State of the UK Economy
To start off with, we need to know how the economy has performed and is expected to perform over the next few years. Obviously, this has all been dependent on the impacts of the Corona-virus pandemic.
The Office for Budget Responsibility (OBR) has forecast that government borrowing will be £355bn for the year 2020/21. This represents 17% of national income, the highest it has been since the Second World War. For reference, the deficit ‘only’ reached 10.1% in 2010 after the last financial crisis; in 2019 it was 1.8%. The OBR expects the deficit to be £234bn for the 2021/22 year or 10.3% of GDP. Public debt in also expected to peak at 97.1% of GDP in in 2023/24 before beginning to fall again. Unemployment is also expected to peak at 6.5%.
The Government is forecast to have spent a total of £407bn in fiscal stimulus during the pandemic.
Impacts on Individuals
- The personal allowance for income tax is to rise to £12,570 from the current £12,500, at the same time the higher rate tax band will increase to £50,270. After this, however, tax bands will be frozen until 2026.
- The thresholds for inheritance tax, capital gains tax, and the pensions lifetime allowance are all to be frozen.
- The £20 increase to Universal Credit will continue for a further 6 months.
- The furlough scheme has been extended until the end of September 2021. But from July businesses are expected to contribute 10%, this rises to 20% in August.
- An extra £19m has been pledged to help domestic violence programs, and a further £10m will support veterans mental health needs.
- Help for the self-employed will also be extended with 2 additional grants until September. These grants will also be available to those who became self-employed in the 2019/20 tax year.
- The stamp duty holiday for properties worth up to £500,000 has been extended until the end of June. From June to the end of September there will be no stamp duty on homes up to £250,000, and from October will return to the old level of £125,000.
- The government has announced a new scheme to guarantee 95% of mortgages for those who can only afford a 5% deposit. This will be available on homes up to a value of £600,000.
- Duties on spirits, beer, ciders, wine and fuel all frozen for another year.
- £5bn of new grants for hard hit businesses. £6,000 for non-essential retailers and £18,000 for restaurants, pubs, personal care and gyms.
- £700m will be spent on supporting arts, culture and sports as they re-open.
- Business rates holiday has been extended until the end of June, and for the remainder of the tax year will be discounted by up to two thirds.
- The 5% VAT rate for the hospitality and tourism sectors has been extended until the end of September before rising to 12.5% until the end of the tax year.
- Corporation tax will increase to 25% in 2023, but for businesses that earn profits of £50,000 or less will continue to be taxed at the current rate of 19%. Only companies with profits of £250,000 or more will be taxed the 25% rate.
- Companies will be able to offset losses on their tax bills for up to 3 years.
- A new “super deduction” has been introduced as an incentive for businesses to invest more allowing them to reduce their taxable income by 130% on what they invest.
- Incentive payments for hiring new apprentices are being doubled to £3,000 while £126m will be invested to triple the number of new traineeships
Science, Technology and Environment
- 1.6bn will go towards continued roll out of the Covid-19 vaccine and improving future preparedness.
- There will be visa reforms to make it easier attract the “best and most promising talent” in science, research and technology. This is to promote the UK as a “scientific superpower.”
- Rules will be changed to allow pension funds to fund billions in new innovative ventures.
- The Bank of England’s remit will be updated to “reflect the importance of environmental sustainability and the transition to net zero” as well as the 2% inflation target.
- A new UK Infrastructure Investment bank will be created and based in Leeds with an initial capitalisation of £12bn. This will fund pubic and private green industrial revolution projects.
Devolved Government and regions
- Under the Barnett formula for funding of the devolved administrations, Scotland will receive an additional £1.2bn, Wales £740m and Northern Ireland £410m.
- There will be £1bn in funding for 45 public investment “town deals” across the country.
- £150m fund to allow communities to buy local pubs, theatres, shops, or local sports clubs at risk of closure.
- The creation of 8 new “free ports” or special economic zones with different tax incentives to attract international investment. These will be located at: East Midlands Airport, Fleixstowe and Harwich, Humber, Liverpool City region, Plymouth, Solent, Thames, and Teeside.
- A new group will be set up to promote London as the global leader in carbon offsetting markets.