Chancellor tries to ease the pain with ‘buy now, pay later’ Budget

By Chris White

Almost one year on from the start of the pandemic, the Chancellor delivered his Budget speech on the back of unprecedented levels of economic support. Taken together with the measures announced today, the total COVID-19 assistance package totals an eye-watering £409 billion. Rishi Sunak made it clear that whilst he would do whatever it takes to support the country through the crisis, he was blunt about the state of the public finances.  

Many of the measures were trailed in advance of the speech – furlough ongoing until September, the continuing uplift in Universal Credit, and the stamp duty holiday extension. The UK economy is not out of the woods yet, and it will be a relief to both individuals and businesses that support is there for the next few months. 

However, it is evident that the high levels of government borrowing, reaching 17% of the national debt in this year, is simply not sustainable in the medium term. While the generous support package is welcome, the Chancellor was surprisingly open about the pain to come. It was very much a ‘buy now, pay later’ Budget. 

Corporation Tax, something Mr Sunak once called a ‘tax on jobs’ will go up to 25%, the first rise since Denis Healey’s 1974 Budget, netting around £48bn by 2025/6. Personal income tax levels will be frozen, meaning that 1.3 million people will pay income tax, and 1 million more will pay the higher rate, raising around £8 billion. Coupled with other measures, including the VAT threshold freeze, and the CGT and pensions allowance freeze, this is around £70 billion raised by 2025/6. 

Despite all of this, the Chancellor was keen to trumpet a range of measures to stimulate growth, and do it in a way that supports companies for the long term. The Future Fund successor will help a cohort of innovative companies fill the scale up gap, and help to grow measures around executive development and free digital training for SMEs are practical measures that will make a real difference on the ground. Eight new freeports, long trailed, finally made an appearance, but fit in with the Government narrative about supporting regeneration – how much of a difference they will make in practice remains to be seen.  

On net zero, there were a smaller number of measures, the most eye catching being the first sovereign green savings bond for retail investors, yet it felt more like an adjunct rather than a green recovery theme running through the speech. Equally, there wasn’t a single mention of Brexit throughout the Chancellor’s speech, the only tangential mention being the Freeports announcement stimulating trade. On both the trade and green recovery, it felt like opportunities missed to bring the country with the Government’s ambitious plans as it begins life outside of the EU and aims to hit net zero.  

Overall, the Chancellor delivered a balanced budget that extended support to the economy but delayed the pain of tax rises until 2023. The OBR forecasts suggest that the economy will rebound strongly, but the spectre of interest rate rises looms large over the country’s finances. Whilst the Chancellor hopes to be on a surer footing by the end of the Parliament, he knows how treacherous the path to recovery is.