a Tory chancellor, the grave tone he takes in talking about borrowing serves as a reminder. We are still, politically, some way from the Cameron/Osborne austerity era, but Sunak gives this an approving shout-out – something more for the Conservative backbenchers than the watching public.

Fixing the public finances

  • The chancellor says the government will take a “fair” approach to “fixing the public finances”.

  • The government will not raise national insurance, income tax or VAT, but will freeze personal tax thresholds – as anticipated.

  • The personal allowance will remain at £12,750 until 2026. The higher-rate threshold will increase to £50,270 next year, and also remain at that level.

  • The inheritance tax threshold, pensions lifetime allowance, annual exempt allowance from capital gains tax and VAT exemption threshold will also be frozen.

Corporation tax

  • In April 2023, the rate of corporation tax will increase to 25%. Sunak says this will be the lowest rate in the G7.

  • Sunak says businesses will only be impacted if they are making profits, and the change will only come in once the OBR forecasts the economy will be recovering.

  • The rate will be tapered so that only businesses with profits of more than £250,000 will be taxed at the full 25% rate; that means only 10% of companies will pay the full higher rate. Companies with profits of less than £50,000 will remain at 19%.

  • “It’s a tax rise on company profits, but only on the larger more profitable companies, and only in two years’ time,” Sunak says.

  • The government is investing £25bn by allowing a 130% super-deduction on tax for investments made by companies. This means firms can cut their taxes by up to 25p for every pound they invest.

PW: This is quite a pretty big rise, but the deferment to 2023 and other measures are calculated to muffle business protests. Labour – which has only said it will oppose immediate tax increases – will now have to decide whether it will back it. For the other measure, in political terms, freezing personal tax thresholds is something of a stealth tax – it’s a benefit deferred, not a penalty imposed, even if Sunak says he is being very open about this.

PW: In Brand Sunak terms, “super-deduction” isn’t quite as snappy as “eat out to help out”, and the chancellor has to use an example to better explain exactly what he means, but it will be seen as a countermeasure to the corporation tax increase, and wins some cheers from his MPs.

Duties

  • Alcohol duties will be frozen for the second year in a row.

  • Fuel duty will also be frozen.

PW: The freeze to fuel duty was, once again, widely expected, and is a testament to the astonishingly strong lobbying efforts by Tory backbenchers on this front, which continue to reap success, year after year, whatever other green measures or targets.

Low-carbon investment

  • The chancellor announces the new national infrastructure bank will open in Leeds with £12bn capitalisation from the government.

  • Green projects will be supported through a green recovery bond.

  • The chancellor says the Treasury will reform the Bank of England’s mandate to include targeting net zero, in addition to the existing 2% inflation target.

PW: The green announcements – also now more or less obligatory in budgets – are fairly modest, and you can expect Labour, especially the shadow business secretary, Ed Miliband, to argue this is an opportunity missed for a post-Covid green revolution.

Levelling up

  • The chancellor confirms the Treasury will establish an economic campus in Darlington, alongside the business, international trade, and housing and communities departments among others.

  • Sunak announces more than £1bn funding for 45 new “town deals” across the UK.

  • Freeports – special economic zones with different rules to make it easier and cheaper to do business – will be launched. They will include infrastructure planning, customs and favourable duties and taxes.

  • Sunak announces eight locations in England: East Midlands airport, Felixstowe and Harwich, Humber, Liverpool city region, Plymouth, Solent, Thames and Teesside.

PW: The idea of shunting government departments to non-London locations has long been a popular one, but can seem symbolic, and as ever, the idea of “levelling up” still feels slightly nebulous. Much of the Conservatives’ 2024 election chances will depend on being able to make it feel to voters like it is something genuine.