Budget 2021: What it Means for Recovery
On 3rd March, Rishi Sunak, the UK’s Chancellor of the Exchequer, delivered his highly anticipated Budget 2021 announcement.
Inevitably, the Budget mainly focused on the recovery from the Coronavirus pandemic and how the UK will pay for it, jobs and the economy. Mr Sunak delivered his Budget against a background of a 9.9% contraction in the UK economy – the largest in 300 years – together with the highest ever levels of peacetime borrowing.
To support those individuals and businesses affected by the ongoing COVID-19 pandemic, the Chancellor announced an extension to the current furlough scheme, first announced last year to help businesses. Along with these announcements, the Chancellor announced that the Self-Employment Income Support Scheme (SEISS) is to continue with a fourth and fifth grant, meaning that more than 600,000 people in the UK, many of whom became self-employed in 2019-20, could now be eligible to claim direct cash grants under the SEISS.
Looking towards economic recovery, Mr Sunak outlined plans for stamp duty, income tax rates, green industry, freeports, and the new national infrastructure bank.
Green infrastructure was a hot topic in the Budget, with the announcement that the new UK Infrastructure Bank will open in Leeds with £12 billion capitalisation from the Government. The Bank will aim to fund £40 billion worth of projects. The Chancellor also reiterated the need for a commitment to green investment, which the Infrastructure Bank will help with. In addition, green projects will be funded through a green recovery bond. The Chancellor also announced £20 million to fund 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.
Other moves to support green initiatives included £68 million to fund a UK-wide competition to deliver first-of-its-kind long-duration energy storage prototypes which will reduce the cost of net zero by storing excess low carbon energy over longer periods.
There were plans for at least £15 billion in funding of green gilt issuance in the coming financial year, this will help finance critical projects to tackle climate change as well as other environmental challenges, fund important infrastructure investment and helping to create green jobs throughout the country.
The housing sector received support in this Budget. The stamp duty holiday on properties up to £500,000 in England and Northern Ireland is being extended until June. This will be followed by three months when stamp duty will start at £250,000 with the duty returning to normal levels on 1 October. This will support the housing market as well as protecting and creating jobs. Home owning received further support with the announcement that, from April, the government will provide a guarantee to lenders offering 95% mortgages on properties worth up to £600,000.
Mr Sunak announced a four nations approach, stating that the majority of the announcements made in this Budget would benefit all the nations of the UK. He said the country needs to ‘stay as a United Kingdom’. To do this, the Chancellor announced £1.2 billion in funding for the Scottish Government, £740 million for the Welsh Government and £410 million for the Northern Irish Executive, meaning that the devolved nations will all have a chance to be part of the ‘levelling up’ of the country.
Speaking about being a United Kingdom, the Chancellor announced three Growth Deals in Scotland, in Ayrshire, Argyll & Bute and Falkirk, areas which will see funding come to them more quickly. He announced £4.8 million to support the development of a demonstrator hydrogen hub in Holyhead, Anglesey. £30 million funding was announced for the Global Centre for Rail Excellence in Wales. Staying with Wales, the Budget will also see City and Growth Deals in North-Wales, Mid-Wales and Swansea Bay, which, like the three in Scotland, will see funding come to them more quickly.
Looking to Northern Ireland, the third devolved nation will benefit from the Corporation Tax Exception for the Northern Ireland Housing Executive, Northern Ireland’s biggest landlord.
As part of the ‘levelling up’ agenda, the Chancellor announced a £1 billion investment for a further 45 towns in England, via the Towns fund, to support the long-term economic and social regeneration of these towns, as well as their immediate recovery from the impacts of the COVID-19 pandemic.
Mr Sunak also announced the locations of the eight English Freeports, which will be located in:
- East Midlands Airport
- Felixstowe &Harwich
- Liverpool City Region
- Thames, and
The Freeports will be special economic zones, with tax breaks for importing, exemptions from tariffs and will also have their own infrastructure funds.
Dominick Veasey, Director and Head of Research & Analytics at Nexus Planning, said: “Locations with Freeport status will benefit from tax reliefs and simplified customs, but interestingly also simplified planning restrictions. The detail of individual Freeport zones and the extent to which planning restrictions will be simplified will be interesting to follow in due course. Freeports are expected to significantly boost the local economy, but in practice are likely to have much wider economic benefits and development opportunities.”
Jordan Rosenhaus, Chief Executive at Goldman Sachs-backed modular housebuilder TopHat, said: “I welcome Rishi Sunak’s green-tinged Budget, but it was disappointing to see that policymakers are still failing to address the problems caused by consumers’ unwillingness to change old habits – especially in relation to how they live in their homes.
“Changing decades-old habits is not going to be easy, but it is vital. The Committee on Climate Change estimates that costs to green the UK’s housing stock will reach £11.7bn of average annual investment over the next 30 years. However, the same organisation also calculates that from mid-2040 savings in operating spending – e.g. how much cheaper it will eventually be to run a home’s heating system using air source heat pump instead of a gas boiler – will start to exceed the annual investment.
“For a step change to happen now it will require a cocktail of Government grants and incentives – not like the Green Homes Grant, which has crashed and burned, but more like basing a home’s council tax bill on its energy performance. Lower Stamp Duty for properties with higher Energy Performance Certificate ratings is also an example of how to encourage developers to improve the energy performance of their new homes. This would echo the tax incentives available to the motor industry and electric cars.”
Overall, Rishi Sunak’s second Budget focused on the recovery from the Pandemic and the way ahead for the UK economy. By ‘levelling up’ the country, the Chancellor hopes that there is light at the end of the tunnel for a nation that has endured the Coronavirus pandemic for more than a year.
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