Policy and Intelligence Newsletter - Budget 2021 Special Edition
Budget 2021 Special Edition
03 March 2021
As an attempt “to level with people over Britain’s public finances”, today’s “Budget for Recovery” has set out the first steps towards reducing the biggest peacetime deficit in Britain’s history. Forecasts show the UK Government has borrowed £355bn this year; next year this is expected to be £234bn. Measures to reduce the gap between Government tax income and spending include an income tax freeze and a higher corporation tax from 2023.
Previously the LGA estimated that a further £2.6bn was needed to cover Council cost pressures and non-tax income losses of 2020/21 in full. Under the new Budget, local authorities are expected to receive over £3bn of further support to address Covid-19 pressures. Local authorities will be "fully compensated" for income loss due to the extension of the 100% business rates relief programme, as well as receiving new burdens funding for administrative and IT costs. No additional local election funding was mentioned in the Budget and there will be no extension to the Hardship Fund, which enabled local authorities to provide an additional discount to Council Tax bills. 18% of Cornish Households have received council tax support.
The pandemic has exposed the challenges facing our adult social care system, and the need for long-term reform. The budget does not address funding for adult or children’s social care specifically, and also omits preventative programmes.
The Chancellor was expected to use the Budget to insist the Government has not lost sight of its election promise to ‘level up’ the UK. Cornwall receiving ‘priority 2’ status under the new levelling up fund indicates this Government does not consider Cornwall an area “most in need of levelling up in England”. The prioritisation is based on a combination of metrics including need for economic recovery and growth, need for improved transport connectivity and need for regeneration. Cornwall is identified as a priority for the UK Community Renewal Fund. All other opportunities for Cornwall are through competitive bids.
With the Cornish economy still at a standstill and the impact of Brexit being felt, the extension of furlough until the end of September, an extension of the self-employment income support scheme, and extra funding announced for the hospitality and cultural sectors will provide vital support for Cornish businesses.
Cornwall has seen a 114% increase in Universal Credit claimants since November 2019. The weekly £20 universal credit uplift until September will be a welcome respite. However, anticipating a further rise in unemployment when furlough does end, the Budget already includes a new flexi-apprenticeship scheme to allow people to work for more than one employer; cash incentives for firms taking on apprentices; and an extra £126m of funding for traineeships, funding 40,000 placements.
To underline the importance the UK places on reducing carbon emissions ahead of the G7 and COP26, the Budget includes details on the UK’s first ‘green gilt’ and funding opportunities to promote renewable energy production. Fuel duty will, however, be frozen for the 11th consecutive year.
Details on a new Spending Review later this year are to follow. The Budget did not include any further detail on a business rates review or the Fair Funding Review.
On income tax, the threshold for paying the basic rate will rise to £12,570 next year. For higher-rate payers, the threshold will be £50,270. Both rates will stay the same until 2026.
The National Living Wage will rise to £8.91 from April.
National Insurance rates will remain unchanged.
The Lifetime Allowance will be maintained at its current level of £1,073,100 until April 2026.
The adult ISA annual subscription limit for 2021-22 will remain unchanged at £20,000.
Top up for universal credit (UC)
The weekly £20 universal credit uplift will continue until September.
- The number of households in claiming UC in Cornwall has increased by 114%, and 400% in Isles of Scilly since November 2019 (StatXplore, 2020).
Stamp duty and mortgage guarantee scheme
The Chancellor announced that the up-to-£500,000 "nil-rate band" for stamp duty will finish at the end of June, rather than the end of March.
The Budget also contains a mortgage guarantee scheme to help people with small deposits get on the property ladder, with incentives for lenders to offer more 95% loans.
The Office for Budget Responsibility (OBR) expects the economy to be 3% smaller in 5 years’ time than it would have been without the pandemic. OBR projections see the economy growing by 4% this year, 7.3% in 2022 and 1.7%, 1.6% and 1.7% in subsequent years.
The total Covid-19 support package in 2021-2 will be worth £352bn.
The furlough scheme will be extended until the end of September, at an 80% rate until the scheme ends. Firms will be asked to contribute 10% in July and 20% in August and September.
- CIOS remains the third highest upper tier authority in furlough take-up rate at 19%, closely following Torbay UA and the Isle of Wight UA (HMRC, 2020)
There will be a £5bn restart grant scheme for businesses in the retail, hospitality, accommodation, leisure and personal care sectors. Grants of up to £6,000 will be available to non-essential retail that will be allowed to reopen from mid-April, while grants of up to £18,000 will be available to hospitality businesses that reopen later.
- In Cornwall, 6,615 businesses (27% of all local businesses) and 80 businesses (41%) in the Isles of Scilly could be applicable for these grants (ONS, 2020).
The Self-Employment Income Support Scheme will be extended for 4th (February-April) and 5th rounds (July-September), worth 80% of average trading profits, up to £7,500. The scheme has been expanded to include people who became self-employed in FY 2019-20, if a tax return had been filed by midnight on 2 March: this could benefit 600,000 people.
