UK’s corporation tax to rise to 25% as Sunak extends Covid support plan
UK economy will regain pre-pandemic size in mid-2022, says chancellor in budget speech
British chancellor of the exchequer Rishi Sunak: ‘It would also be irresponsible to allow our future borrowing and debt to rise unchecked.’ Photograph: Andy Rain/EPA
Britain’s chancellor of the exchequer has extended most coronavirus support for businesses and individuals until September but announced future tax increases to ease the impact on public finances. The corporate tax rate will rise from 19 per cent to 25 per cent from 2023, so that Northern Ireland’s rate will be twice that of 12.5 per cent south of the Border.
Introducing the budget in the House of Commons, Rishi Sunak said Britain’s fast coronavirus vaccine rollout would help the economy to return to its pre-pandemic size by the middle of next year, six months earlier than previously forecast. But although the economy is predicted to grow by 4 per cent this year and 7.3 per cent in 2022, growth is forecast to slow to 1.7 per cent in 2023, 1.6 per cent in 2024 and 1.7 per cent in 2025.
“First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis,” Mr Sunak said.
“Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that. And, third, in today’s budget we begin the work of building our future economy.”
The furlough scheme, which was due to end next month, will be extended until September although employers will have to pay an increasing share of the cost from July. A £20 (€23) a week emergency increase in social welfare benefits will also continue into the autumn, as will a 5 per cent VAT rate on hospitality.
Businesses reopening after lockdown will be eligible for one-off “restart grants” of up to £18,000 and they can apply for loans from £25,000 to £10 million, with the government offering lenders and 80 per cent guarantee. The government will also guarantee 95 per cent mortgages for first-time buyers in what Mr Sunak said was an attempt to help those who could not afford a higher deposit.
Britain will borrow £355 billion this year or 17 per cent of its national income, the highest level of borrowing since the second world war. Next year’s borrowing forecast is for £234 billion or 10 per cent of GDP. Underlying debt is forecast to rise from 88.8 per cent of GDP this year to 93.8 per cent next year and 97 per cent in 2023, remaining at that level for the next three years.
“The amount we have borrowed is comparable only 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. 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,” Mr Sunak said.
“When crises come, we need to be able to act, and we need the fiscal freedom to act – a freedom that you only have if you start with public finances in a good and strong place. The only reason we have been able to respond as boldly as we have to Covid is because 10 years of conservative governments painstakingly rebuilt our fiscal resilience.”
Income tax thresholds will be frozen until 2026, by which time inflation should mean that 1 million more people will be in a higher tax band and 1.3 million people not currently liable for income tax will pay the basic rate. Inheritance tax, pensions relief, capital gains tax and VAT registration thresholds will also be frozen.
Only businesses with profits in excess of £250,000 a year will pay the full 25 per cent corporate tax rate. Those with profits below £50,000 – about 70 per cent of companies – will continue to pay 19 per cent and the rate will be tapered for those earning between £50,000 and £250,000.
In an attempt to boost Britain’s low productivity by increasing business investment, a new “super-deduction” will allow businesses to claim 130 per cent of investment in their business against their tax bill.
Business groups gave the budget a broad welcome, with the Confederation of British Industry (CBI) saying it “succeeds strongly in protecting the economy now and kickstarting recovery”. But Labour leader Keir Starmer said it “papered over the cracks, rather than rebuilding the foundations” of an economy weakened by 10 years of Conservative government.