LONDON, March 3 (Reuters) – Finance minister Rishi Sunak on Wednesday announced a costly extension of his emergency aid programmes to see the economy through its current coronavirus lockdown, but announced a tax hike for many businesses from 2023.
Below are highlights of what he said in his speech:
“In 2023, the rate of corporation tax, paid on company profits, will increase to 25%.”
“I’m protecting small businesses with profits of 50,000 pounds or less, by creating a Small Profits Rate, maintained at the current rate of 19%. This means around 70% of companies – 1.4 million businesses – will be completely unaffected.”
“Today I can announce the ‘Super Deduction’. For the next two years, when companies invest, they can reduce their tax bill not just by a proportion of the cost of that investment, as they do now or even by 100% of the cost, the so-called full expensing some have called for, with the Super Deduction they can now reduce their tax bill by 130% of the cost.”
“This will be the biggest business tax cut in modern British history.”
“The OBR now expect the economy to return to its pre-covid level by the middle of next year – six months earlier than they previously thought.”
“The OBR forecast that our economy will grow this year by 4%, by 7.3% in 2022, then 1.7%, 1.6% and 1.7% in the last three years of the forecast.”
FURLOUGH SCHEME EXTENSION
Britain will extend its job-protecting furlough programme by five more months until the end of September and expand support for the self-employed too.
“For employees, there will be no change to the terms – they will continue to receive 80% of their salary, for hours not worked, until the scheme ends. As businesses reopen, we’ll ask them to contribute alongside the taxpayer to the cost of paying their employees. Nothing will change until July, when we will ask for a small contribution of just 10% and 20% in August and September,” Sunak said.
“Next year, as we continue our unprecedented response to this crisis, borrowing is forecast to be 234 billion pounds, 10.3% of GDP – an amount so large it has only one rival in recent history; this year.”
“Because of the steps I am taking today, borrowing falls to 4.5% of GDP in 2022-23, 3.5% in 2023-24, then 2.9% and 2.8% in the following two years. And while underlying debt rises from 88.8% of GDP this year to 93.8% next year, it then peaks at 97.1% in 2023-24, before stabilising and falling slightly to 97% and 96.8% in the final two years of the forecast.”
“This government is not going to raise the rates of income tax, national insurance, or VAT. Instead, our first step is to freeze personal tax thresholds.”
MORE GRANTS FOR PANDEMIC-HIT BUSINESSES
Sunak announced 5 billion pounds ($7 billion) of additional grants to help businesses hit hard by pandemic lockdowns. Shops, bars, clubs, hotels, restaurants, gyms and hair salons will be among nearly 700,000 companies eligible for new direct cash grants of up 18,000 pounds.
VAT CUT EXTENSION FOR HOSPITALITY, TOURISM
“One of the hardest hit sectors has been hospitality and tourism: 150,000 businesses that employ over 2.4 million people need our support. To protect those jobs, I can confirm that the 5% reduced rate of VAT will be extended for six months to 30th September.”
BUSINESS RATES HOLIDAY FOR RETAIL, LEISURE SECTORS
“Last year, we provided an unprecedented 100% business rates holiday, in England, for all eligible businesses in the retail, hospitality and leisure sectors.”
“We’ll continue with the 100% business rates holiday for the first three months of the year, in other words, through to the end of June. For the remaining nine months of the year, business rates will still be discounted by two thirds.”
STAMP DUTY HOLIDAY EXTENSION
“I can announce today the 500,000 pound nil rate band will not end on 31st of March, it will end on the 30th of June. Then, to smooth the transition back to normal, the nil rate band will be 250,000 pounds, double its standard level, until the end of September – and we will only return to the usual level of 125,000 pounds from October 1st.”
NEW MORTGAGE GUARANTEE
“Lenders who provide mortgages to home buyers who can only afford a 5% deposit, will benefit from a government guarantee on those mortgages.”
NEW INFRASTRUCTURE BANK
“I can announce today the first ever UK Infrastructure Bank. Located in Leeds, the Bank will invest across the UK in public and private projects to finance the green industrial revolution. Beginning this spring, it will have an initial capitalisation of 12 billion pounds and we expect it to support at least 40 billion pounds of total investment in infrastructure.”
GREEN SAVINGS BONDS
“Today we’re…announcing a new, retail savings product to give all UK savers the chance to support green projects.”
FUEL, ALCOHOL DUTIES
“I can confirm that the planned increases in duties for: spirits like scotch whisky, wine, cider and beer, will all be cancelled. All alcohol duties frozen for the second year in a row.”
“The planned increase in fuel duty is also cancelled.”
Britain will modernise its listing rules to attract more high-growth and “blank cheque” SPAC company flotations to London, Sunak said.
CULTURE, ARTS, SPORTS
“We’re making available 700 million pounds to support our incredible arts, culture and sporting institutions as they reopen; Backing the UK and Ireland’s joint 2030 World Cup bid, launching a new approach to apprenticeships in the creative industries, and extending our 500 million pounds film and TV production restart scheme.”
