British Finance Minister Rishi Sunak announced Wednesday that U.K. corporation tax will increase to 25% in April 2023 as the government looks to restore public finances in the aftermath of the Covid-19 pandemic.
In his Budget statement Wednesday, Sunak said the changes would take effect after the Office for Budget Responsibility, a public body that provides independent forecasts, expects the economy to have returned to its pre-Covid level.
“Second, I’m protecting small businesses with profits of £50,000 ($69,816) or less, by creating a Small Profits Rate, maintained at the current rate of 19%,” Sunak told the House of Commons. “This means around 70% of companies – 1.4 million businesses — will be completely unaffected.”
Above £50,000, a taper will be introduced so that only companies with profits of more than £250,000 will be taxed at the full 25% rate.
GDP forecasts
The OBR now expects the British economy to return to its pre-Covid level by the middle of 2022, with GDP growing by 4% in 2021 and 7.3% in 2022.
However, it also warned that the economy will still be 3% below its pre-pandemic trajectory in five years’ time.
The government has borrowed a peacetime record £355 billion since the onset of the pandemic, 17% of GDP, and expects to borrow a further £234 billion, (10.3% of GDP) next year. Borrowing then falls to 4.5% of GDP in 2022/23 and 3.5% in 2023/24. Underlying debt is expected to rise from 88.8% of GDP this year to 93.8% next year, peaking at 97.1% in 2023/24.
“While it is right to help people and business through an acute crisis like this one, in normal times, the state should not be borrowing to pay for everyday public spending,” Sunak said.
“Second, over the medium term, we cannot allow our debt to keep rising and given how high our debt now is, we need to pay close attention to its affordability. And third, it is sensible to take advantage of lower interest rates to invest in capital projects that can drive our future growth.”
Sunak also announced the freezing of personal tax thresholds, removing the “incremental benefit created had thresholds continued to increase with inflation.”
The opposition Labour party leader, Keir Starmer, accused Sunak’s budget of having “papered over the cracks, rather than rebuilding the foundations” of the British economy.
Covid response hits £407 billion
The budget comes as nationwide Covid-19 restrictions are set to be gradually unwound over the coming months, culminating in full removal on June 21. Meanwhile, more than 20 million people in the U.K. have now received a first vaccine dose.
The government has embarked upon unprecedented public spending as the economy posted its sharpest contraction in more than 300 years in 2020. At Sunak’s last fiscal announcement in November, he unveiled the country’s largest peacetime budget on record.
On Wednesday, Sunak announced a further £65 billion worth of fiscal measures for the 2021/22 fiscal year, bringing the government’s total response since the onset of the pandemic to £407 billion.
This included an extension to the country’s furlough scheme and £20-per-week boost to Universal Credit, the British social security payment, until September, along with £5 billion in additional grants to businesses to aid reopening.
From April, non-essential retail outlets will receive grants of up to £6,000 per premises, while hospitality and leisure venues, which open later in line with the government’s phased easing of restrictions, will be eligible for up to £18,000.
The Coronavirus Jobs Retention Scheme will continue subsidizing 80% of the wages of furloughed employees until the end of September, but businesses will be asked to contribute 10% in July and 20% in August as the economy reopens.
Sunak also extended the reduced 5% VAT rate (a value-added sales tax) until September 30, along with continuing reductions to business rates and stamp duty and further grants to the self-employed.
The limit for contactless bank card payments will increase to £100 in a bid to further liberate consumer spending.
