UK raises corporation tax to 25% as pandemic support hits £407bn

Chancellor of the Exchequer Rishi Sunak holds the budget box outside 11 Downing Street in central London ahead of the announcement of the Spring Declaration in the House of Commons on March 03, 2021 in London, England .

Wiktor Szymanowicz | Barcroft Media | Getty Images

LONDON — Britain’s Finance Minister Rishi Sunak announced on Wednesday that UK corporation tax will rise to 25% in April 2023 as the government seeks to restore public finances in the wake of the Covid-19 pandemic.

In his budget statement on Wednesday, Sunak said the changes would take effect after the Office for Budget Responsibility, a state body that provides independent forecasts, expects the economy to return to pre-levels. Covid.

“Secondly, I am protecting small businesses with profits of £50,000 ($69,816) or less, by creating a small profits rate, maintained at the current rate of 19%,” Sunak told the House of Commons. “That means around 70% of businesses – 1.4 million businesses – will be completely unaffected.”

Above £50,000 a cone will be introduced so that only companies with profits over £250,000 will be taxed at the full rate of 25%.

GDP forecasts

The OBR now expects the UK economy to return to pre-Covid levels by mid-2022, with GDP growing at 4% in 2021 and 7.3% in 2022.

However, he also warned that the economy will still be 3% below its pre-pandemic trajectory five years from now.

The government has borrowed a peacetime record of £355bn since the start of the pandemic, or 17% of GDP, and plans to borrow a further £234bn (10.3% of GDP) next year. next year. Borrowing then falls to 4.5% of GDP in 2022/23 and 3.5% in 2023/24. Underlying debt is expected to rise from 88.8% of GDP this year to 93.8% next year, peaking at 97.1% in 2023/24.

“While it is right to help people and businesses through an acute crisis like this, in normal times the state should not borrow to pay for day-to-day government spending,” Sunak said.

“Secondly, in the medium term, we cannot allow our debt to continue to rise and given its current level, we must pay particular attention to its affordability. And thirdly, it makes sense to take advantage of falling rates of interest to invest in capital projects that can drive our future growth.”

Sunak also announced the freezing of personal tax thresholds, removing “the additional benefit created if the thresholds continue to rise with inflation.”

Opposition Labor leader Keir Starmer accused Sunak’s budget of having “covered up the cracks, rather than rebuilding the foundations” of Britain’s economy.

Covid response hits £407bn

The budget comes as national Covid-19 restrictions are set to be phased out over the next few months, culminating in a full removal on June 21. Meanwhile, more than 20 million people in the UK have now received a first dose of the vaccine.

The government embarked on unprecedented public spending as the economy posted its biggest contraction in more than 300 years in 2020. In Sunak’s latest budget announcement in November, he unveiled the biggest budget ever by the country in times of peace.

On Wednesday, Sunak announced a further £65billion in tax measures for the 2021/22 financial year, bringing the government’s total response since the start of the pandemic to £407billion.

This included an extension of the country’s furlough scheme and a £20-a-week increase in Universal Credit, Britain’s social security payment, until September, as well as £5billion in additional grants to businesses to help reopen .

From April, non-essential outlets will receive grants of up to £6,000 per premises, while hospitality and leisure venues, which will open later in line with the gradual easing of restrictions by the government, will be eligible for up to £18,000.

The Coronavirus Jobs Retention Scheme will continue to subsidize 80% of wages for furloughed employees until the end of September, but companies will be asked to contribute 10% in July and 20% in August as the economy reopens.

Sunak also extended the reduced rate of 5% VAT (a tax on value-added sales) until September 30, as well as continued reductions in commercial rates and stamp duty and new subsidies for the self-employed.

The limit for contactless bank card payments will rise to £100 in a bid to further free up consumer spending.

Luisa D. Fuller