4 min read
13 March 2021
On the 3rd March 2021, Chancellor Rishi Sunak delivered the UK’s 2021 budget, setting out the government’s tax, spending and coronavirus recovery plans. Here is a summary of the policy decisions in the sectors which are of relevance to our clients.
• COVID support
• The Green Economy
Among the announcements were additional measures to help businesses through the economic downturn and also investment targeted to support the UK’s long-term growth and recovery plan. This was balanced with tax increases to reduce public borrowing, which currently stands at 17% of GDP due to the extra support given to the economy during the pandemic.
The government provided details of various support measures to assist businesses manage through the pandemic. It will continue to pay 80% of employee’s wages for companies who cannot maintain their workforces due to operational disruption due to coronavirus. In addition, new business recovery loans and grants for retail, hospitality and personal care sectors were announced.
The rate of Corporation Tax for large corporation will increase from 19% to 25% in 2023. Personal taxation thresholds are being frozen from 2022 which will have the effect of increasing the personal tax take due to fiscal drag.
The government announced several new investment schemes to stimulate the economic recovery. One of these is Freeports. Eight English ports are marked to become Freeports, special economic zones where businesses benefit from low taxation, simpler planning rules, infrastructure funding, cheaper customs with favourable tariffs, lower VAT and duties.
In addition to this, a super-deduction for capital investment was announced. Between 2021 and 2023, UK businesses will benefit from a super-deduction allowance against their corporation tax to encourage investment in new capital equipment. Super-deduction will cut companies’ tax bill by 25p for every pound they invest in new equipment meaning they can reduce their taxable profits by 130% of the cost.
This will be balanced by the previously mentioned rise in corporation tax, which leads us to the expectation of a short-term recovery to the health of UK business whereas the longer-term outlook is tempered by the rise in corporation tax.
The Green Economy
The chancellor unveiled a plan for investment in low-carbon infrastructure in line with the previously announced national infrastructure strategy announced in 2020 which we previously reported on here. Support for new port infrastructure for new offshore wind projects was announced along with the issuance of at least £15 billion in green bonds to help finance the transition to net zero and a sovereign green savings bond for retail investors. The government also set out plans to support the development of floating offshore wind technology.
Further measures included an initial capitalisation of £12 billion from the government for the creation of a UK Infrastructure Bank to support at least £40 billion of total investment in green infrastructure.
The budget also mentioned the launch of a £68 million UK-wide funding competition for innovative energy storage prototypes and a £4 million competition for the first phase of a biomass feedstock programme.
There is also investment into hydrogen, where £4.8 million of government funding will be provided to a new hydrogen hub to pilot the manufacture of green hydrogen using renewable electricity and electrolysis to produce a zero emission fuel for HGVs.
As part of an effort to attract more technically skilled people to the UK the government announced visa reforms using a points-based system specifically for tech scaleups, science and research. Simplified rules for high skilled visa applications were also unveiled.
The government also signalled its intention to launch a £375m investment fund that will encourage private investors to co-invest with government in innovative research and development (R&D) companies. Such companies require significant capital to fuel the later stages of their growth due to the costs associated with the R&D intensive nature of their businesses and are seen as strategically important to the introduction and deployment of transformative technologies.
At OBM we closely monitor economic policy in the UK and Japan, and its effect on international business and investment. If you would like to discuss how recent policy changes affect your business, then please contact us here.
Contains public sector information licensed under the Open Government Licence v3.0.