For further comment or to arrange an interview please get in touch with Joseph Silke: joseph@brightblue.org.uk or 07948 420 584.
Commenting on the Budget, Ryan Shorthouse, CEO of Bright Blue, said:
“The Chancellor has been refreshingly generous, adaptive and pragmatic in his response to the economic havoc caused by Covid-19. He is right to extend the flagship furlough scheme until the autumn, gradually phasing in increased employer contributions. It has saved the livelihoods of millions of people. Indeed, considering its success, the Government might consider an adaptation of the furloughing scheme for future crises for businesses and workers – a government-supported insurance scheme requiring employer and employee contributions.
“The eye-watering expenditure means the deficit is uncomfortably high. Although right now is not the time for significant tax rises, the Chancellor was right that taxpayers in the near-term should do our bit to help balance the books to reduce government exposure to changes in interest rates, and ensure the state is able to support us again financially during future crises.
“The tax raising measures, which start to come into effect only from April 2022, are broadly sensible. Suspending the gradual raising of the Personal Tax Allowance and Higher Rate thresholds until 2026, which disproportionately benefits affluent workers, is a suspension of a tax cut, not strictly a tax rise in the sense that it does not reduce take-home pay compared to what people will get next year.
“Considering the exceptional support the Government has given businesses during the pandemic, it makes sense to ask for an exceptional contribution from them for government revenues through higher Corporation Tax, especially when those with low annual profits will be unaffected. The jump in the rate for big business is considerable and risky. However, the super deduction against Corporation Tax for capital expenditure is surprising and positively bounteous, and will drive more companies to invest rather than sit on cash.
“The Chancellor is right to set out how this Government will get a grip on the public finances in the coming years, but postpone action until the years ahead. However, this makes the decision to cut the international aid budget and public sector pay in the coming fiscal year, as announced last autumn, odd and unnecessary.
“Considering the forecast growth rates later on in the 2020s, the Chancellor is likely to need to take more difficult decisions in the years ahead on tax and spending. He cannot just look to taxes on enterprise and employment; indeed, he should take the opportunity to introduce more radical reforms to taxes around wealth and assets, especially pensions and housing.
“There was an agenda that was notably lacklustre in the Budget. In the year of COP26, this was meant to be the year that we trigger a post-Covid green recovery. But the Government has yet again foolishly cut, rather than maintained, the value of the cost of Fuel Duty for drivers of petrol and diesel vehicles. And it still lacks the ambitious and necessary policies to support more people with the path to net zero, especially in the way they drive their cars and heat their homes.”
Taxation
- An increase of Corporation Tax to a headline rate of 25% for profits over £250,000, and a smaller 19% rate for profits under £50,000.
- A 130% first-year capital allowance for companies investing in qualifying new plant and machinery assets from 2021 until 2023.
- Frozen Income Tax thresholds for the personal allowance and the higher rate from April 2022 up to April 2026.
Commenting, Sam Robinson, Senior Researcher at Bright Blue, said:
“The freeze on Income Tax thresholds looks both sensible – considering it won’t bite until 2022 – and progressive. But the Treasury should look beyond, in fact lower in the long-term, taxation on employment and enterprise, and instead seek more radical reform to taxing wealth and assets, especially property and pensions.
“The cautious approach to Capital Gains Tax outlined in this Budget is right. But the Government should now review how best to reduce the gap between tax rates on work and wealth, whilst ensuring such a move is fair to investors through protections against inflation.
“The planned increase in Corporation Tax is not without its risks, but looks broadly sensible. While it is a dramatic jump, the headline rate remains internationally competitive and the lower rate for small profits is a pragmatic approach to softening the impact.
“Much more significant was the announcement around super-deductions against Corporation Tax to allow for greater than full expensing of investment. But this should not simply be a temporary two-year experiment. Generous investment allowances should become a permanent feature of business tax policy to drive growth in the long term. There is also the slightly strange situation that businesses are encouraged to invest over the next two years, only to be taxed more heavily on the fruits of their investments via higher Corporation Tax.”
Self-employment
- A fourth SEISS grant from February to April 2021, which will cover 80% of average trading profits capped at £7,500.
- A fifth SEISS grant from May to September 2021. This value of this grant will depend on turnover: for those whose turnover has fallen by 30% or more, 80% of profits will be covered to a maximum of £7,500. People whose turnover fell less than 30% will receive a grant worth 30% of profits to a maximum of £2,850.
