When Rishi Sunak took the job of Chancellor of the Exchequer 13 months ago, few would have believed his second budget would prove more challenging than his first. Yet this is the reality that faced him on Wednesday, with debt now over £2 trillion and borrowing at eye watering levels not seen since World War Two.
The current darling of Westminster’s primary task was providing details of how he plans to nurse the country through what is (hopefully) the emergence from a pandemic and transition into recovery. To make matters more challenging, this needed to come alongside details of how, in the absence of a magic money tree, the Government’s comprehensive package of support measures will be paid for.
What has the Chancellor promised?
Kicking off with the high street, the £5bn pot for ‘Restart Grants’ was warmly welcomed. Retail has been one of the sectors most savagely impacted by the pandemic. Grants of up to £18,000 per premises for non-essential retailers and hospitality companies, alongside a continuation of business rates relief until June (followed by six more months of discounted rates), will provide meaningful support for businesses who survived the past 12 months and will help them get back on their feet post-Covid.
For those in the property industry, the rumoured extension to the stamp duty holiday was the biggest will they / won’t they since Ross and Rachel and – much like the classic TV couple – deep down we knew the Government would pull through. Mr Sunak’s extension of this tax break until the end of June and a step down to stamp duty normality by 1 October should help the industry avoid a policy cliff-edge in under a month’s time.
Today’s Budget also showed Mr Sunak is keen to incentivise lenders to give young, first-time buyers a chance to get on the property ladder. Though previous schemes with similar intentions have proved troublesome in the past, there is no doubting first-time buyers need more of a helping hand. The Government’s pledge therefore to protect lenders who offer 95 per cent mortgages on properties worth under £600,000 is welcome news. The real mystery is why this policy is not limited strictly to first-time buyers looking to get on the bottom rung of the ladder.
The Chancellor stated his desire for the UK’s recovery to be ‘investment led’ and two key announcements today offered hope this could turn into a reality. First, the new National Infrastructure Bank – set to be based in Leeds and boosted through an initial £12 billion of capital funding – is a positive move. As is the Chancellor’s new super deduction tax, which will reward firms who invest in innovation – with construction firms likely to be one of the key beneficiaries.
Though the Chancellor’s claim we could not pursue a freeports policy while inside the EU is curious to say the least, his announcement of eight freeport locations throughout England was a highlight nonetheless. The Government’s commitment to levelling up throughout England was made clear by their choice of winning freeport bids – with East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside the areas set to benefit from the significant tax breaks afforded by this new policy.
A report card on the Government’s green credentials would have made for mixed reading after today’s announcements. The introduction of £15 billion worth of green bonds (more detail to follow in June’s green gilt framework) and promises of new port infrastructure to aid offshore wind development at Teesside and Humberside are among the positives. In the build up to COP26 in Glasgow later this year, however, some will be shocked not to have got an update on the Green Homes Grant scheme. Though not entirely surprising, it was still a disappointment that rumoured details of plans for electric vehicle infrastructure and charging points were absent from today’s statement.
There were a series of other welcome, if slightly lower profile, announcements that are also worthy of note. 45 New Town Deals, funded by a £1 billion pot, alongside the announcement of Darlington as the home of the new Treasury campus reinforced the Government’s commitment to their levelling up agenda. A £150 million pot for local communities to take control of struggling sports clubs, theatres and other at-risk facilities can both give locals a greater stake in their communities and protect vital spaces. Finally, the backing of a World Cup bid will be welcomed by millions who are desperate to see football finally come home.
How will this all be paid for?
The Chancellor gave us two policy announcements that made clear how he intends to start paying for all this investment. In 2023, corporation tax will be hiked from 19 to 25 per cent for firms reporting profits over £250,000 a year, while income tax thresholds are to be frozen from next year. Dealing first with corporation tax. The staggered and delayed approach to this policy seems both considered and responsible – giving all businesses time to recover and targeting those best positioned to pay. The freeze on income tax thresholds also allows the Chancellor to keep to the Conservative Party’s 2019 manifesto pledges of ruling out tax raises, although critics were quick to point out the freeze on thresholds would lead to many more people paying more tax.
What is clear, and potentially most troubling for the Chancellor, is not that more will need to be done to fund this largely impressive package of support, but that it will prove unpopular when it happens. Mr Sunak’s brand is carefully managed and very important to him – the ‘man of the people’ photoshoot before last year’s Spending Review and the high-production value video that trailed this year’s Budget just two examples of that. The Chancellor has already attempted to shift blame for further, harsher announcements to come – no doubt with both 2024’s election and his own personal ambitions in mind – stating that it will be the responsibility of ”decades’ worth of governments” to cover the costs of Covid-19.
It was Icarus who came crashing down when he flew too close to the sun, but it will be Mr Sunak who is hoping to avoid a similar fate when further measures are put in place to tackle soaring debt and get public finances under closer control.