Budget 21: Govt using its “fiscal firepower” will take toll on public finance
Budget 21: Chancellor Rishi Sunak (pictured), while announcing a further raft of government COVID-19 support measures, has warned that ongoing spending will take its toll on public finances.
Sunak said: “We’re using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people, but the damage done by coronavirus combined with a level of support unimaginable only 12 months ago, has created huge challenges for our public finances.”
The Office for Budget Responsibility’s (OBR) fiscal forecasts show that this year the UK has borrowed a record amount of £355bn – 17% of national income and the highest level since World War Two.
Sunak added: “Without corrective action, borrowing would continue at very high levels, leaving underlying debt to rise indefinitely.”
One of these actions includes an increase of corporation tax to 25% from 2023, although this change will only affect 10% of businesses, as the government looks to protect smaller companies.
Melissa Christopher, executive director at ZEDRA, said: “While the corporation tax rate increase is disappointing, it was inevitable that tax rises would happen and it primarily affects groups of companies that are profitable.
“The revised loss rules will help those companies who have struggled during the pandemic and will take a couple of years to recover.
“We rarely welcome tax increases, but tax certainty is helpful for international businesses as they plan their own budgets and revise business arrangements in the recovery period.
“The fact that the increase is not until 2023 will allow sensible business planning. No group should be making decisions on headline tax rates alone, and now is perhaps the best time to make reasoned and educated assessments of long term expectations.
“International companies looking to expand to Europe will look at the UK as a successful economic location, with a motivated and educated workforce, and a stable business environment; the latter is particularly crucial in these turbulent times.”
Keith Richards, chief executive of the Personal Finance Society, warned that the effort to recoup public finance deficits should not come at the expense of individual finances, which have alread taken a blow due to the pandemic.
Richards said: “The extension of furlough to protect livelihoods and support for mothballed businesses to reopen is welcome news but to repair the long-term damage done to individual’s savings and financial safety nets caused by the financial fallout of COVID-19 it is vital the government engages with the financial advice and insurance profession to explore ways to rebuild the financial resilience of individuals.
“Chancellor Rishi Sunak has put the nation on notice of future tax increases to fund the ‘wartime’-like levels of borrowing that has taken place due to COVID-19.
“We would urge him to make sure any moves to fix the public finances and future tax changes do not discourage a savings culture that would build personal finances back better.
“COVID-19 has highlighted how important it is to incentivise people and businesses to set cash aside and insure themselves to protect them from future financial shocks.”