Rishi Sunak delivers spend now, tax later Budget to kickstart UK economy

Rishi Sunak has delivered a spend now, tax later Budget to kickstart the UK’s economic recovery from coronavirus with a boost to business investment followed by the largest tax rises on companies and households for a generation.

In the two coming financial years, the chancellor will spend £65bn supporting jobs, investment and the recovery as the country recovers from the Covid-19 crisis. But this will be followed by £25bn a year of corporate tax and income tax rises by the middle of the decade.

The corporation tax increase in 2023 from 19 per cent to 25 per cent will raise £17bn a year, ensuring that corporate profits are taxed more heavily in Britain than in most other advanced economies, once allowances and deductions are included.

To cushion the blow and encourage companies to invest in Britain before the tax rises kick in, Sunak included a £25bn “super deduction” tax break for companies to spur investment in what he called the “biggest business tax cut in modern history”.

Sunak said the two-year tax break would allow companies to deduct 130 per cent of their investment from their taxable income, cutting their taxes by the equivalent of 25p in the pound. The move is part of an effort to kickstart a recovery from the worst economic crisis in living memory.

The chancellor’s corporation tax hike from 19 to 25 per cent in 2023 was a much sharper increase than expected by business leaders, as the government tries to get to grips with the cost of its spiralling pandemic debts. He insisted that the headline rate of 25 per cent meant the UK would still have the lowest corporation tax rate in the G7.

The increase in corporation tax is equivalent to an annual £17bn a year hit to company earnings by 2025, while freezes in the personal income tax threshold will generate an estimated £8bn a year by that time.

The Office for Budget Responsibility, which advises the government, said the tax rises announced would bring the tax burden in 2025-26 to the highest level since Roy Jenkins was chancellor in the late 1960s. It predicted that the economy would still be 3 per cent smaller by 2026 than its pre-pandemic forecast.

Sunak warned that the UK economy would still be scarred by the Covid-19 crisis in five years’ time as he extended state support measures into the summer — taking the state bill for tackling the pandemic to £407bn over two years.

“The amount we’ve borrowed is only comparable with the amount we borrowed during the two world wars. It is going to be the work of many governments, over many decades, to pay it back,” he said.

The government will have borrowed £355bn this year and £234bn next year to deal with the fallout from repeated lockdowns designed to prevent a health catastrophe, according to the OBR.

“Over the long term we cannot allow our debt to keep on rising,” Sunak told MPs. “It would be irresponsible to allow our future borrowing and debt to go unchecked. Once we are on the way to recovery, we will need to begin fixing the public finances.”

Sunak insisted that the unprecedented interventions since last March had been necessary to prevent a jobs crisis — although he conceded that 700,000 people had lost their job since then.

He outlined several tax-raising moves in an attempt to demonstrate his desire to get to grips with the black hole in the public finances.

Those steps included the freezing of personal tax allowances, the pensions lifetime allowance and the capital gains tax allowance as well as the sudden rise in corporation tax in two years, which will anger many Conservative MPs.

At the same time, the chancellor highlighted the imminent creation of an infrastructure bank, based in Leeds, and a “Treasury North” outpost of the Treasury in Darlington.

He announced that new freeports would be created — with tax and planning advantages — at East Midlands airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.

Sunak confirmed that the government would extend a vast package of Covid-19 support until the end of September, several months after restrictions are currently scheduled to end. In total, the extension is worth about £20bn, including an extension of the business rates holiday and a £5bn grant scheme for the high street.

The furlough scheme, which had been due to end in April, will now extend until June in its current form with the state paying 80 per cent of workers’ salaries. There will be a gradual phasing out until the end of September as employers pick up a bigger share of wages of laid-off staff.

The Treasury will extend help for the self-employed by offering to pay 80 per cent of three months’ average trading profits. But that support will be much lower for those where turnover has fallen by less than 30 per cent.

And it will keep a current £20-a-week uplift to the universal credit — the main form of benefit — until September, paid through a one-off payment of £500.

Sunak said he would extend a cut in value added tax for hospitality and tourism — currently down from 20 per cent to 5 per cent — until September. After that, a reduced rate of 12.5 per cent will kick in until April next year.

Homebuyers were offered an incentive with the continuation in a stamp duty holiday for buyers of properties under £500,000, which will continue until June 30. Beyond that point, there will be a £250,000 threshold — double the usual rate — until September.

Cultural and artistic venues and institutions received £700m of new funding while Sunak also announced a doubling in the incentive payments to companies taking on new apprentices to £3,000.

Keir Starmer, leader of the Labour opposition party, said the Budget was not the “transformative” announcement required by the UK — and instead just “papers over the cracks”.

Starmer said the Budget failed to tackle Britain’s “deep-rooted insecurity and inequality” and said the chancellor had been silent on protecting the NHS and tackling the care homes crisis.