Since Rishi Sunak became Chancellor, he has been more focussed on spending money than raising it. Sunak has borrowed more in his first year in his job that Gordon Brown did in his whole time as chancellor. While today's Budget saw Sunak extend several relief schemes, he also used it to take a few tentative steps to showing how he plans to put the economy on a solid footing following the pandemic.
Stressing that fairness and honesty would define his approach, Sunak did what many in his party had warned against and raised taxes. Here are five things we learnt from Sunak's Budget:
1. Corporation tax will increase to 25 per cent from 2023
Sunak was at pains to stress that, even with this increase, the UK will still have the most competitive rate in the G7. However, given that Jeremy Corbyn argued for a 26 per cent corporation tax rate ahead of the 2019 election, the size of the spike has already been met with some scepticism by Tory MPs. The hope among Sunak's supporters is that his 'Super Deduction' policy allowing businesses to claim 130 per cent of their new machinery as a tax cut shows that the country will remain competitive.
2. OBR predicts a 'swifter' recovery for the UK
According to the latest Office for Budget Responsibility (OBR) forecasts, the UK’s economy will return to pre-Covid levels six months earlier than previously predicted. The vaccine effect appears to be at work as Sunak said the Office for Budget Responsibility (OBR) now predicts the UK’s GDP will return to pre-crisis levels by the middle of next year. In this recovery scenario, GDP growth in 2022 will be the highest since 1941. However, the economy is still expected to be three per cent smaller in five years' time than it would have been without the pandemic.
3. Furlough extended until September
While the roadmap suggests restrictions will end in June, Sunak has extended furlough until September. Some have been quick to take this as evidence the PM's roadmap could be pushed back, but the Treasury motivation at least is to limit unemployment as companies start to adjust to the new environment.
4. Tax burden to reach highest level since Roy Jenkins was chancellor
The tax rises announced today increase the tax burden by one per cent, to 35 per cent of GDP in 2025-26. That's the highest level since Roy Jenkins was chancellor in the late 60s. Sunak was keen to stress the unique situation the country is in – saying the pandemic can only be compared to the world wars in terms of the effect on the economy.
5. Universal Credit uplift will be temporary
The Chancellor appears to have had a small victory in the ongoing debate across government on the Universal Credit uplift. Sunak worries that the £20 a week uplift could end up becoming permanent spending. As a result he previously proposed a one-off sum, while figures in the DWP pushed for it to be extended for a full year. A compromise has been found: the UC uplift will be extended for six months only. Rather than case closed, expect this battle to start up again as that deadline nears.