Budget 2021: Rishi Sunak raises corporation tax and freezes income tax thresholds to help repair economy after Covid

Video report by ITV News Political Correspondent Romilly Weeks

More than one million more people will have to pay income tax in the next five years, forecasts have said, after Chancellor Rishi Sunak froze thresholds in a bid to recoup some of the hundreds of billions spent during the coronavirus pandemic.

He said the threshold at which people start paying income tax will freeze until 2026, after increasing to £12,570 in April - meaning more people will be dragged into paying tax as wages increase.

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"The higher rate threshold will similarly be increased next year, to £50,270, and will then also remain at that level for the same period," the chancellor said, meaning more people will eventually be in the highest bracket.

The Office for Budget Responsibility (OBR), a government body set up to provide independent economic forecasts, said the move to freeze income tax thresholds will bring 1.3 million people into the tax system and create one million higher rate taxpayers by 2025-26.

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The chancellor also made a number of spending pledges in his Budget, providing an additional £65 billion to support Britons through to the end of lockdown and beyond.

A new "small profits rate" will maintain the 19% rate for firms with profits of £50,000 or less - meaning around 70% of companies - 1.4 million businesses - will be "completely unaffected" by the tax hike.

Mr Sunak said this will help protect small business owners, while reclaiming more in profit from the biggest firms.

And there will be a taper above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate - around 10% of firms.

Mr Sunak said: "So yes, it's a tax rise on company profits. But only on the larger, most profitable companies. And only in two years' time."

But he said he would also need to be "honest" that coronavirus had "hit the economy hard" and he must start clawing back some of the £407 billion that has been spent in total during the pandemic.

The chancellor said he would also be increasing the business tax rates from 19% to 25% in 2023.

Mr Sunak said people's take home pay will not decrease because of the income tax threshold freeze, but said it does remove the incremental benefit created had thresholds continued to increase with inflation.

In a bid to protect the poorest households, he said there would be no increase to income tax, national insurance or VAT.

The OBR said the corporation tax rise will raise to 3.2% of GDP in revenue by 2025-26 - its highest since 1989-90.

Mr Sunak said there would also be a "super deduction" for companies when they invest in machinery, reducing their tax bill by 130% of the cost.

The chancellor unveiled a three-point plan to support people beyond the end of lockdown, fix the decimated public finances and to rebuild the economy.

Among the billions pledged, the most significant commitments are:

  • Extension of the furlough scheme until September

  • Extension of self-employment help

  • More business grants

  • Universal credit £20 uplift extended

Outlining his plan, Mr Sunak told the Commons: “First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis.

“Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that.

“And, third, in today’s Budget we begin the work of building our future economy.”

ITV News Political Editor Robert Peston said it was a "budget of two halves" - one half being the "£67 billion of tax cuts and spending increases for two years from April".

The other half is the "£66 billion of tax rises (and £2 billion of spending cuts) in the three subsequent years" - more than two thirds of the tax burden will fall on big companies, he said.

The measures announced in the Budget increase the tax burden from 34% to 35% of gross domestic product (GDP) – a measure of the size of the economy – in 2025-26, “its highest level since Roy Jenkins was chancellor in the late 1960s”.

Labour leader Sir Keir Starmer said the Budget was a "quick fix, papering over the cracks" but "didn't even attempt to rebuild the foundations of our economy or to secure the country's long-term prosperity".

Here are the main points:

  • Furlough extended

As widely expected, the chancellor has extended the furlough scheme, which pays 80% of out-of-work people's wages, until September.

But the scheme will change from July, with employers being required to contribute 10% to workers' pay packets, leaving the government to pay 70%.

Employers' contribution will increase to 20% in August until the scheme ends on September 30.

Throughout the scheme employees should continue to receive at least 80% of their salary for hours not worked.

  • Self-employed support extended and widened

The self-employment support scheme is being extended to align with furlough, as expected, but a surprise boost is that more than 600,000 newly self-employed people will be eligible for the grants.

Two more support grants will be available for self-employed people before support dries up at the end of September, giving people 80% of their average trading profits up to £7,500.

The first grant will be available to claim from April, covering three months of profits, with another available thereafter.

