A balanced budget is always thought to be a good thing. The 2021 Budget, however, is a case of a huge amount of give followed by a big, big take. Ruth Dooley, Partner at Hazlewoods reviews the 2021 budget.
The ‘Red Book’ is released soon after the Chancellor sits down having given the Budget speech. The table that shows what is really happening behind the words, is the “tax and spend” summary of the policy decisions announced in that Budget for the next five years.
In boring years, the numbers in the table are relatively small, but in more interesting times (such as now!) the figures are in the billions rather than the millions. As a result of the economic problems caused by the coronavirus pandemic the numbers for the 2021 Budget are some of the biggest I have ever seen.
As Rishi highlighted in his speech, the pandemic means that Government spending to help the economy is at a level not seen since the Second World War. The COVID-19 assistance from the Government alone announced in the Budget will cost nearly £37 billion, let alone the expenditure that has been incurred to date. But this is all about continuing to support businesses and workers through this crisis in a way that allows revival rather than redundancies and bankrupt businesses, so must be welcomed.
The big hope is for a V-shaped recovery. For that, not only is it hoped that the consumer will want to start spending big time once lockdown restrictions are released (using the cash they have saved over the last year or so), but also that businesses will also want to splash the cash sitting on their corporate balance sheets. Corporate investment was an issue even prior to COVID-19 and the Government has therefore decided to provide an unprecedented tax incentive to encourage capital expenditure by companies. A two-year ‘super deduction’ was announced at a 130% rate mainly for plant and machinery expenditure which is expected to cost at least £12 billion each year to the Exchequer.
That’s the give; then comes the take. The ‘biggy’ here is the increase in corporation tax rates in one jump from 19% to 25% in April 2023. This is expected to reap £12 billion for the Treasury in its first year; £16 billion the following year and £17 billion in the year after that. The other big take, which may surprise some, is the revenue generated by freezing the income tax personal allowance and tax bands, which by 2025-26 is expected to generate £8 billion of extra income for the Government.
The total figures for each year are eye-watering in both directions. The total cost of the Budget measures in this coming year and year after is forecast at almost £67 billion but this swings around to £68 billion being generated for the Exchequer between 2023-24 to 2025-26. These numbers almost net off to zero, so perhaps it was a balanced budget after all!