Budget 2021: Rishi Sunak raises tax on businesses to ‘repair economy’

Rishi Sunak has set out plans to increase corporation tax as he began the process of repairing the nation's finances following the coronavirus crisis – but also announced tax cuts for companies which invest.

The Chancellor used his Budget to set out a £65 billion spending package this year and next year to support the economy as it recovers from the pandemic.

But he warned that the unprecedented spending could not continue and he had to be "honest" about putting the nation's finances back on a sustainable footing.

Corporation tax will increase from 19 per cent to 25 per cent in 2023. But a new "small profits rate" will maintain the 19% rate for firms with profits of £50,000 or less - meaning around 70 per cent of companies - 1.4 million businesses - will be "completely unaffected" by the tax hike.

Rishi Sunak has warned Covid-19 caused 'profound damage' to the economy but vowed “we will recover” as he unveiled the Budget.

Mr Sunak said there would be a "super deduction" for companies when they invest, reducing their tax bill by 130% of the cost.

He explained: “Under the existing rules, a construction firm buying £10 million of new equipment could reduce their taxable income, in the year they invest, by £2.6 million.

"With the Super Deduction, they can now reduce it by £13 million. We’ve never tried this before in our country.

“Worth £25 billion during the two years it is in place, this will be the biggest business tax cut in modern British history.”

While economists have largely agreed that measures to repair the nation's finances are not needed immediately, while the economy is still being hit by the coronavirus crisis, the need for medium-term action was underlined by the Office for Budget Responsibility forecasts.

Mr Sunak said: "The OBR's fiscal forecasts show that this year we have borrowed a record amount: £355 billion. That's 17 per cent of our national income, the highest level of borrowing since World War Two."

Next year borrowing is forecast to be £234 billion, 10.3 per cent of gross domestic product (GDP), a measure of the size of the economy, "an amount so large it has only one rival in recent history - this year".

Scotland will receive a £1.2 billion boost as a result of the UK Budget, with Mr Sunak insisting this was a Budget that "meets the moment".He added: "The UK Government has protected millions of jobs and livelihoods across Scotland – and the strength and stability of our economic union will ensure we bounce back from this pandemic together.

"This Budget will ensure the people of Scotland continue to be supported through our Plan for Jobs, committing more than a billion pounds in extra investment and funding to help fuel the UK’s recovery.”

The Budget included accelerated funding for "growth deals" in Ayrshire, Argyll and Bute, and Falkirk, as well as a £27 million investment in the Aberdeen Energy Transition Zone.

It came during a Budget that also saw Mr Sunak extended the furlough scheme and Universal Credit til September, as well as a series of new financial measures.

The Coronavirus Job Retention Scheme has protected more than 11 million jobs since it began last March and had been due to close at the end of April.

Employers will be expected to pay 10 per cent towards the hours their staff do not work in July, increasing to 20 per cent in August and September.

Mr Sunak also extended the stamp duty holiday in England from the end of March until the end of June, with a new £250,000 threshold until the end of September. Similar measures in Scotland are currently due to end at the end of March.

There was also a boost for the tourism and hospitality sector, with the 5 per cent reduced rate of VAT extended til September, with an interim rate of 12.5 per cent for another six months after that.

He also continued the business rates holiday for the retail, hospitality and leisure sectors until July, with a two-thirds discount for the rest of the year. In Scotland, the rates relief is set to last the whole financial year.

Under the Barnett formula, Mr Sunak said the measures announced represented an extra £1.2 billion coming to Scotland.

The Chancellor also set out a new Recovery Loan Scheme to replace previous coronavirus loan packages, allowing businesses of any size to apply for loans from £25,000 up to £10 million through to the end of the year, with the Government providing lenders with an 80 per cent guarantee.

Concluding, he told MPs: “Today we set out a plan to protect the jobs and livelihoods of the British people but the promises that underpin that plan remain unchanged from those we pledged ourselves to 12 long months ago.

“To unite and lead, to level up, to create a world-class education system, to keep our streets safe, to keep our NHS strong, to support the most vulnerable, to reform and improve public services, to grow the economy, to spread prosperity, to extend the awesome power of opportunity to all corners of the United Kingdom, and, yes, to be honest and fair in all that we do.”

Paul Johnson, director of the Institute for Fiscal Studies, tweeted that the rise in corporation tax was an "extraordinary reversal in policy".

"Don't forget the cuts in headline rate came with cuts in allowances too. The new investment subsidy only due to last 2 years. In medium term this is a very big rise in corporation tax," he tweeted.

He added that the UK already raises "considerably more" as a percentage of GDP from corporation tax than countries like France and Germany, which have higher headline rates.

Sir Keir Starmer claimed the budget merely “papered over the cracks”.

The Labour leader said: “After 11 months in this job, it’s nice finally to be standing opposite the person actually making decisions in this Government.

“This Budget fell far short of the transformative change we needed to turbocharge our recovery for the decades to come.

"One day these restrictions will end, one day we’ll all be able to take our masks off and so will the Chancellor, and then you’ll see who he really is."

The SNP’s Westminster leader said: "A decade of Westminster cuts have pushed 4.2million children into poverty but there were no measures to reverse the growing Tory child poverty crisis, no plan to raise statutory sick pay or introduce a Real Living Wage.

"Millions of people have been left behind by the Tory government throughout the pandemic - and this budget failed to plug the gaps for the 3million excluded and failed to deliver a commitment that full 80 per cent furlough support will be available for as long as the devolved nations need it.”

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