UK 2021 Budget: Sunak unveils “full measure of fiscal firepower”

Eloise Hanson Eloise Hanson Uploaded 04 March 2021

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UK: Chancellor Rishi Sunak has outlined his second Budget, extending furlough and the VAT cut for hospitality firms until September, offering £5bn in re-opening grants for high street businesses, and more.

Earlier this week, Sunak confirmed that restart grants will be available to support hospitality businesses and high street shops reopen when lockdown restrictions begin to ease.

Today, he announced that hospitality and leisure businesses will receive grants of up to £18,000 from April onwards.

Sporting, cultural and arts organisations have been allocated £700 million to help restart business. £400 million will be set aside for venues such as museums and galleries, and £300 million for professional sport.

A £150 million fund has also been set up to allow communities take ownership of pubs, theatres, shops or sports clubs at risk of closure.

Furlough has also been extended until September, however the terms and eligibility criteria will change. Employers will be expected today 10 per cent towards the hours not worked by staff throughout July, increasing to 20 per cent in August and September.

The business rates holiday has been extended until the end of June, along with the reduced VAT rate of five per cent until September. An interim rate of 12.5 per cent VAT will follow for another six months.

Alcohol duties have also been frozen for a second year in a row.

The fiscal measures announced today contribute an additional £65 billion to the economy. Overall, the total fiscal support deployed by the UK government over the last year amounts to £407 billion.

Speaking to the Commons, Sunak said he will use the "full measure of our fiscal firepower" to protect jobs.

Government borrowing is at the highest level since World War II, with BBC business editor Simon Jack tweeting it will take "decades to pay back".

In 2023, corporation tax will be raised from 19 per cent to 25 per cent, with the rate kept at 19 per cent for around 1.5 million smaller companies. The Small Profits Rate will ensure that only businesses with profits of over £250,000 will be taxed at the 25 per cent rate. 

To boost investment, there will be a "super deduction" in tax for companies that invest in innovation.

Clive Docwra, managing director of property and construction consultancy McBains, said:“We recognise the chancellor’s hands were tied by the extent of the Covid crisis, but – unless there is anything in the small print of the Red Book – there was little specific announced for the construction sector given that the government has made ‘build back better’ its mantra for recovery.

“The 'super deduction’ in tax may encourage construction firms to invest, while the reintroduction of 95 per cent mortgages, and extending their availability beyond first time buyers, could trigger a revival of the housebuilding sector.

“But we’re disappointed that it appears green retrofit schemes, such as the Green Homes Grant, were not renewed, as such programmes not only help contribute to carbon net-zero targets, but provide a lifeline to many construction firms in terms of maintenance contracts. On a macro-level, we’d have also liked to have seen a bigger commitment to wider green initiatives to help encourage the industry to move towards net-zero."

John Webber, head of business rates at Colliers, said: "The chancellor has followed through on expectations that he will extend the current 100 per cent 2020/2021 business rates holiday for the retail, hospitality and leisure sectors for an extra three months to the end of June and then provide an up to two thirds business rates holiday for the following nine months.

"The rates holiday for retail, leisure and hospitality is not as simple as it sounds. After the first three months it looks like it is going to be really cumbersome for businesses to apply and up to the already over stretched billing authorities to sort out.

"Whilst we were already disappointed that the chancellor had delayed the business rate review until the autumn, we had hoped there would have been something more to say today - it’s been disappointing that yet again he has failed to grab this opportunity. Only skimming the surface on this issue will have dire consequences for many struggling businesses across the board.”

Merilee Karr, chair of the UK Short Term Accommodation Association (STAA) and CEO of UnderTheDoormat, said: "We welcome the new £5bn restart scheme but cannot stress highly enough how important it is that all businesses in the hospitality industry, especially the self-catering accommodation sector, are included in this measure. Support will be needed until all restrictions are removed – this includes international travel restrictions. We are concerned that short-term rental management companies, which often do not have a high street presence, will not be eligible for these grants, despite obviously being hospitality businesses.

"If the government wants the recovery to be even across all sectors, self-catering accommodation providers must be eligible for grant funding and treated on the same footing as other accommodation providers such as hotels, and not omitted on hospitality and retail business rates classifications.”

Jane Longhurst, chief executive of the mia, said: “We welcome the furlough extension until the end of September however, the sector will be required to contribute towards the cost of unworked hours from July, which is well before business meetings and events will return to any sustainable level of business and consequential income.

“Revenue losses for those operating within the sector have been harrowing, and as financial reserves have been necessarily depleted to compensate for restricted revenue generation, the foundations to make such contributions or simply re-open at any familiar capacity is currently not there.

"According to our research our members have spent, on average, £41,113 to ensure their venues are Covid-secure, so we sincerely hope that venues will qualify for the new Restart Grants of up to £18k designed to help businesses reopen and get going again."

Sue Rathmell, indirect tax partner at MHA MacIntyre Hudson, said: The UK hospitality sector is breathing a sigh of relief as the chancellor seem to have listened to its pre-Budget requests. In particular, the extension of the five per cent VAT rate for the UK hospitality sector for an additional six months up to the end of September 2021 is good news for businesses in the sector as it will cover the much important summer season. It was even more reassuring to see that in addition, from 1 October 2021 to 31 March 2022, the VAT rate will increase to 12.5 per cent before it returns to 20 per cent with effect from 1 April 2022.

“With the lockdown easing over the next three months, tourism and hospitality businesses in the UK will be hoping that this VAT reduction will encourage the UK public to stay in the UK this year and make the most of UK resorts and destinations whilst supporting UK businesses. They desperately need a good summer 2021 season to help save jobs and shore up finances to be able to survive the current crisis.

“The regrowth of the hospitality sector will not only be dependent on these measures but also on the successful reinvigoration of the UK’s high streets and city centres – encouraging people back into towns and cities will support pubs, restaurants, hotels, cinemas and theatres. The chancellor has put together a package of measures that we hope will support the sector to get up and running again as Covid-19 restrictions are lifted.” 

Giles Fuchs, owner of Burgh Island Hotel, said: “Grants of up to £18,000 for struggling hospitality businesses are an extremely welcome feature of this Budget, given how much pressure the sector has been under since the beginning of the first lockdown almost a year ago.

“Combined with the extension of the business rates holiday and VAT cut, the introduction of this Restart Grant in April will support the hospitality and tourism sector to get up and running again at long last. Hospitality businesses will also welcome the opportunity to benefit from the extension of the furlough scheme until September. And, employing three million people and generating £130bn of economic activity, the sector’s recovery can only be good news for the UK economy as a whole.

"Alongside this, however, the sector would welcome support which repairs the emotional toll the pandemic has taken on its workers. Many have suffered from loneliness and a loss of purpose as well as the financial setbacks of successive lockdowns, so if we are indeed to build back better, we should ensure that the full breadth of Covid-19’s impact is addressed going forward.”

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