On 3 March 2021, Chancellor of the Exchequer Rishi Sunak delivered his second Budget. A year ago, Sunak was announcing measures to support jobs and incomes through what was believed to be a temporary disruption to our way of life. But over the past twelve months the pandemic has fundamentally altered how every part of society operates. The disruption has lasted longer than anyone hoped or expected, and the 2021 Budget therefore builds on critical government financial support.
The Budget also sets the tone for the future by outlining tax rises to help claw back government spending. Missing from the announcement was a clear pathway and adequate funding to reach net zero. The RIBA will continue to call on the government to support a green economic recovery.
What was announced?
The extension of the Coronavirus Job Support Scheme to September 2021 means employees will continue to receive 80 per cent of their salary, up to £2,500 per month. But employers will be required to contribute 10 per cent of this in July and then 20 per cent in August and September.
The Self Employment Income Support scheme was also extended with people eligible to claim a “fourth” payment of the scheme from 1 February and 29 April 2021 and a “fifth and final” to July. The fourth will be worth 80% of the average monthly trading profits for the three-month period and the fifth makes 80% payments to those who can prove their turnover has fallen more than 30%. If it has fallen less than that, the grant will cover 30%. 600,000 more self-employed workers who filed a tax return in 2019-20 will now be able to claim for the first time.
A new Recovery Loan Scheme and an extension of the loss carry back rules were also announced. In addition, the ability for small and medium-sized businesses to continue to reclaim up to two weeks of eligible statutory sick pay costs per employee from the government will be good news for many businesses. The Chancellor also announced a new Help to Grow scheme that will offer a digital management boost to 130,000 companies across the UK. Register and find out more information on the Help to Grow scheme.
The stamp duty holiday cliff-edge has been disbanded, with an extension to the scheme granted until September 2021. Until the end of June purchases up to £500,000 will continue to be free from the tax. However, from June to the end of September only homes bought up to a value of £250,000 will benefit from the holiday. This could be good news for the workload of architects, as we know that people are more likely to undertake significant work on their homes at “points of change”, such as moving house.
The rise in corporation tax will arguably have the biggest impact on practices. In 2023 this will increase from 19 to 25% for businesses whose profit is larger than £250,000. Businesses with profits of £50,000 or less will continue to be taxed at 19%. For those with profits in between, a sliding scale of corporation tax will be introduced. According to the RIBA’s Business Benchmarking survey, this would affect around 36% of RIBA Chartered Practices. To justify the move, the Chancellor pointed out that the UK will still have the lowest corporation tax in the G7.
The Chancellor also announced that personal income tax thresholds will be frozen after a rise this April. From April 2021, the tax-free personal allowance will be £12,570, and the higher tax rate – where the amount charged rises from 20% to 40% – will increase to £50,270. Both rates will then remain the same until April 2026. While this is not technically a tax rise, it does mean when an individual receives a pay rise, even in line with inflation, they may pay more tax by being pushed into a higher tax bracket.
While the Chancellor understandably focused on mitigating the impact of the pandemic, the measures announced do little to reflect the government’s commitment reach net zero or drive a green economic recovery. Some of the announcements – such as the UK Infrastructure Bank £12 billion of capital to enable sustainable lending and investment – could help our economy grow back more sustainably. But we need further clarity on the Bank’s governance, timescale and delivery method, as well as its investment focus, which currently looks to be restricted to clean energy, transport, digital, water and waste – noticeably missing key areas such as the built environment.
The personal allowance freeze and the corporation tax rise also hint at wider tax changes to come. It’s therefore vital that the government looks at how the tax system could also help tackle the climate emergency. By reforming mechanisms to incentivise sustainability the government could successfully drive the green economic recovery that is desperately needed.
Read the RIBA’s response to the 2021 Budget from President Alan Jones.
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