Commenting, Sam Robinson, Senior Researcher at Bright Blue, said:
“It is great to see the Chancellor addressing the key shortfalls of the SEISS by widening eligibility to include those recently self-employed who have now submitted 2019-20 tax returns. But people who became self-employed during the pandemic – and are therefore still excluded from the scheme – are acutely vulnerable.
“The support available for self-employed mothers, who have lost out on SEISS payments due to maternity leave not being properly accounted for when calculating average profits, remains unfair.
“It is right that the fifth and final grant is targeted at those self-employed who are in genuine need. But given that concerns over targeting are not new, it is unclear why such an approach shouldn’t also apply to the fourth SEISS grant.
“While the SEISS has improved considerably since its inception, the Government should not rest on its laurels. Covid has exposed the gaps in provision for the self-employed, and going forward the Government needs to rethink the support system in place for this group beyond the pandemic.”
Welfare
- An extension of the Universal Credit uplift until end of September 2021 and a one-off payment of £500 for Working Tax Credit claimants.
- A suspension of the Minimum Income Floor (MIF) for self-employed Universal Credit claimants until end of July 2021, which will be reintroduced on a discretionary basis.
- An increase in the period over which Universal Credit advance payments are repaid to 24 months, and a decrease of the maximum rate of deductions from 30% to 25%, are being brought forward to April 2021.
Commenting, Anvar Sarygulov, Senior Research Fellow at Bright Blue, said:
“While the economy is likely to be recovering, the end of the furlough scheme in September will mean increasing unemployment levels caused by Covid-19. Unlike with the winding down of the Stamp Duty holiday, current beneficiaries will face a sudden cliff-edge rather than gradual phasing out of support. This is a problem that is not going away anytime soon: the Chancellor is causing further political problems for himself. For political, economic and moral reasons, the Government should extend the uplift in Universal Credit for another year.
“The Government should also consider the long-term future of our social security by looking at the lessons learned from this crisis. The effectiveness of the furlough scheme in preserving jobs should be assessed as the scheme unwinds, with the aim of examining how a sustainable version of this approach could be deployed in future crises.
“Extending the suspension of the Minimum Income Floor until the end of July is correct considering the continuing economic uncertainty that self-employed people face. Furthermore, allowing work coaches to have discretion on its reintroduction recognises that self-employed people experience significant income volatility, and some will take longer to recover than others. In the future, the Government should build on this temporary suspension by giving self-employed claimants the ability to claim up to 12 months of suspension above and beyond the initial year, but on a month-by-month basis when their work conditions are difficult.”
Training
- An increase of the cash incentive for employers to take on apprentices, regardless of their age, to £3,000.
- A £126 million boost for provision of traineeships for 16-24 year olds.
- Funding for new ‘portable’ apprenticeships, allowing apprentices to work across multiple firms in the same sector.
Commenting, Anvar Sarygulov, Senior Research Fellow at Bright Blue, said:
“The Government’s continued focus on actively helping people to re-enter the labour market is welcome. Between the previously announced Kickstart and Restart schemes, the doubling of work coaches, and further increases in spending on apprenticeships and traineeships, the Government is clearly aware that it will need to take a proactive approach to unemployment. It will be important to take action quickly and deliver this training as soon as possible, as negative effects of unemployment become more severe with time. So far, such support has been slow to be rolled out, albeit sometimes for unavoidable reasons.”
Housing
- A Stamp Duty cut to 0% for properties of value up to £500,000 extension until end of June 2021, which will continue for a further three months, until end of September 2021, for properties of value up to £250,000.
- A mortgage guarantee scheme for mortgages with a deposit of 5% for properties of a value up to £600,000.
Commenting, Anvar Sarygulov, Senior Research Fellow at Bright Blue, said:
“With nearly all first-time buyers already receiving full or partial relief on Stamp Duty before the current holiday, the main beneficiaries of this tax cut are existing homeowners, even those owning multiple properties, meaning that first-time buyers will continue to face higher prices and more competition for homes this year. The Stamp Duty holiday has already contributed to house prices rising by 6.9% over the course of last year, and a further extension will likely only continue to influence prices upwards.
