Satago CFO James Hussey shares his thoughts on the Chancellor's Budget announcement.
It was with bated breath that UK businesses watched Chancellor Rishi Sunak make his Budget announcement this afternoon.
After a year of borrowing not seen before in peacetime, where GDP shrank by 9.9%, it was clear that the Government was going to have to claw back money from somewhere. But with businesses still reeling from the effects of the pandemic, a balance would need to be struck in order to support firms and help build back our economy.
As you would expect, the Chancellor frontloaded his speech with news of ongoing investments to protect jobs as we exit lockdown. The furlough scheme is to be extended, restart grants will be launched in April to support non-essential shops as they reopen, and there will be a recovery loan scheme to replace CBILs and BBLs — all welcome measures.
It was towards the backend of his speech that Rishi Sunak delivered the expected dose of grim reality. With Covid support measures totalling £407bn, Sunak said it would be “irresponsible” to allow borrowing to continue unchecked. For this reason, the Government will be increasing corporation tax on company profits by a whopping six-percentage points by April 2023. A rate of increase not seen since the 1960s and a dramatic rowing back on the tax cuts George Osborne made during the last decade of Tory rule.
Whilst small businesses with a profit of less than £50,000 will be unaffected by the changes and only businesses with profits of £250,000 or more will pay the full 25%, the rise will have a significant impact on larger corporations, raising a total of £17bn a year for the Treasury by 2025-26, according to The Office for Budget Responsibility (OBR).
Sunak says it is “fair and necessary” for businesses to contribute to the country's economic recovery after the Government provided over £100bn of support to help them through the pandemic. Which may be true, although the severity of the rise will, in the words of the CBI employer’s group, cause “a sharp intake of breath” across the UK.
In addition, Sunak has put a freeze on personal tax brackets until 2026, a policy which will create fiscal drag, generating a further £6bn a year for the Treasury.
However, there is light at the end of the tunnel, particularly for SMEs. The ongoing Covid support measures have been designed to kickstart businesses and generate jobs, with schemes like the Restart Grant offering cash injections of up to £6,000 per premises for non-essential shops, and up to £18,000 for businesses in the hospitality and leisure industry.
The Government has also announced a new “super-deduction” tax break for firms that invest, allowing them to reduce their tax bill by 130% of the cost of the investment. In real terms, this means that a business that invests in £10,000 of new equipment could reduce their tax bill by £13,000.
We will have to wait and see whether these measures will be enough to offset the damage that Covid has done to our economy and help businesses build back as we look towards an easing of restrictions over the summer.