01 March 2021

Chancellor Rishi Sunak will present the 2021 budget this week and spent the weekend laying the ground for tax rises. The £12,500 basic and £50k 40p income tax thresholds is expected to be frozen for three years, which will push 1.6 million people into a higher tax bracket by 2024, raising £6bn.

It has also been reported corporation tax could rise from 19% to 23% or even 25% by 2024. The CBI has warned Mr Sunak that a rise in corporation tax could derail the economic recovery by impeding private sector investment. “Now is not the time to raise taxes,” said CBI chief economist Rain Newton-Smith, who urged the Chancellor to wait until the recovery is well established.

The Institute for Fiscal Studies has indicated there is currently a £43bn shortfall in the nation’s finances, which Mr Sunak must find to convince the Office for Budget Responsibility and the financial markets.

The Chancellor is understood to be concerned over the “enormous strains” on the public finances: UK borrowing leaves the nation “exposed” to interest rate rises. National debt currently stands at £2.13 trillion and Mr Sunak wanted to “level” with the public about the economic cost of the pandemic.

The 2021 Budget will also contain more measures to tackle the pandemic. The furlough scheme, currently scheduled to expire at the end of April, may be extended. During a round of Sunday interviews, the Chancellor said “there’s more to come” and that it is right furlough “aligns” with the road map out of lockdown. Furlough currently supports around 4.7 million people. Extending it to June would cost £15bn.

Mr Sunak also announced a £5bn council grants scheme called ‘Restart’ over the weekend, for 700k businesses during the phased reopening. Non-essential retailers will be able to claim £6k per site, distributed directly by local authorities from April.

Tags: Budget