“The creation of a mortgage guarantee, which is not limited to first-time buyers, shows that the Government continues to have the wrong priorities in making homeownership more accessible. Having helped to increase house prices through the Stamp Duty holiday, the Government is now introducing another measure that is likely to drive up prices to the benefit of existing homeowners. If the Government is serious about increasing homeownership, it should instead prioritise building a range of affordable private and social housing products that can be accessed by those on lower incomes.
“Really, we need a major rethink of property taxation in this country. Instead of the distorted and inequitable system of Stamp Duty and Council Tax we have at the moment, the Government should be bolder and have the courage of its convictions to introduce an alternative system: an Annual Proportional Property Tax or a Land Value Tax, both of which would be more efficient and equitable.”
Pensions
- The Lifetime Allowance will be maintained at £1,073,100 up to and including 2025-26.
Commenting, Sam Robinson, Senior Researcher at Bright Blue, said:
“The Chancellor talked at length about eventually balancing the books in his speech, but on pensions it is clear the Government has yet to rise to the challenge. While freezing the value of the lifetime allowance is a good start, this affects those currently of working age, albeit affluent. The Government needs to scrap the triple lock on state pensions, especially considering the growth in earnings at the moment, as well as the overly generous and inequitable system of higher rate pensions tax relief. These would generate substantial savings to help with the repair of the public finances.”
Energy and the environment
- Fuel Duty frozen for 2021-22.
- The creation of sovereign green savings bonds (GSB)
- A National Infrastructure Bank focused on driving the net zero transition.
Commenting, Patrick Hall, Senior Researcher at Bright Blue, said:
“It is understandable that the Chancellor wants to avoid policies which may be regressive towards households as we recover from the pandemic. But the Government has yet again foolishly cut, rather than maintained, the value of the cost of Fuel Duty for drivers of petrol and diesel vehicles. We should be moving more aggressively to decarbonise UK transport. The Chancellor missed the opportunity to front load the Plug in Car Grant to £5,000 and introduce a Used Vehicle Plug-in Car Grant of at least £2,000 to make electric vehicle ownership more accessible.
“With the recent reduction of funding for the Green Homes Grant, it is of deep concern that there is still insufficient support to help households to retrofit their homes to reduce their carbon footprint. This should include government-backed ‘Help to Improve’ loans to make the upfront costs of retrofitting affordable and support for tradespeople and small businesses to train installers and ramp up their supply chains. Over time, with suitable financing widely available for everyone, homeowners should meet minimum Energy Performance Certificate (EPC) ratings before they sell their house and pass it on to someone else.”
Commenting, Andrew Leming, Researcher at Bright Blue, said:
“It is encouraging to see the Chancellor move the UK firmly into the green bond market. The new green savings bond (GSB) will be important for making the UK a climate finance leader ahead of COP26.
“But to ensure lasting environmental impacts, the funds generated through the GSB should be used only for projects aligned with net zero targets and benchmarks. This means that all firms involved in GSB-funded projects should have net zero strategies in place and undertake Task Force on Climate-Related Financial Disclosure (TCFD) reviews to assess climate-related risks.
“The Chancellor’s plan for a net-zero focused National Infrastructure Bank has the potential to be a game-changer, especially for nascent technologies, such as Carbon, Capture & Storage (CCS) and hydrogen. However, the Climate Change Committee has stated that £50 billion of additional capital investment annually will be needed for reaching net zero. The initial commitment today of £12 billion in capital funding over three years falls well short.
“Generally, net zero was an agenda that was notably lacklustre in the Budget. In the year of COP26, this was meant to be the year that we trigger a post-Covid green recovery.”
Immigration
- A new unsponsored points-based visa to attract the best and most promising international talent in science, research and tech.
- A new elite-points based visa including a ‘scale-up stream’.
Commenting, Phoebe Arslanagic-Wakefield, Researcher at Bright Blue,
“The introduction of an unsponsored points-based visa to attract the world’s top science and tech talent is exactly the type of shot in the arm that the UK economy needs to get out of the pandemic slump. More broadly, it sits well with public attitudes on immigration: a majority of people are supportive of more high-skilled migrants coming to this country to contribute.
“The creation of a fast-tracked ‘scale up stream’ in the new elite points-based visa is a smart, targeted reform that will particularly support small, innovative British businesses, such as fintech firms.”
[Image: Number 10]
