Along with the proposed ‘freedom’ date of the 21st June, budget day (the 3rd March 2021) has been one of the most anticipated dates of the 2021 calendar, with many people speculating what might be announced and how the government plans to reignite the economy after a devastating financial year.
With Prime Minister Boris Johnson remaining tight-lipped on financial policy during his press conference on the 22nd February, Chancellor of the Exchequer, Rishi Sunak, has finally delivered the 2021 budget. While there’s a lot to take in, you’re probably wondering exactly what the budget means for you (and how it could affect any savings you have).
This article explores each part of the budget, including Sunak’s “three part plan” of support, fixing finances and beginning the work of building the future economy.
Sunak assured the nation that we can expect “a swifter and more sustained recovery than expected”, with the Office for Budget Responsibility (OBR) placing the economy back to pre-Covid levels by the middle of 2022, six months earlier than expected. The OBR has also predicted a 4% growth in the economy this year.
What’s on this page
- Rebuilding the economy after the pandemic
- The Bank of England base rate
- The furlough scheme
- Support for the self-employed
- Tax rises
- Stamp duty holiday
- Help for victims of the cladding scandal
- The ‘rabbit out of the hat’
- What about Scotland, Wales & Northern Ireland?
Rebuilding the economy after the pandemic
While the 2020 budget was all about weathering the Covid storm, there’s no doubt that the main aim of this year’s budget is to begin to recoup some of the devastating losses sustained by the UK economy.
Sunak revealed some plans prior to the announcement, including:
- Extra funding for the vaccine distribution effort
- A £5bn pledge to help high street businesses reopen
- The return of ‘ultra-low deposit’ 95% mortgages, with a government scheme in place to assist first-time buyers
- £408 million to help museums, theatres and galleries reopen when restrictions are eased
- £150 million to empower communities to support places like local theatres, community centres and pubs at risk of closing
- A £300 million summer sports recovery package
In brief, the Chancellor has revealed an additional £65bn of spending is to be undertaken in order to reinstate the UK economy.
The Bank of England base rate
Prior to the budget announcement, there was much speculation that the Bank of England might implement a negative base rate to help prop up the economy. However, in the Bank of England’s Monetary Policy meeting on the 3rd February 2021, it was unanimously agreed to keep the Bank Rate at 0.1%.
During that meeting, the Monetary Policy Committee (MPC) was briefed on the findings of the Prudential Regulation Authorities findings concerning the implementation of a zero or negative bank rate. While it’s not something the MPC wishes to implement right now, it was noted that “if the option of a negative bank rate in the future were to be a feasible one in practice within the monetary policy toolkit, then the tactical preparations would clearly need to commence at some point”.
This doesn’t necessarily rule out a negative interest rate in the UK, so now might be a good time to lock your money into a fixed rate savings account.
The furlough scheme
The Chancellor has extended the job retention scheme a number of times during the pandemic. It was due to end in April 2021, but many, including the Telegraph, had speculated that Rishi Sunak would use the budget announcement to extend the furlough scheme until the summer.
What he announced is that the furlough scheme will be extended until the end of September, with no change to the existing terms for employees receiving 80% of their salary. The change comes for employers, with a 10% contribution in July, rising to 20% in August and September before the furlough scheme comes to an end.
Support for the self-employed
Boris Johnson had already confirmed that the budget announcement would provide further details about the Self-Employed Income Support Scheme (SEISS), to follow previous waivers on late tax payments.
We now know that support for the self-employed will continue to the end of September, with a fourth and fifth grant available to cover up to 80% of profits.
This means that self-employed people whose turnover has fallen by 30% or more will continue to receive the full 80% of the grant, with those facing less need for taxpayer support receiving 30%.
Sunak finished this part of his announcement by revealing that the government had spent £33 billion supporting the self-employed, one of the most generous compensation schemes in the world.
With the UK still not out of the woods when it comes to lockdown restrictions, it was confirmed prior to today’s budget that any tax raises would be saved for a future budget, once the economy is back up on its feet.
This is what the Chancellor announced with regards to taxation:
- No changes to National Insurance tax, capital gains or inheritance tax.