The Treasury said that hundreds of thousands more people will be eligible for the grants this time, as tax return data for 2019/20 is now available.

  • Universal Credit uplift extended

The £20 uplift in Universal Credit will be extended for another six months.

The chancellor said he wanted to extend "support for the lowest paid and most vulnerable" in society, "well beyond the end of this national lockdown".

  • More business grants

With the hospitality and retail sectors some of the hardest hit by restrictions brought on by the pandemic, the chancellor wants to help reinvigorate those industries with £5 billion in business grants to help them reopen as lockdown lifts.

"Restart grants” worth up to £6,000 per premises will be available to help non-essential retailers reopen and trade safely when they are allowed to reopen.

Hospitality, hotels, gyms, as well as personal care and leisure firms, will be eligible for up to £18,000 per premises as they are due to open later under the plans for easing lockdown.

  • Business rates holiday and VAT cut extended

The 100% business rates holiday will be extended to the end of June.

For the remaining nine months of the year, business rates will still be discounted by two thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open.

The chancellor also outlined an extension to the VAT cut to 5% for hospitality, accommodation and attractions.

It will last until the end of September, followed by a 12.5% rate for a further six months until March 31, 2022.

  • Eight freeports to be set up

The chancellor said he was only able to press ahead with the development of freeports in the England because of the UK leaving the European Union.

They will be set up in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.

Freeports are "special economic zones with different rules to make it easier and cheaper to do business", Mr Sunak said.

There will be simpler planning "to allow businesses to build", infrastructure funding "to improve transport link" and cheaper customs "with favourable tariffs, VAT or duties".

There'll also be lower taxes, "with tax breaks to encourage construction, private investment and job creation".

Mr Sunak said they will provide an "unprecedented economic boost" across the UK.

  • The Help to Grow scheme

The chancellor is providing the UK's small and medium enterprises (SMEs) with a £520 million initiative to support training and software.

He says the scheme could help 130,000 SMEs become more productive by providing access to some of the UK’s top business schools. Firms will receive expert technology advice and discounted software under the initiative.

Eligible SMEs will be given vouchers to get up to 50% off the purchase of new productivity-enhancing software, up to £5,000 each.

  • The plan for jobs

Mr Sunak pledged £126 million to create 40,000 additional traineeships in England and offer cash incentives for employers who take on an apprentice.

Cash grants for employers hiring apprentices will double to £3,000, regardless of age.

Under the new scheme, firms will have access to digital and management services. The digital offer will create a new online platform to offer free advice on technology that will help businesses to save time, reduce costs, and reach more customers, the Treasury said.

  • Mortgage and stamp duty help:

The stamp duty holiday, which was due to end at the end of this month, will be extended to the end of June.

It means the the nil rate band will be £500,000 til the end of June, then it will go to £250,000, double its standard level, until the end of September.

In a further bid to help people get on the housing ladder, the government will provide a mortgage guarantee for those only able to afford a 5% deposit.

Mr Sunak said "several of the country’s largest lenders" including Lloyds, NatWest, Santander, Barclays and HSBC "will be offering these 95% mortgages from next month".

  • Funding provided to complete Covid-19 vaccine rollout

The chancellor allocated £1.65bn for the coronavirus vaccination programme - the sum is how much it's estimated to cost to jab every adult in the UK who has not already been inoculated.

The funding covers all the costs associated with logistics and distribution of the vaccine, the workforce needed to support the programme, consumables (e.g. syringes) and IT.

It will also cover the costs of the vaccination estates capacity we have built, which includes delivery through primary care, community pharmacy, hospital sites and mass vaccination centres.

  • Other pledges:

– Nearly £410 million to support the badly-hit culture sector

– Fuel duty frozen for 11th year

– Alcohol duties will be frozen across the board for the second year running saving drinkers £1.7 billion

– £300 million to help cricket, tennis and horse racing in a summer sports recovery package

– £150 million to help local communities save struggling pubs, sports clubs, theatres and Post Offices

– £2.8 million to help fund a joint UK and Ireland bid to host the 2030 football World Cup

Watch Rishi Sunak deliver the Budget in full: