When I was a child, I remember thinking that Budget days were for adults; Budgets were tediously boring. Now, a Budget is an exciting statement as they set the future. For many, decisions announced in a Budget change their futures as life becomes more or less bearable. For some households, pennies rather than pounds make a difference; for better-off households minor adjustments to household finances are comparatively unimportant.
On a Budget day, the leader of the opposition has a difficult role to perform. They must second guess the Budget and be prepared to make an instantaneous reaction. The problem is that these reactions tend to be predictable. Thus, Sir Keir Starmer’s response was that this Budget did not reduce inequality, fix the NHS and social care, create more affordable homes and was nowhere near ambitious enough. The problem is that no Budget could hope to fix these societal challenges. I do find some of Starmer’s statements regarding taxation difficult to comprehend. He is against an increase in council taxes and calls for an increase in central government funding to compensate local authorities. Yet, council taxes support the provision of essential local services and provide local jobs for local people. All who can afford to pay, should be delighted to pay to support the wider societal good.
Too often tax is seen as an imposition or an unwelcome obligation rather than an important social responsibility that should be celebrated. Taxation and the essential contribution this makes to underpinning national security, social welfare, education and job creation needs to be celebrated. There is an important debate to have on taxation and how this is explored in the national curriculum and presented in the media.
The March Budget has been structured around a trinity - three interrelated strategies. First, there are a series of initiatives designed to mediate the longer-term impacts of the pandemic. These include the extension to the Stamp Duty holiday to June 2021, VAT reductions for the hospitality sector, payments to non-essential outlets including £18,000 for gyms, personal care providers and other hospitality and leisure businesses and the extension of the furlough scheme.
Second, there are a series of more forward-looking interventions. Some of these are direct interventions including establishing eight freeports in England, the £1bn Towns fund to promote regeneration across 45 towns, the green bonds, and the UK Infrastructure Bank. This also includes the new visa scheme linked to start-ups and rapidly growing tech firms. These initiatives are all about facilitating economic growth and some act as nudges to shift companies and households towards a net-zero economy. The £1 billion Towns fund is welcome but is a relatively trivial sum.
Third, there are a set of strategies that are intended to begin the process of trying to rebalance the national accounts. These include freezing personal income tax allowances from April 2022 to 2026. Note the deferral to 2022. There is then the increase in corporation tax from 19% to 25% in April 2023. The latter will need careful monitoring. It is much easier for a government to be seen to be taxing businesses rather than citizens. Businesses do not have votes, but there are two dangers. On the one hand, businesses innovate and create employment. There needs to be a careful balance between corporate taxation and ensuring that businesses create jobs that support consumption and the taxation that underpins the provision of essential social and security services. On the other hand, companies can shift their operations to lower taxation locations. Thus, in 2021, Germany has a corporate tax rate of 30%, France 26,50%, Italy 24%, Spain 25%, but in Ireland, it is 12.50%. For some countries, low corporate tax rates are a policy weapon to persuade corporate relocation. With Brexit, the EU is scared that the UK will become a European version of Singapore in which low corporate taxation (17%) is used as a policy weapon. Nevertheless, the European Singapore is not the UK, but Ireland.
There are many points that can be made about this Budget. There is a clear signal that this government continues to support households, individuals, and companies during the pandemic. Not all can be supported and thus there will be many examples in the media of individuals, households and companies who perceive that their needs have been overlooked. Pandemic expenditure represents an additional £60 billion and all this is borrowed money that will need to be paid back. There is also a concern with ensuring that the Budget alters the wider framework conditions that support business. This includes tax breaks designed to encourage firms to invest in the future including deducting investment costs. All this is set in the wider context of tax rises from the increase in corporation tax and changes to thresholds.
This is not a Budget intended to transform the UK into a Singapore or Republic of Ireland based on low levels of corporate taxation. Nevertheless, it is a Budget that is trying to balance three major policy challenges - offsetting pandemic impacts, laying the foundations for a sustainable future and going some way towards balancing national accounts. The key issue to consider is the balance between these three challenges – the immediate problem, laying the foundations for future prosperity and paying for the pandemic.
The pandemic has destroyed lives and businesses, but it must be appreciated that the impacts of climate change will be even more destructive. In the very near future, Budgets will need to focus on climate change and decarbonisation. This Budget does address this in part, but future Budgets will need to nudge households and companies towards a new carbon light future. All lifestyles will need to be transformed and many of these alterations will be extremely radical.