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In an effort to build anticipation before the 2021 Budget, at the start of the week the Chancellor released a trailer summarising his first year in office and hinting at some of the measures he introduced today. Mr Sunak also said that he was shocked when the Prime Minister appointed him as Chancellor. Little did he know what lay ahead.
Thanks to the successful rollout of the various vaccines, the Chancellor had a bit more clarity, not to mention time, to prepare this year’s budget. The measures announced earlier fit into what Mr Sunak referred to as a three-point plan to support businesses through what should hopefully be the end of the pandemic, to invest in the recovery and to bolster the public finances.
Seeing out the pandemic
The Chancellor extended the furlough scheme, which covers up to 80% of wages, until 30th September. That’s well beyond the final step of the recently announced roadmap out of lockdown, as long as everything goes to plan. However, employers will have to contribute 10% from July and 20% in August and September. The 100% business rates holiday will also continue until 30th June, with a discount of 75% for the rest of the year.
We knew the furlough scheme and rates holiday couldn’t carry on indefinitely because the cost to the Treasury is unsustainable, but Mr Sunak has been more generous than expected by extending furlough through September. Of course, many SMEs may still be nervous about returning to business as usual, but two other measures should ease their concerns.
Firstly, the Chancellor announced £5 billion worth of ‘restart grants’ for businesses that suffered the most during lockdown. Under this scheme, retailers can apply for up to £6,000 per premises to help them reopen and trade safely. The grant rises to a maximum of £18,000 for the leisure and hospitality industries.
Secondly, a government-backed Recovery Loan Scheme will replace the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), which end on 31st March. The new scheme will launch at the start of April and run until December and allow companies to borrow between £25,000 and £10 million. We’re still waiting to hear finer details covering the interest rate and repayment holidays.
Investing in the recovery
Looking further ahead, Mr Sunak launched what he referred to as a ‘Help to Grow’ scheme which will provide SMEs with training, tech advice and discounted software to boost innovation and productivity. The Chancellor also pledged another £375 million for the Future Fund (now known as the Future Fund: Breakthrough) to support high-growth sectors like life science and clean tech.
One of the few measures that Mr Sunak hadn’t widely advertised before his speech is a new super-deduction tax break. For the next two years, SMEs can cut their tax liabilities by 130% of the cost of any investments they make in their business. To put this into context, an investment of £100,000 would reduce a tax bill by £130,000.
Other longer-term measures include a fast-track visa scheme so British businesses can attract the best talent, the establishment of free ports offering tax relief and simplified customs rules and a doubling to £3,000 of incentive payments for apprenticeships.
Bolstering the public finances
There has been a lot of speculation about how the country will cover the cost of the exceptional level of economic support provided by the Treasury to protect jobs and businesses through the pandemic. One way the Chancellor aims to start tackling the national debt is by increasing corporation tax to 25% in April 2023. However, the good news for SMEs is that the tax hike will be tapered, so only companies generating profits of more than £250,000 will pay the full 25% rate. Those earning less than £50,000 will still pay 19%.
“Despite this year’s Budget announcements being the worst kept secret, it’s now clear there’s a lot for small businesses to feel positive about throughout the UK” said Andrea Reynolds, Swoop CEO. “Extensions to the furlough scheme, VAT reductions and business rates relief will provide certainty and reassurance as they begin their recovery”. Andrea continued: “There were also welcome interventions such as the ‘super-deduction’ investment incentive to encourage businesses to invest and grow when they’re able, and the initiative to drive digital adoption through the Help to Grow scheme. All this positivity should soften the blow of the future corporation tax increases”.
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