Rishi Sunak’s Budget will save jobs but push tax burden to highest levels in 50 years
RISHI Sunak did all he could yesterday to lift spirits and see the UK through Covid — freezing booze and fuel duty, and extending furlough.
But the Chancellor’s bittersweet Budget also set out a £66billion tax raid to start paying for the pandemic — pushing the taxation burden to levels not seen since the 1960s.
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Teeing up a comeback summer, he froze booze and fuel duties, extended furlough, the stamp duty and VAT holidays for pubs and restaurants and the business rates pause.
But millions more will have an income tax hangover next year and big business will see their corporation tax bill soar from 19 to 25 per cent in 2023.
Mr Sunak said last night he was going long on support, with the hefty tab only kicking in after the economy has been given time to recover from the pandemic.
The Chancellor said, thanks to the vaccine, Britain would bounce back “swifter and faster”.
There were at least five years of pain ahead but he declared: “Our recovery starts today.”
'PROFOUND DAMAGE'
High street shops, hair salons and pubs will be able to apply for new lifelines and VAT on hospitality will remain at five per cent until June, rising to 12.5 per cent for the rest of the year rather than 20 per cent.
The economy is expected to return to pre-Covid levels by the middle of next year, six months earlier than previously thought.
Fuel
FUEL duty is frozen for the 11th year running in a victory for The Sun’s Keep It Down campaign.
The rate was pegged at 57.95p per litre after the Chancellor abandoned plans to raise it.
There were fears an increase would punish drivers who are helping the country bounce back.
Rishi Sunak said: “Right now, to keep the cost of living low, I’m not prepared to increase the cost of a tank of fuel.”
It comes after a decade of campaigning by Fair Fuel UK and Tory MPs led by backbencher Robert Halfon.
Mr Halfon said: “A big thank you to the Sun’s Keep it Down campaign and Fair Fuel UK.”
Brit drivers already pay the most at the pumps in Europe.
Booze
A VAT cut on food and drink has been extended, in a £485million boost for pubs and restaurants.
The rate will stay at five per cent until September before jumping to 12.5 per cent and returning to 20 per cent in April 2022.
Beer duty has also been pegged, while pubs, restaurants and shops will get grants worth up to £18,000 to reopen.
Ex-model Jodie Kidd, owner of The Half Moon pub in Kirdford, West Sussex, said: “A freeze in beer duty is a welcome relief.”
But some publicans warned it did little to help food-free pubs.
Campaign for Pubs vice chair Dawn Hopkins said: “It seems Rishi Sunak either doesn’t understand, or doesn’t care about, the classic community local pub.”
But Mr Sunak warned the virus “has done and is still doing profound damage” and it was time to start addressing the state of the nation’s finances.
Government borrowing is expected to be more than £355billion this year, representing 17 per cent of UK income and the highest level since World War Two.
Mr Sunak told MPs: “Next year, as we continue our unprecedented response to this crisis, borrowing is forecast to be £234billion, 10.3 per cent of GDP — an amount so large it has only one rival in recent history: this year.”
He added: “Without corrective action, borrowing would continue at very high levels, leaving underlying debt rising indefinitely.
"Instead, because of the steps I am taking today, borrowing falls to 4.5 per cent of GDP in 22/23, 3.5 per cent in 23/24, then 2.9 per cent and 2.8 per cent in the following two years.”
A million more people will pay income tax from next April, and a million more will be nudged into the higher rate, generating £19billion extra for the public purse by 2026.
Despite the Tory manifesto promising no rise in income tax, the thresholds at which people pay will be frozen from next year.
But Mr Sunak insisted those that earn more will pay more and no one’s current take-home pay will go down.
Confronted over the size of the tax burden at a Downing Street press conference last night, Mr Sunak said he could not be compared to other Chancellors.
He said: “We haven’t had a pandemic like this in over 100 years, so remember that is why we are having this conversation.”
The point at which people begin paying income tax will increase by £70 to £12,570 in April but will be maintained at that level until April 2026, meaning more will be dragged into paying tax as wages increase.
Last night, the Office for Budget Responsibility said the decision would bring 1.3million into the tax system.
We haven’t had a pandemic like this in over 100 years, so remember that is why we are having this conversation.
Rishi Sunak
The 40p higher rate threshold will rise to £50,270 and then be frozen.
And the watchdog said that would raise £8billion per year by 2025/26 if incomes rose with inflation.
Meanwhile, corporation tax will increase from 19 per cent to 25 per cent in 2023.
But a new small profits rate will maintain the lower rate for those with profits of £50,000 and after that the rate will be tapered up to protect small and struggling businesses.
The OBR said these two measures, plus taking about £4billion a year more off annual departmental spending plans, would raise a total of £31.8billion in 2025/26.
But they warned it will increase the tax burden from 34 per cent to 35 per cent of GDP, saying: “It will be its highest level since Roy Jenkins was Chancellor in the late 1960s.”
Businesses last night welcomed the Budget but warned it could worry future investors.
The Confederation of British Industry said: “The Chancellor has gone above and beyond to protect UK businesses and people’s livelihoods through the crisis and get firms spending.
"Thousands of firms will be relieved to receive support to finish the job and get through the coming months.
“But moving corporation tax to 25 per cent in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK.”
The Institute of Directors commented: “The extension to the furlough scheme will provide a vital cushion to support jobs as restrictions unwind and firms begin the costly process of rescaling.”
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The British Chambers of Commerce said Mr Sunak had “listened and acted on our calls for immediate support”.
And the Federation of Small Businesses declared: “This Budget will help many small firms with their final push through to September but there is little here to aid job creation or help people return to work.”
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