“Our Freeports will have simpler planning – to allow businesses to build; infrastructure funding – to improve transport links; cheaper customs – with favourable tariffs, VAT or duties; and lower taxes – with tax breaks to encourage construction, private investment and job creation.”
“I can announce the eight freeports locations in England: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.”
DETAILED – CORPORATE TAX
Britain will raise its corporation tax on the biggest and most profitable companies to 25% from 19% from 2023, the first hike in nearly half a century, but it will temper the burden with a “super deduction” to spur investment.
Finance minister Rishi Sunak, unveiling his budget in the British parliament on Wednesday, said the tax increases were fair given the vast state support to businesses during the COVID pandemic.
“The government is providing businesses with over 100 billion pounds of support to get through this pandemic so it is fair and necessary to ask them to contribute to our recovery,” Sunak told parliament.
“Even after this change, the United Kingdom will still have the lowest corporation tax rate in the G7,” Sunak said.
The corporation tax hike – by far the biggest tax increase announced by Sunak in the budget – will come in from 2023, when the economy is expected to regain its pre-pandemic size.
The measure is forecast to raise 11.9 billion pounds in the 2023-2024 tax year, rising to 17.2 billion pounds in 2025-26.
Sunak said Britain would encourage businesses to invest their cash reserves with a so-called “super deduction” to reduce their tax bill by 130% of the cost.
But the Confederation of British Industry, the lobby group for big British companies, said the hike in corporation tax was sending a worrying signal to investors.
“Moving corporation tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK,” CBI Director-General Tony Danker said.
DETAILED – TAX ON BUSINESS
The United Kingdom introduced corporation tax at a rate of 40% in 1965. It rose to a high of 52% in the early 1970s and had been cut ever since – until today.
In the 1980s, the main rate was cut to 35% under Margaret Thatcher, then during the 1990s from 35% to 30% and eventually to 20%.
It was trimmed to 19% from 2017 and was supposed to be reduced further to 18% and then 17% but has been held at 19%.
Law firm Clifford Chance said the hike in corporation tax – which in the United Kingdom is particularly broad and has fewer reliefs – would make the UK’s effective rate higher than Germany or the United States and on a level with France’s.
“The surprising effect of the rise in corporation tax is that the UK will have one of the highest effective rates in the world, almost level with the French rate, and much higher than the U.S. or German rate,” said Dan Neidle, tax partner at Clifford Chance.
Sunak said small businesses with profits of less than 50,000 pounds a year would be charged only 19%, meaning around 70% of businesses would be unaffected.
He also said the government would taper in the tax on profits above 50,000 pounds so that only businesses with profits of 250,000 pounds or more – around 10% of companies – would be taxed at the full 25% rate.
The super deduction, Sunak said, would allow a construction firm to cuts its tax bill by 13 million pounds instead of 2.6 million pounds now if it bought 10 million pounds of new equipment.
“We’ve never tried this before in our country,” Sunak said.
Sunak quoted the Office for Budget Responsibility as saying it would boost investment by 10%.
“It makes our tax regime for business investment truly world-leading, lifting us from 30th in the OECD to 1st,” he said. “This will be the biggest business tax cut in modern British history.”
DETAILED – PERSONAL TAX
Britain will freeze the amount of money that people can earn tax-free and also the threshold for the higher rate of income tax until 2026, finance minister Rishi Sunak said on Wednesday.
Sunak said that while the basic income tax rate of 20% and higher income tax rate of 40% would not be increased, the “personal allowance” of tax-free earnings and threshold at which the higher tax rate kicks in would not rise with inflation.
Sunak said the freeze was part of an approach to start fixing the public finances as he looks for ways to raise funds following unprecedented measures to support jobs and the economy during the coronavirus pandemic.
“This government is not going to raise the rates of income tax, national insurance or VAT. Instead our first step is to freeze personal tax thresholds,” Sunak told parliament.
“We will, of course, deliver our promise to increase (the personal allowance) again next year to 12,570 pounds ($17,545) but we will then keep it at this more generous level until April 2026.”
He said the higher-rate threshold would also increase next year to 50,270 pounds, as previously promised, but would then also be frozen for the same length of time.
That will generate more government revenue as earnings rise with inflation, pushing more people over the thresholds so that they have to pay more tax.
The Institute for Fiscal Studies think-tank said the four-year freeze would make the finance ministry 1.5 billion pounds in its first year and 8 billion pounds a year by 2025/2026.
The personal allowance threshold and higher rate threshold in England and Northern Ireland had previously been 12,500 pounds and 50,000 pounds a year respectively.
“Nobody’s take-home pay will be less than it is now as a result of this policy,” Sunak said.
“But I want to be clear … that this policy does remove the incremental benefit created had thresholds continued to increase with inflation.