- Cornish residents have claimed £66.3m from the SEISS, as of January 2021 and £0.5m by IOS based residents. This grant would support 63,400 self-employed residents in Cornwall (Nomis, 2020b).
The Bounceback Loan Scheme and Coronavirus Business Interruption Loan Schemes will end, replaced with a new loan scheme to run until the end of the year. Businesses can apply for loans of £25,000-£10m, with a Government guarantee to lenders of 80%.
The 100% business rates relief scheme for eligible hospitality, retail and leisure businesses will continue until the end of June, followed by a 66% discount until the end of the year. 750,000 businesses nationally are likely to benefit.
There will be an extension of the temporary VAT reduction from 20% to 5% for the hospitality sector until the end of September, then a 12.5% interim rate for next 6 months. VAT in general will not be increased.
Corporation tax will rise to 25% from April 2023. A new small profits rate (at the current level of 19%) will be created for businesses making below £50,000 profit. A tapered rate will apply between £50,000-£250,000, meaning only 10% of firms will pay the full 25% rate. Our working assumption is that this rise is unlikely to affect many Cornish businesses, which are typically small or micro in size.
A “super deduction” for 2 years, worth an estimated £25bn, will allow companies to reduce their tax bill by 130% of the value of their investment when they invest in their own businesses.
Local authorities will distribute £425m in additional discretionary business grant funding, part of the £5bn Restart scheme.
The Help to Grow Scheme will subsidise (at 90%) a 12-week national curriculum delivered by business schools for 30,000 small and medium-sized enterprises over 3 years. 100,000 small and medium-sized enterprises will receive a voucher for 50% of approved productivity-enhancing software costs, up to £5,000.
There will be an extension to the programme which allows small and medium-sized businesses to claim back up to two weeks of eligible Statutory Sick Pay per employee from the Government.
Culture, sport, leisure and tourism
A £300m extension to the Culture Recovery Fund will support theatres, museums and galleries, including an extension of the Film and TV Restart Scheme. A £90m scheme will support Government-sponsored national museums in England.
- A Cornwall Council Cabinet report shows that 80% of respondents to a Creative Kernow survey said they had suffered direct financial losses, totalling £4.07m. 23.6% of respondents were not eligible for any Government support (Creative Kernow, 2020).
A £300m sport recovery fund will support major spectator sports, including £2.8m for a bid for the 2030 Men’s football World Cup. £25m will be invested in grassroots sports and £1.2m will mitigate the financial effects of Covid-19 on the UEFA Women’s Euro football competition.
A new £150m Community Ownership Fund will help grassroots groups take over local pubs, theatres and sports clubs at risk of closure.
A £100m National Leisure Recovery Fund will support publicly-owned leisure facilities in England during the pandemic.
A specific tourism support package would have been welcomed, but was not included in the Budget.
There will be greater incentives offered to firms taking on apprentices, doubled to £3,000 for each apprentice. £126m will be available for traineeships in England, funding 40,000 placements.
£7m will be provided for a new “flexi-job” apprenticeship programme in England, that will enable apprentices to work with a number of employers in one sector.
Duty and tax
The VAT registration threshold will remain at £85,000 until 2024.
Corporation tax will rise to 25% from April 2023. A new small profits rate (at the current level of 19%) will be created for businesses making below £50,000 profit. A tapered rate will apply between £50,000-£250,000, meaning only 10% of firms will pay the full 25% rate.
- The tax rise for large corporations is unlikely to affect many Cornish businesses, which are typically small (10%) or micro (89%) in size (Nomis, 2020b).
The Government has published the prospectus for the £4.8bn UK-wide Levelling Up Fund, providing guidance for local areas on how to submit bids for the first round of funding starting in 2021-22.
Capacity funding will be allocated to local authorities most in need of levelling up in England, as identified in the index published alongside the prospectus. Cornwall has been given a ‘priority 2’ status of 3 levels. Bids from categories 2 and 3 will still be considered for funding on their merits of deliverability, value for money and strategic fit, and could still be successful if they are of exceptionally high quality.
UKSPF / UK community renewal fund
The Government has launched the prospectus for the £220m UK Community Renewal Fund alongside the Budget. This will support communities across the UK in 2021-22 to pilot programmes and new approaches as the Government moves away from the EU Structural Funds model and towards the UK Shared Prosperity Fund. Funding will be allocated competitively. The Government has identified 100 priority places, including Cornwall, based on an index of economic resilience to receive capacity funding to help them co-ordinate their applications.
Eight new English Freeports will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
UK infrastructure bank
The UK Infrastructure Bank, located in Leeds, will co-invest alongside the private sector in infrastructure projects. It will have an initial capitalisation of £12bn. The bank will replace some of the activities of the European Investment Bank (EIB) but “will provide more targeted support than the EIB and will be better aligned with the UK Government’s objectives.” It is intended to be operational in an interim form from spring 2021.
Build back better
Publication of the Government’s ‘Build Back Better: Our Plan for Growth’.
Net zero carbon economy
£20m to fund a UK-wide competition to develop floating offshore wind demonstrators and help support the Government’s aim to generate enough electricity from offshore wind to power every home by 2030.
