Rishi Sunak’s budget was politically adroit, offering relief and support to businesses and households as they emerge from coronavirus restrictions, but affirming the British chancellor’s credentials as a fiscal conservative by spelling out how he will restore order to the public finances. The bad news about tax rises was flagged well in advance, and some of the sting was taken out of the corporate tax rate increase by the fact that it is delayed until 2023 and will not apply to 70 per cent of businesses.
The fact that businesses making profits below £50,000 will continue to pay the 19 per cent rate will mean that most companies in Northern Ireland will be unaffected. But the new 25 per cent rate – double the 12.5 per cent rate in this State – could hamper foreign direct investment. Politicians at Stormont have been free since 2015 to levy a lower rate of corporate tax, but they have never done so because it would mean a reduction in the block grant from Westminster.
The good news about Britain’s economy is that the speed of the country’s vaccine rollout will help it to return to its pre-pandemic size by the middle of 2022, six months earlier than previously forecast. But after two years of high growth as the economy recovers, output is expected to slow down from 2023 onwards to about 1.7 per cent.
Sunak did not mention Brexit in his budget speech, but the Office for Budget Responsibility (OBR) estimates that the EU-UK Trade and Co-operation Agreement (TCA) agreed last December will result in the “long-run loss of productivity of around 4 per cent compared with remaining in the EU”.
Low productivity
Sunak’s answer to Britain’s low productivity, which has long suppressed economic growth, is a “super deduction” to encourage firms to invest by allowing them to write off 130 per cent of the cost of any business investment. Business groups welcomed that innovation, along with the extension of coronavirus supports until September.
Sunak's effort to turn "generation rent" into "generation buy" is more doubtful, extending a stamp duty holiday and introducing a government-backed 95 per cent mortgage for first-time buyers who can only afford a 5 per cent deposit. Labour leader Keir Starmer noted that the idea was not a new one but had been tried by David Cameron and George Osborne in 2013.
“What did that do? It fuelled a housing bubble, pushed up prices, and made owning a home more difficult – so much for generation buy,” he said.
