Warren MurrayThu, 4 March 2021, 6:31 am
Top story: ‘Extraordinary economic situation’
Good morning – Warren Murray with your know now, rather than later briefing.
Rishi Sunak has brought down a spend now, pay later budget that combines life support for the economy with the biggest tax increases since 1993. The chancellor said he would “go long”– extending many pandemic support measures, including furlough, until the end of September at a cost to the Treasury of £65bn. But two years in which the budget deficit would be the highest in peacetime history meant he had no choice but to freeze personal tax allowances and raise corporation tax from 19% to 25% in one jump in 2023. “It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation.”
The independent Office for Budget Responsibility has pencilled in a rapid bounceback of 7.3% growth next year but even so the long-term damage from Covid-19 is expected to leave the economy 3% smaller in five years’ time than it would otherwise have been. Sunak announced that the personal tax-free allowance and higher rate threshold will be frozen from April 2022 instead of rising in line with inflation, bringing 1.3 million people into the tax system and creating a million higher rate taxpayers by the middle of the decade. In addition, Sunak became the first chancellor since Denis Healey in the 1970s to raise the corporation tax rate – reversing most of the cuts made by George Osborne after 2010. Business will, though, get a new “super deduction” allowing them to offset 130% of the cost of capital investment against tax.
Keir Starmer said Labour would back the corporation tax increase but accused Sunak of failing to fix many of the problems exposed by the pandemic. The Conservatives had “spent a decade weakening the foundations of our economy … they won’t confront what went wrong in the past and they have no plan for the future.” The Lib Dem leader, Ed Davey, criticised the “lack of new money and new ideas for the care sector. Even before the pandemic the social care sector was on its knees.” The coronavirus crisis has hit household finances and Wednesday’s budget included measures to help first-time buyers and the self-employed – as well as news that a temporary increase in universal credit would be extended. We spoke to people about what it would mean for them and their families.