The Government will make an offer of support, in principle, to the Able Marine Energy Park on Humberside following the conclusion of the competition to upgrade ports infrastructure for the next generation of offshore wind. The Government will also sign a memorandum of understanding with Teesworks Offshore Manufacturing Centre on Teesside to support the development of another offshore wind port hub.
£68 million to fund a UK-wide competition to deliver first-of-a-kind long-duration energy storage prototypes that will reduce the cost of net zero by storing excess low carbon energy over longer periods.
£4m for a biomass feedstocks programme in the UK to identify ways to increase the production of green energy crops and forest products that can be used for energy.
Plans for at least £15bn of green gilt issuance in the coming financial year, to help finance critical projects to tackle climate change and other environmental challenges, fund important infrastructure investment, and create green jobs across the UK.
The £375m UK-wide ‘Future Fund: Breakthrough’ will invest in highly innovative companies such as those working in life sciences, quantum computing, or clean tech, that are aiming to raise at least £20m of funding.
Over £1bn funding for a further 45 towns in England through the Towns Fund, supporting their long-term economic and social regeneration as well as their immediate recovery from the impacts of Covid-19.
The Chancellor announced an elite points-based visa by March 2022. Within this visa there will be a ’scaleup’ stream, enabling those with a job offer from a recognised UK scale-up to qualify for a fast-track visa.
Council finances and services
Local authorities in England were given £6.5bn in 2020-21 to respond to the impacts of Covid-19, in addition to £1.6bn awarded in 2019-20. Total support to date is over £8bn. In 2021-22, local authorities are expected to receive over £3bn of further support to address Covid-19 pressures.
No additional local election funding was mentioned in the Budget.
No extension to the Hardship Fund, which enabled local authorities to provide an additional discount to Council Tax bills for 3 million working-age people, was announced for the next financial year.
- In December 2020, 18% of Cornish Households received council tax support (Cornwall We Know, Jan 2021)
Local authorities will be "fully compensated" for income loss due to the extension of the 100% business rates relief programme, as well as receiving new burdens funding for administrative and IT costs.
The UK's Covid-19 vaccination rollout will receive an extra £1.65bn to help it reach its target of offering a first dose to every adult by 31 July.
- 186,549 people in Cornwall have received a first dose of a Covid-19 vaccine. 98% of over 80s in the Duchy have received their first dose (Public Health Cornwall, 2021).
An extra £50m will enhance the UK’s vaccine testing and research capability, provide support for clinical trials and fund acquisition of samples of new variants of Covid-19. The world’s first study into the efficacy of a third dose of vaccine will be supported.
£500 Test and Trace support payments in England will be paid until the summer.
The Government has previously announced a further £400m funding in England for the Contain Outbreak Management Fund (COMF) from 1 April, taking total COMF support across 2020-21 and 2021-22 to £2bn. The fund will cover additional public health activities in 2021-22, with more details to follow.
An updated Covid-19 contain outbreak management framework for local areas will be published in March, setting out how national and local partners will continue to work with the public at a local level to prevent, contain and manage outbreaks. An enhanced toolkit of measures to address Variants of Concern will be unveiled at this time.
Supporting the most affected (tackling health inequalities)
The Government will provide an additional £10m in 2021-22 to the Armed Forces Covenant Fund Trust, to deliver charitable projects and initiatives across the UK that support veterans with mental health needs, ensuring that veterans can access the services and support that they deserve.
The Government will provide an additional £19m towards tackling domestic abuse, including £15m in 2021-22 across England and Wales to increase funding for perpetrator programmes that work with offenders to reduce the risk of abuse continuing, and £4m between 2021-22 and 2022-23 to trial a network of ‘Respite Rooms’ across England to provide specialist support for homeless women facing severe disadvantage. This comes on top of the £125m announced at SR20 for local authorities to deliver the Domestic Abuse Bill’s new statutory duty to support victims.
The budget includes a lifetime commitment to continue the Thalidomide Health Grant beyond 2022-23 in England when existing funding runs out.
Following the £1bn education catch-up package announced last year, the government is making available £700m of further funding to help young people in England catch up on lost learning as a result of Covid-19.This new package includes a one-off £300m Recovery Premium for state primary and secondary schools, £200m to expand tutoring programmes and deliver early language support, and £200m for secondary schools to deliver face-to-face summer schools. This funding will help ensure children have the opportunity to make up for lost learning and are able to progress and fulfil their potential.
Adult and Children’s Social Care is not addressed in the Budget.
Nomis, 2020a APS (Annual Population Survey)
HMRC, 2020, COVID Job Retention Scheme (Feb, 2021)
ONS, 2020 ‘UK Business: Activity, Size, Location’; Table 1
StatXplore, 2020 ‘Universal Credit by Households, by Local Authority’
Creative Kernow, 2020 ‘Cornwall's Creative Manifesto 2021-2025’
Cornwall We Know, 2021 ‘COVID Insights Dashboard’
Public Health Cornwall, 2021 ‘CIOS Weekly Dashboard Summary’
Nomis, 2020b ‘UK Business Counts (2020)’