UK Budget 2021
Insights from the UK Budget 2021. "Spend now and pay later" was a clear message that came through the Spring Budget.
Watch our Budget 2021 Key Points video below
Chancellor Rishi Sunak pledged continued short-term support for the economy, bringing a sigh of relief among businesses and consumers. Critically this sees the furlough scheme, business rates relief and loans extend until Covid-19 restrictions are expected to be lifted to avoid a cliff edge moment that the government has worked hard to avoid.
Key points at a glance
Below is quick summary from a retail and consumer perspective:
Retail & Hospitality
- 100% business rates relief extended to the end of June in England, then 66% for the remainder of the 2021/22 tax year (100% relief extended for 12 months in Scotland and Wales).
- Non-essential retailers to receive Restart Grants worth up to £6,000 per premise. Hospitality and leisure businesses eligible for up to £18,000 per premise.
- Additional £300m funding for theatres, museums, and live music venues. Communities can also apply for up to £1m to rescue local pubs from closure.
- Furlough and self-employment income support schemes extended until the end of September. Employees will continue to receive 80% of their wages until the scheme ends, but firms will be asked to contribute 10% in July and 20% in August and September.
- 5% reduced VAT rate for hospitality and accommodation extended for six months to 30 September, followed by an interim rate of 12.5% for a further six months.
- No rise in Income Tax, NI or VAT. Personal tax thresholds will be frozen until April 2026 after next year's planned increase.
- £20 boost for weekly Universal Credit payments extended for six months.
- Tapered extension of the stamp duty holiday (nil rate band up to £500k to end on 30 June, but will remain for up to £250k until 30 September, double the standard level).
- Alcohol duties frozen for a second year in a row. Planned increase in fuel duty also cancelled.
- Contactless payment limit to rise to £100 later this year, from its current £45.
Retail Economics Reaction
The cost: Fiscal gravy train will run out of steam
The policies announced in Budget 2021 will take the total cost of Coronavirus-related policies in the UK close to £350bn.
- Estimates shows that support for public services accounts for 46% of the total at £158bn. The majority of this is on health, including the cost of personal protective equipment, NHS Test and Trace, and the procurement and rollout of vaccines.
- Support for households accounts for 32% of the total at £111bn, of which 81% comes via the Coronavirus Job Retention Scheme and Self-Employment Income Support Scheme. More than 4.7 million employees in the UK were on furlough in February, of which just under 1 million work in retail, according to data from the ONS.
- Support for businesses makes up the remaining 22% at £75bn. This cost is dominated by grants and business rates holidays, and the upfront recording of expected write-offs relating to the government-backed loan schemes.
Plans were laid for fiscal consolidation in the medium-term to tackle the budget deficit. In part, this will be done through corporation tax rises to 25% in 2023. Every percentage point increase in corporation tax raises about £3bn according to the government. Bellwether retailer Next boss Lord Wolfson recently said higher corporation tax was a fair price to pay for the colossal pandemic support given to businesses.
Infrastructure investment is going to be key to a sustained recovery longer term, which sees the creation of the first ever UK ‘green’ infrastructure bank based in Leeds. It will be down to businesses to tap into this to shape the government’s plan for a green industrial revolution.
Business rates: Kicking the can down the road?
Retailers and leisure operators will welcome the Chancellor’s decision to extend the business rates holiday, but there will be disappointment that the measures do not go further.
In a surprising move, the Chancellor did not follow the Scottish and Welsh governments in waiving business rates for a further 12 months, opting instead for a short three-month extension to the holiday until the end June. Rates will then be discounted for eligible businesses by 66% for the remainder of the tax year to 31 March 2022.
Just as they emerge from trading restrictions and begin to get cash through the tills again, non-essential retailers, pubs and restaurants will have to pay one third of their rates liabilities based on disproportionate and outdated valuations.
Even with a discounted rate and the help of a Restart Grant, this could see many businesses, already struggling with high debt loads, being pushed to their limits.
It’s worth also noting that from 1 July, business rates relief is subject to a cap of £2m per business that was required by law to close in January’s lockdown. Qualifying businesses that were not forced to close will be subject to a cap of £105,000.
Crucially, the caps are imposed on a business, not per property. This effectively means that even modestly-sized retailers and leisure chains will have to pay full rates after the initial £2m saving, severely limiting the benefit to these businesses.
The government’s fundamental review of the business rates system in England, which launched last July, was set to be announced this spring. However, on 19 February, Sunak said he was delaying the Treasury’s report on the “fundamental review of business rates” until autumn. Retailers will be hoping this will finally provide the long-term reform that is so desperately needed for physical retail to remain competitive.
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