This article was co-authored by Tegan Johnson, Solicitor Apprentice, Sheffield.
Chancellor Rishi Sunak MP (the Chancellor) delivered his second budget yesterday which predominantly focused on maintaining, extending and creating new COVID-19 measures.
This budget was a response to the pandemic first and foremost and, on that front, it more than delivered. Here, our commercial experts provide an overview of what the measures mean to businesses in a number of critical areas.
The further extension of the furlough scheme to the end of September 2021 will be welcome news for many employers and workers, particularly for those in the hospitality and entertainment industries that are likely to emerge last from the hoped-for ending of restrictions during 2021.
The scheme is unlikely, however, to offer a complete shield against further COVID-related job losses. The economic impact of COVID-19 so far, the increased levels of contribution employers are required to make to the furlough scheme from July 2021, and the uncertain prospects for consumer spending, commuting and leisure behaviour in a post-lockdown world will mean that, for many employers, significant structural change may still be needed and even desired. Indeed, the Chancellor conceded that unemployment is expected to rise further peaking at around 6.5% next year (significantly lower than the almost 12% previously predicted), and some analysts are predicting that it will take over four years for unemployment rates to return to “normal” levels.
For those who are self-employed (and therefore outside the scope of the furlough scheme), the Self-Employment Income Support Scheme (SEISS) is also to be extended to September 2021, with changes to the scheme meaning around 600,000 more people will qualify for support.
Construction will be sure to see the impact of several of yesterday’s policy announcements. These include a UK Infrastructure Bank with £12 billion of equity and debt capital to finance local authority and private sector projects - the bank is intended to be a driving force in the “green building revolution”. Another interesting new scheme is the “Super Deduction”, a 130% capital allowance for qualifying machinery and plant investments: in effect, actually cutting tax bills.
A new MMC Taskforce will spearhead the effort to accelerate delivery of homes; and the government ring-fenced money for 45 struggling towns, eight freeport economic areas and two ports’ infrastructure. Residential construction is supported by an extension of the Stamp Duty Land Tax holiday and a new mortgage guarantee for buyers with limited deposits.
Protections for employment continue, with an extension of the furlough scheme and expansion of the Self-Employed Income Support Scheme- welcome information for firms and the roughly 50% of construction professionals who are self-employed. Additional incentives to hire apprentices and trainees will be welcome in an industry facing a labour shortage. However, advance notice was given that corporation tax is set to rise from 2022 to 25% for the largest businesses, with a scaled rise for smaller firms. Sunak also missed an opportunity to defer or scrap the VAT reverse charge, delayed several times to date.
Contacts: Helen Johnson and Tegan Johnson
The residential sector will continue at pace given the extension of Stamp Duty Land Tax holiday to the end of June 2021. January 2021 was the busiest on records for enquiries from new buyers and this shows no sign of letting up. First time buyers were given a further boost with the 95% government backed mortgages. There is a clear intention and drive to turn ‘Generation Rent’ into ‘Generation Buy’.
The £5 billion scheme revealed for high street shops and hospitality firms in England will provide the sector with much needed capital and breathing space. Shops, restaurants, hotels, hair salons, gyms and other businesses in England will be eligible for the restart grants (which will replace the current monthly grant system) and will be distributed directly to firms by local authorities from April. As non-essential retail will open first, those businesses will receive up to £6,000 each. Those opening later, including hospitality and leisure operators, will be backed by up to £18,000.
The eight new ‘freeports’ to be created will offer tax advantages and customs relief to businesses in those areas. The Chancellor said that the freeport would “see innovative, fast-growing businesses hiring local people into decent, well-paid, green jobs” and that this policy would “exemplify the future economy” and “unlock billions” in investment, trade and jobs. The development industry will need to decipher what opportunities exist for regeneration and redevelopment as a result of these new trading and infrastructure zones and what they could represent for the wider property sector.
This is a clear path for investors and developers to invest in areas with tax advantages to drive investment, create jobs and communities in these locations. This also feeds into the ‘levelling up’ policy which was part of the Conservative manifestos in 2019 and part of the drive to become a ‘fairer UK’.
For SMEs, the Chancellor has introduced a £520 million “Help to grow” digital scheme to help boost productivity through software and tech training. In particular, the scheme will support SMEs develop digital and management tools needed to innovate. The digitisation of business processes has been significantly expanding and this scheme will be welcomed by SMEs to help them recognise and manage the growing digital risks.
The right investment in technology and skills has a significant impact on improving productivity, and thus is key to delivering growth. The Chancellor is seeking in this budget to encourage growth-with changes to the corporate tax regime-including holding the annual investment allowance at £1 million until 31 December 2021, and in terms of support for jobs (such as extending furlough scheme, self-employment grants and business loans).
Given that only 8% of all tax collection by HMRC is corporation tax, with the vast majority being PAYE and national insurance contributions, it makes perfect sense for the Chancellor to focus the budget on boosting employment and jobs.
Some of that support is more specifically targeted, and the Chancellor has recognised that the pandemic has had a particularly negative impact on young people. (Youth unemployment is currently around 13% higher than the pre-pandemic level). The budget made significant provision to address this:
- Tripling the number of traineeships and
- Doubling the funding for each new apprentice from £1,500 to £3,000.
This is on top of the £2 billion Kick-start scheme to support 250,000 jobs that was launched last year.
Contact: Alison Loveday
The green agenda
Whilst the green agenda featured in last Summer’s budget, this budget offered little sustainability strategy. The upcoming COP26 and the government’s commitment to decarbonisation meant that green energy schemes were a focus. In that regard, there were efforts to prompt investment through the National Infrastructure Bank, investment in offshore wind and port infrastructure.
It is hoped that the investment scheme for the free ports will turn them into tech hubs boasting a range of offshore wind and carbon capture capabilities. This, together with the £5 million funding for a new Hydrogen Hub at Holyhead to produce and distribute green hydrogen, will, in turn help to create job opportunities.
The Bank of England monetary policy was also updated to reflect the importance of environmental sustainability and transition to net zero.
The government recognises that environmental sustainability and governance is increasingly important to the public, as do businesses, with many investors specifically focussing their attention to those businesses who can demonstrate their green credentials.
With boards now being required to be transparent about their environmental, social and corporate governance objectives, investors and the public can hold them to account and measure the societal impact the business has and its commitment to sustainability generally.
Just one of a number of items Boards are having to grapple with in a growing portfolio, which covers matters as diverse as the gender pay gap, the safety of the workplace, diversity and inclusion and financial reporting.
The extension of all COVID-19 measurements and schemes beyond the end of lockdown would appear to indicate that the virus may be around longer than expected. The Chancellor was clear this is a buffer but is yet to tackle the question on the minds of lenders and businesses alike: when will businesses start to repay loans and will they be ready?
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