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- Rishi Sunak on Wednesday announced a further £65 billion worth of fiscal measures for the year, bringing the government’s total support aimed at recovery from COVID-19 to £407 billion.
- To restore public finances, the UK government hiked the rate of corporation tax from 19% to 25%.
- Sunak’s tax move could encourage higher earners to drive businesses away from the UK, a CEO said.
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The cost of total fiscal support to aid the UK’s recovery from the coronavirus pandemic reached £407 billion ($568 billion) after Chancellor Rishi Sunak pledged a £65 billion ($90 billion) support plan on Wednesday.
The UK is one of the most affected countries by the pandemic in Europe, with over 4 million cases and 123,000 fatalities. Sunak’s three-point plan is aimed at protecting jobs and strengthening public finances.
He said his immediate priorities would be to support those hardest hit, by extending the furlough program until September, support the self-employed, extend business grants, loans, and VAT cuts. “This Budget meets the moment with a three-part plan to protect the jobs and livelihoods of the British people,” he said in remarks to parliament on Wednesday.
“The new restart grants, as well as the extension of furlough and the business rates holiday, will be vital news for brick-and-mortar retail stores, particularly for non-essential retail forced to close during lockdown,” said Elle Nadal, director of marketing, EMEA at Iterable. “Business leaders will be keen to use the package of government support to ease the transition out of lockdown, protecting jobs and helping the sector to bounce back from the darkest days of the pandemic.”
Britain has the highest death toll from COVID-19 in Europe. It has also suffered the most economic damage from among the G7 nations. The country is still in the midst of a national lockdown that has been in effect since early January, although the impact on mobility and economic actitivity has been more muted than the first shutdown in spring 2020, according to analysts’ estimates.
To further restore public finances, Sunak said Britain’s rate of corporation tax will increase from 19% to 25%. The increase won’t come into effect until 2023 to support recovery.
The corporation tax rate increase is disappointing, but it was inevitable that tax rises would happen and it primarily affects groups of companies that are profitable, said Melissa Christopher, Executive Director at ZEDRA. “The revised loss rules will help those companies who have struggled during the pandemic and will take a couple of years to recover,” she said.
Sunak’s tax move could encourage higher earners to consider international options and drive businesses away from the UK, according to Nigel Green, CEO and founder of financial advisory firm deVere Group.
“Whilst Sunak is being hailed a hero for the continued and unprecedented levels of support, it should also be remembered that he is – in a stealth move – dragging more people firmly into the tax net,” Green said. “He is raising taxes under the radar. Yes, there is no income tax rise. However, he is freezing personal tax thresholds, meaning as incomes rise and thresholds don’t, he is able to raise money by fiscal drag.”
The UK’s 2021 budget was announced a little over a week after Prime Minister Boris Johnson laid out a roadmap that reveals the gradual unwinding of COVID-19 restrictions lasting until June 21.
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