- The Government has frozen the personal allowance tax-free threshold at £12,570 from the 2021/22 tax year until 2026.
- For higher-rate taxpayers, the 40% band will increase from £50,000 to £50,270, fixed until 2026. The aim of these last two measures, according to the Chancellor, is that “nobody’s take-home pay will be less than it currently is.” Sunak describes the result of these measures as a tax policy that is “regressive and fair”.
- The VAT registration threshold for businesses will remain at £85,000 until 2024. Businesses in the hospitality sector will continue to pay 5% VAT until later this year when it will be increased to 12.5% for a further six months before being reinstated to the full 20%.
- An increase in corporation tax from April 2023 to 25%, which will still be the lowest rate in the entire G7. It will also be on a sliding scale, with smaller businesses that generate less profit paying less in corporation tax than larger businesses generating more profit.
- Planned increases to duties on alcohol, tobacco and fuel have been frozen.
Stamp duty holiday
When the stamp duty holiday on houses worth up to £500,000 was originally announced with a deadline date of the 31st March 2021, it was probably done with the optimism that market stimulation might not be quite as necessary as it actually was.
Despite the roadmap to freedom, lockdown restrictions are still firmly in place, with the Chancellor announcing that due to the sheer volume of transactions, many purchases won’t complete before the deadline. Because of this, Sunak announced today that the stamp duty holiday will continue until the 30th June, followed by a temporary stamp duty threshold of £250,000, and only returning to the usual level of £125,000 on the 1st October.
Sunak also revealed a ‘mortgage guarantee’ programme to support those who can only afford a 5% deposit. Several of the country’s largest lenders will be offering 95% mortgages from as early as next month, and they will be backed by a government guarantee.
Help for victims of the cladding scandal
Housing secretary, Robert Jenrick, announced in early February that there would be an extra £3.5bn in government funding added to the existing £1.6bn pot to remove dangerous cladding from high-rise buildings in England. However, there has been much public outcry that this just isn’t enough.
Property owners are still faced with huge bills, and the pressure was mounting for the Government to address this issue, however, this was not directly mentioned during the Chancellor’s announcement.
The ‘rabbit out of the hat’
While nobody knew what the surprise announcement in this year’s budget might be, we could almost guarantee that it wouldn’t be another ‘Eat Out to Help Out’ scheme.
The Chancellor today revealed his hopes for a green industrial revolution, with a £40 million investment into infrastructure including off-shore wind projects, and a £12bn UK infrastructure bank located in Leeds. He also announced that one positive takeaway from the coronavirus pandemic was the new technological frontier that many small businesses were embracing, announcing free expert training on new productivity-enhancing software for small businesses, commencing in the autumn, under a scheme called ‘Help to Grow’.
In the final part of his budget announcement, Sunak revealed plans for eight new freeport locations across England, including Solent, Liverpool and Teesside, that will unlock millions of pounds in private sector investments and create thousands of jobs across the country.
What about Scotland, Wales & Northern Ireland?
While today’s announcement covers the whole of the UK, the devolved governments have also announced their own budgets.
Holyrood Finance Secretary, Kate Forbes, delivered the Scottish Budget on the 28th January. Announcements included new income tax thresholds, funding for council tax freezes and changes to the housing sector.
The Welsh Budget took place in December 2020, when LTT (Welsh stamp duty) for buy-to-let landlords and people buying second homes increased from 3% to 4%.
Northern Ireland’s draft Budget for 2020-21 is available to download here. Highlights include over £380 million being provided for the health service response to covid with additional funding being pledged to pupils with Special Educational Needs and holiday hunger payments to support low-income families.
Register for a Raisin UK Account
However the budget announcement directly affects you, it’s probably got you thinking about your savings and how to protect them.
In times of financial uncertainty, one option to consider is locking your money into a savings account that offers a fixed rate of interest, so you won’t be impacted by fluctuating rates and your savings will continue to grow.
At Raisin UK, online banking is made easy thanks to a user-friendly dashboard that allows you to view all of your accounts with partner banks. If you want to quickly and easily apply for savings accounts with attractive rates from a range of UK partner banks, register for a Raisin UK account and log in to apply today. Don’t forget that it’s free to open an account.