Cautious chancellor hands short-term relief to UK businesses but hints at payback to come
Written by Hit Music Radio News on 03/03/2021
Businesses large and small broadly got what they wanted from Rishi Sunak in the short-term.
Whether corporation or corner shop, what matters at the moment is how companies get through the next week, not next year, and that means support to retain jobs and offset the cost of enforced closure.
Employers and employees had to endure an unnecessary 10-day wait for confirmation that Boris Johnson’s COVID roadmap will be backed by an extension of furlough, the business rate holiday and a fresh round of cash grants, but it was welcome nonetheless.
If and when the employment support scheme finally ends in September the state will have been paying the wages of millions of workers for 18 months, a remarkable intervention to which millions will literally owe their jobs.
The extension runs beyond the provisional 21 June date set by the prime minister for full reopening of the economy offers both a cushion and a back-stop.
It allows for delays on the route out of lockdown, as well as a cushion for companies still profoundly uncertain about what recovery will look like.
Will consumers flock back to shops, restaurants, cinemas and clubs like a switch has been flicked, or will consumers be more hesitant and demand held back by lingering anxiety and fear?
And will the structural changes accentuated by COVID, including the shift to online retail and working from home, accelerate irreversibly once we are free to return to the high street and the office?
No one can be certain, the chancellor included, so this was a budget dripping with caution.
For those enterprises that can afford to raise their eyes to the horizon there were the first indications about how all this will be paid for, and they will give companies pause.
Taxes will rise, a headline Conservative chancellors spend entire careers trying to dodge but this one felt he could not avoid.
Corporation tax will increase from 19% to 25% next year, a hefty hike that left some bosses wincing in their pinstripes as the Treasury forecast it would raise almost £48bn over the next five years.
The Confederation of British Industry (CBI) confirmed that reaction, director general Tony Danker saying it caused a “sharp intake of breath”, tempering his welcome for COVID support with a warning that the 25% rate could leave the UK less competitive internationally.
There are allowances for smaller companies, with the full 25% rate only applying to profits above £250,000, and the ravages of COVID mean many businesses would consider a corporation tax bill a nice problem to have.
Survival, not profit, is the primary preoccupation.
Companies will also be able to “carry back” up to £2bn of annual losses for two years, offering additional relief for businesses in the hardest-hit sectors such as aviation and leisure.
Mr Sunak will hope unease about the increase will be offset by a £25bn measure the Treasury is calling a “super-deduction”, a 130% allowance for companies to offset investment in plant, machinery and building against tax.
Intended to encourage companies to build and invest over the next two years, it means anyone building a factory next year will effectively be paid a 30% fee for doing so.
That is a significant incentive, and there was a welcome from the manufacturing sector.
Make UK’s chief executive Stephen Phipson said it could “turbo-charge” investment, but only as part of a strong industrial strategy, of which there was almost no mention in the speech.
Before the investment boom begins however, British business and its millions of employees have got to make it to the end of lockdown.
A special Budget edition of the Daily podcast will be available to listen to from 7pm.
© Sky News 2020