On 3 March 2021, Chancellor Rishi Sunak delivered the UK Budget for 2021, setting out £65 billion worth of government spending to continue to mitigate the economic shock of the COVID-19 (coronavirus) pandemic, while also laying the foundations for a post-coronavirus economic recovery. The statement comes almost a year after the last official budget, in which the government announced significant increases in spending and borrowing to combat the initial onset of the pandemic.
Once again, the main focus of this year’s budget is on protecting jobs, largely through the extension of economic support until public health restrictions are lifted. This includes extensions to furlough, self-employed support schemes, business grants and VAT cuts, which will bring total fiscal support for tackling the pandemic to £407 billion, further increasing headline debt to more than 100% of GDP. The budget also lays out plans for an investment-led economic recovery and future changes to strengthen public finances.
Alongside the Budget, the Chancellor detailed the latest economic and fiscal outlook published by the Office for Budget and Responsibility (OBR), which forecasts GDP growth of 4% in 2021, following a record yearly decline GDP decline of 9.9% in 2020. While this represents a lower rate of growth for the current year than that forecast by the OBR in November 2020, UK GDP is expected to reach its pre-pandemic level in the second quarter of 2022, six months earlier than previously forecast.
Naturally, consumer-facing services such as retail, hospitality and leisure operators have been among the most acutely affected by strict public health restrictions, recording the most significant declines in output since the start of the pandemic. These sectors have therefore remained central to the government’s near-term support for jobs and livelihoods set out in the Budget, which also pledges considerable support for the UK’s ongoing coronavirus vaccination roll-out and testing regime.
Below, we have highlighted the main takeaways from the 2021 Budget, along with which UK industries are likely to be most affected by the announcements.
Coronavirus support
The provision of ongoing support for individuals and businesses underpins this year’s spending commitments, with an extra £44.3 billion in rescue support set out in the Budget. This funding is mostly directed towards the extension of pre-existing support measures, the majority of which are available to all UK firms subject to specific eligibility requirements.
Key announcements:
- An extension of the Job Support Scheme to September 2021 across the United Kingdom. Employers will be asked to contribute 10% of the cost in July and 20% in August and September.
- An extension of the UK-wide Self Employment Income Support scheme to September 2021, with an additional 600,000 people now eligible to claim.
- A new UK-wide Recovery Loan Scheme offering loans between £25,001 and £10 million and asset and invoice finance between £1,000 and £10 million to help businesses through the next stage of recovery.
- An extension of the apprenticeship hiring incentive in England to September 2021, with the incentive payments increasing to £3,000 per hire.
- An extra £1.65 billion cash injection for the coronavirus vaccination roll-out in England.
Despite possessing economy-wide impacts, the benefits of ongoing support for individuals and businesses are expected to be most concentrated in consumer-facing industries, such as those operating in the retail and accommodation and food services sectors. According to data published by HMRC, these sectors have consistently accounted for the largest number of employments furloughed since the introduction of the Coronavirus Job Retention Scheme in March 2020. Similarly, retailers have been the most significant beneficiaries of the Coronavirus Business Interruption Loan Scheme, according to the British Business Bank.
Industries most affected: Pubs and Bars, Holiday Accommodation, Scheduled Passenger Air Transport.
Taxation
In the short term, changes to taxation remain focused on stimulating increased consumer spending and business investment, with other specific measures expected to support industries in the transport and hospitality sectors.
However, the Chancellor announced longer-term tax rises in order to strengthen public finances following the pandemic. These are mainly directed towards large companies, with tax rises expected to have the most notable impact on industries with a high level of market share concentration.
Key announcements:
- Maintaining the income tax Personal Allowance and higher rate threshold from April 2022 until April 2026.
- An increase in the rate of Corporation Tax to 25% from 2023. Businesses with profit of £50,000 or less – around 70% of actively trading companies – will continue to be taxed at 19% and a taper above £50,000 will be introduced so that only businesses with profit greater than £250,000 will be taxed at the full 25% rate.
- Proposed increases to alcohol duties and fuel duty scrapped.
- From April 2021, the new super-deduction will cut companies’ tax bill by 25p for every £1 they invest in new equipment. This is worth around £25 billion to UK companies over the two-year period the super-deduction will be in full effect.
Most affected industries: Crude Petroleum and Natural Gas Extraction, Petrol Stations, Supermarkets.
Housing, infrastructure and construction
The Budget includes key demand-side policies aimed at supporting the housing market. In addition to anticipated social and economic benefits, such policies are expected to support demand for the Residential Building Construction industry, allowing the government to effectively pursue its ‘Build Back Better’ strategy for economic growth.
Key announcements:
- An extension to the temporary cut in Stamp Duty Land Tax in England and Northern Ireland until September to support the housing market and protect and create jobs.
- A new mortgage guarantee scheme enabling all UK homebuyers secure a mortgage up to £600,000 with a 5% deposit.
- The establishment of a new UK infrastructure bank based in Leeds. The bank will receive £12 billion in capital and aims to support at least £40 billion in total investment in infrastructure.
Industries most affected: Residential Building Construction, Estate Agents, Banks.
Retail, leisure and hospitality
The Budget includes a raft of measures specific to supporting retail, leisure and hospitality industries, ensuring that businesses remain viable in the short term and are able to recover from the economic shock of the pandemic.
Industries in these sectors have been among the most acutely affected by coronavirus-related public health restrictions over the past 12 months, with ongoing restrictions dictating that non-essential retailers and hospitality venues will be forced to remain closed for the remainder of the current financial year.
Key announcements:
- Extension to the VAT cut to 5% for hospitality, accommodation and attractions across the United Kingdom until the end of September, followed by a 12.5% rate for a further six months until 31 March 2022.
- £5 billion for new Restart Grants, which are one off cash grants of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England.
- £300 million for major spectator sports, supporting clubs and governing bodies in England.
- An extension of the Film & TV Production Restart Scheme, with an additional £300 million to support theatres, museums and other cultural organisations in England through the Culture Recovery Fund.
- Raising the legal limit for single contactless payments from £45 to £100.
Industries most affected: Full-Service Restaurants, Clothing Retailing, Gyms and Fitness Centres.
Environment
Plans for a green industrial revolution are central to the government’s planned economic recovery from the coronavirus pandemic. This is reflected in the Budget, with announcement of government bonds for investment in green jobs and infrastructure. Further investment towards developing innovative new renewable technologies is also included, supporting efforts made towards commitments to achieve net-zero carbon emissions by 2050.
Key announcements:
- £20 million to fund a UK-wide competition to develop floating offshore wind demonstrators and help support the government’s aim to generate enough electricity from offshore wind to power every home by 2030.
- £68 million to fund a UK-wide competition to deliver long-duration energy storage prototypes.
- Plans for at least £15 billion of green gilt issuance in 2021-22 to help finance critical projects to tackle climate change and other environmental challenges, fund important infrastructure investment and create green jobs.
Industries most affected: Wind Power Generation, Renewable Electricity Generation.
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