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Budget 2021: Corporation tax rise and threshold freeze as Sunak vows to build ‘fairer’ UK in COVID victims’ memory

Written by on 4 March 2021

The chancellor has vowed to build a “fairer” country in memory of those who have died during the coronavirus pandemic.

In an unprecedented Downing Street news conference following his 2021 Budget, Rishi Sunak acknowledged the victims and said financial support will continue long after COVID-19 restrictions end.

He said: “To the family and friends left behind, your loss – felt most acutely in the quietest of moments – must be overwhelming.

“But I promise you we will meet this moment with the passion and energy it demands, and we will build a fairer and more just country in their memory. Our recovery begins today.”

He added: “It is going to take us a long time to fully recover from the damage coronavirus has done to our economy.”

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The chancellor earlier unveiled a further £65bn in support for employees and businesses amid the coronavirus pandemic, as part of a three-part plan to “protect jobs and livelihoods of the British people”.

But he warned “corrective action” would be needed to tackle the UK’s rising debt, with the government now committed to spending £407bn on support during the COVID crisis and borrowing at levels last seen in the 1940s.

The budget included a freeze in income tax thresholds and a rise in corporation tax to help pay back the UK’s rising debts.

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‘We’re funding strong public services with taxes’

The key announcements from the chancellor included:

• An extension to the furlough scheme until the end of September and more support for the self-employed

• The £20-a-week uplift in Universal Credit will continue for another six months

• The rate of corporation tax will rise to 25% in 2023, but with protections for smaller businesses

• A freeze of the income tax personal allowance from next year until 2026, with a freeze in the higher rate threshold over the same period

• A new “super deduction” scheme to allow companies to reduce their tax bill by 130% of the cost of new investments

• The UK economy is forecast to grow by 4% this year and by 7.3% in 2022 but, overall, is set to be 3% smaller than it would have been due to the COVID crisis, according to the Office for Budget Responsibility (OBR).

The chancellor said the COVID crisis had caused “acute” damage to the UK economy and acknowledged it would take “this country – and the whole world – a long time to recover from this extraordinary economic situation”.

But he vowed: “We will recover”.

“I said I would do whatever it takes; I have done and I will do,” the chancellor said, as he reiterated his promise to support workers and businesses through the pandemic.

The chancellor said the government had borrowed a record £355bn this year, which he said was the “highest level of borrowing since World War Two”, and is forecast to be £234bn next year.

Underlying debt is due to rise from 88.8% of gross domestic product this year to a peak of 97.1% in 2023-24, before beginning to fall slightly.

Mr Sunak told the Number 10 briefing that he would be “honest” with the public about the problems the country faces as it emerges from the pandemic.

“It is going to take us a long time to fully recover from the damage coronavirus has done to our economy,” he said.

Podcast: Did Rishi Sunak’s budget deliver for households and businesses?

Asked by Sky’s economics editor Ed Conway if he was worried about being the chancellor with the highest tax burden since the 1960s, Mr Sunak replied: “We haven’t had a pandemic like this in over 100 years, so I think remember that’s why we’re having this conversation, that’s the problem that we’re grappling with.

“Unsurprisingly, when you’ve had a shock like that, and then when you’ve had a response in the likes of which we have done, I don’t think any of those other chancellors probably ever had to do as much fiscal support for the country as I have had to.”

The chancellor defended the lack of a pay rise for public sector workers, saying job losses and falling wages in the private sector, as well as the “very obviously difficult fiscal situation that we face”, meant it was “reasonable to take a more targeted approach to public-sector pay this year”.

And Mr Sunak was quizzed about his new Towns Deals, with a journalist pointing out that 40 out of the 45 areas earmarked for the more than £1bn in funding were represented by Conservative MPs.

The chancellor said the list was based on “an index of economic need” and a “bunch of objective measures” which were available for people to examine, adding that the money was to allow them to launch formal bids for funding and other areas could also lodge bids.

But Mr Sunak was asked at a press conference later why 40 of the 45 towns were represented by Conservative MPs and if this was a case of “naked pork barrel politics”.

He was also asked to reassure the public that fair criteria was being used to assess the eligibility of areas for grants.

The chancellor replied: “The formula for the grant payments for the new fund, to give them some capacity funding to bid for projects, is based on an index of economic need.”

Labour’s shadow communities secretary Steve Reed said: “Just months after the government was criticised for diverting funding away from towns that desperately needed it, we discover that cabinet ministers’ own constituencies now stand to benefit ahead of more deprived areas.”

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The Labour leader responds to the budget statement, calling it a ‘quick fix’.

Responding to the chancellor in the Commons, Labour leader Sir Keir Starmer claimed his budget “fell far short of the transformative change we needed to turbocharge our recovery for the decades to come”.

He said there was “no credible plan to ease the burden of debt hanging over so many businesses” and accused Mr Sunak of “itching to get back to his free-market principles and to pull away support as quickly as he can”.

“This is a budget that didn’t even attempt to rebuild the foundations of our economy or to secure the country’s long-term prosperity,” Sir Keir added.

“Instead, it did the job the chancellor always intended, a quick-fix, papering over the cracks.”