Bounceback Budget builds bridges but long-term worries remain

ICAEW Chief Executive Michael Izza has called measures announced by the Chancellor in his March 2021 Budget to protect jobs and livelihoods an “effective bridge” to enable companies to plan effectively over the next six months.

In his much-anticipated ‘Bounceback Budget’, Rishi Sunak unveiled a package of support including extensions to the two major income support schemes, alongside extensions of universal credit, tax credits and stamp duty land tax. Support for business including restart grants, an extension of business rate relief, loss relief carry backs being extended to three years and reduced VAT rates for the hospitality sector.

Speaking after the Budget speech, Izza said that longer-term incentives for investment such as the super deduction will help to make the UK competitive in the post-crisis global economy, perhaps offsetting the effect of the planned increase in corporation tax. 

However, he warned that the impact of COVID-19 will be with us for a decade. “We previously heard that recovery will come from consumers spending the savings they have accumulated during the lockdowns, but there wasn’t much in the Budget to kickstart this,” said Izza.

“With only a brief mention for Brexit in the Chancellor’s speech, businesses will also be wondering why there was very little on post-Brexit trade,” he continued.

ICAEW’s Head of Tax Frank Haskew, called for the government to use its newly minted ‘Tax Day’ on 23March to streamline the tax system.

“We were disappointed that there wasn’t more announced on helping to simplify the tax system, to decrease the administrative burdens on businesses and taxpayers,” said Haskew. “This is an important measure, and we hope long-term plans for this will be provided with tax legislation later this month.”

Commenting on the public sector finances, and the effect the Budget measures may have on them, Alison Ring, ICAEW Director, Public Sector, said: “While the deficit for the current financial year will come in £39bn below what was previously expected, this is forecast to be offset by an increase to the deficit of £70bn in 2021-22. This increase reflects both the continuation of support schemes for people and businesses, as well as sizeable stimulus measures to support economic recovery. 

“The additional resources being provided to HMRC to tackle fraud, such as the new COVID taskforce, will be needed to provide proper scrutiny of claims for the Help To Grow and super-deduction schemes in particular,” Ring continued

“While the Chancellor did take action to restrain the growth in debt over the next five years, he did not fully address how he plans to deliver sustainable public finances in the longer-term. The Chancellor chose to focus on an alternative metric of ‘underlying debt’ in his speech, rather than the official measure for public sector net debt which is predicted to peak at close to 110% of GDP in 2025. Whichever measure is used, further difficult choices will be needed in future Budgets to address the fundamental challenges facing the public finances.”

For more information on the March 2021 Budget visit ICAEW’s Budget page or subscribing to the ICAEW Daily email by clicking the ‘Daily’ option in your preference centre.