Rishi Sunak delivered his second Budget today, setting out both short term plans to drag the economy through the later stages of the pandemic and to rebuild afterwards from the ‘profound damage’ that it has done. This was the first Budget following the end of the transition period with the EU and it was notable the Chancellor did not commit any time to what was a hugely significant event.
The short term measures announced link to the Prime Minister’s plan to gradually lift lockdown: furlough, the business rates holiday, and the uplift in Universal Credit have all been extended, and new plans including a grants scheme for highstreets set out to ‘cushion’ businesses and employees as the economy starts to reopen. Many of the plans are slightly more long-lasting than originally anticipated, for instance furlough will continue in its current form until June (the date at which the Prime Minister hopes to end all controls on social contact) but then taper off until September. This is designed to avoid a cliff edge of job losses early in the summer, but also may be helpful if government feels the need to extend lockdown measures.
These plans will cost at least £20bn and came with a warning from the Chancellor that “once we are on the way to recovery, we will need to begin fixing the public finances”: in other words, expect tax rises ahead. Of particular note, Corporation Tax is due to rise from 2023 to 25%, which the Chancellor noted would still mean the lowest rate in the G7. The full new rate will only be paid on profits over £250,000, meaning that in total only 10% of companies are likely to pay the full higher rate.
However, in a well-trailed budget the Chancellor did pull one rabbit out of the hat on business tax: a Super Deduction meaning that for the next two years when businesses invest in new equipment they can offset all the cost against tax, plus an additional 30%. The measure is aimed at encouraging those companies which have amassed cash during the pandemic to spend it in a way that boosts productivity.
The Budget and Investment Management
This budget was always going to be focused on pandemic recovery, but the stark message from the Chancellor about the scale of the response needed (“the work of many governments, over many decades”) demonstrated how government’s focus is solely on rebuilding. In the coming years, they will be particularly interested in the way that our industry can support this. Measures announced (or re-announced) to support this include:
- The Chancellor confirmed that the UK will launch its first green savings bonds this summer, worth at least £15 billion, letting investors buy into projects dedicated to greening the economy such as renewable energy schemes, in a programme managed through NS&I. The Chancellor also announces plans for a green retail product to be offered through NS&I later in 2021. A new group, chaired by Dame Clara Furse, will be established to help the City as the leader of the global voluntary carbon markets for high-quality offsets, and the Bank of England’s MPC will be given a new mandate to consider the importance of environmental sustainability and the transition to net zero.
- A new National Infrastructure Bank, to be located in Leeds, to provide financing support to private sector and local authority infrastructure projects. The Bank will be able to deploy £12 billion of equity and debt capital and be able to issue up to £10 billion of guarantee
- The Chancellor welcomed Lord Hill’s review of the listing rules, designed to help London better compete with New York and Hong Kong to attract IPOs. He promised to work with the FCA following its commitment to bring forward consultations on changes to their rules on issues raised by the review.
- A consultation within the next month on whether certain costs within the pensions charge cap affect pension schemes’ ability to invest in a broader range of assets. This aimed at ensuring pension schemes are not discouraged from such investments and are able to offer the highest possible returns for savers. The IA will be seeking further information on this consultation.
- Government will commit £375 million to Future Fund: Breakthrough, a new direct co-investment product to support the scale up of the most innovative, R&D-intensive businesses.