Chancellor Rishi Sunak’s March 2021 Budget promised to be the last delivered under coronavirus lockdown. Today’s Budget and spending review comes with its own milestone: Sunak says the British economy has recovered to close to pre-pandemic levels, with GDP just 0.8% below where it was in early 2020.
However the announcement comes at a time when the country is seeing the most severe shortage of workers and materials seen since the 1970s. Additionally, rising inflation is contributing to an unfolding cost-of-living crisis. These are substantial concerns for the public, but the chancellor used the Commons stage today to insist the country is entering an economic “age of optimism”.
Taxes on businesses
One of the key announcements from the Budget concerns taxes on businesses in the UK. Sunak has promised business rates will be reformed to support companies – but confirmed the corporation tax hike from 19% to 25%. Mike Hayes, partner at accountancy firm Moore Kingston Smith, says this will be worrying for many.
“Tax ‘competitiveness’ of the UK is not just about corporation tax,” says Hayes in response to Sunak’s claim the UK’s tax rate is still the lowest in the G7. “Separate research shows that, when all taxes are considered, the UK ranks 22nd overall on the 2020 International Tax Competitiveness Index, one place worse than in 2019 – this is something the Chancellor will need to watch in the future.”
Perhaps in a bid to sweeten the corporation tax hike, the chancellor highlighted a number of tax cut opportunities for businesses, including a 12-month relief for companies to invest in their premises, and tax relief for those who want to invest in green technologies like solar panels. These two incentives alone total £750 million, Sunak says. These changes are underpinned by the cancellation of next year’s business rates multiplier hike, meaning this year’s rates are frozen. The chancellor says this is worth £4.6 billion for companies over the next five years.
But it’s still not all good news. As Design Business Association (DBA) CEO Deborah Dawton explains, “people costs” will have the biggest impact on the design industry. “The increase in National Insurance and the increase in the national living wage will add to the concerns about wage inflation in the sector, potentially hampering hiring decisions,” she says.
“We hope that the increase in the national living wage does not dissuade agencies from taking on graduates or running placement schemes – we need the new talent coming through,” Dawton continues, adding that consultancies will likely need to increase their fees by corresponding amounts. “Staff costs should not take up more than 60% of an agency’s fee income if they expect to make a reasonable profit.”
£1.6 billion for T-Levels
As part of the government’s focus on skills, Sunak announced a £1.6 billion investment into T-Levels – the vocational two-year equivalent to A-Levels offered to 16 to 19-year olds. D&AD chief operating officer Dara Lynch welcomes the promise, calling it “an encouraging move towards diversifying the creative sector”.
“Enhancing training opportunities for young people in fields such as design, digital production and development will help rewrite the narrative that higher education is the only route into the industry,” she continues. “Creative excellence comes in all shapes and sizes, and is present far beyond just a few elite universities.”
Alongside T-Levels, Sunak announced the government would increase spending on skills and training by 42%. This will be worth £3.8 billion over the course of the parliament, and will come in the form of skills bootcamps, free Level 3 qualifications and a new numeracy scheme to improve maths skills among the UK’s adults.
Tomorrow we will be reporting on the government’s reported plans to deter students from applying to creative arts degrees, which it believes leads to fewer well-paying jobs.
Investing in culture
Elsewhere in the Budget, Sunak strengthened support on offer for the nation’s cultural institutions. He said the government was investing £850 million to protect museums, libraries and “local culture”.
Thanking new culture secretary Nadine Dorries, the chancellor continued by saying that more than 100 regional museums and libraries would be renovated, restored and revived with the money. CEO of the Creative Industries Federation Caroline Norbury calls the commitment “great news”.
Alongside this support, Sunak said he would be extending the current tax relief enjoyed by museums and galleries – due to end in March next year – until March 2024. Sunak says the current relief will also be doubled. “The recognition of this in today’s announcement – doubling tax relief for museums, galleries, theatres and orchestras, £850m in post pandemic support for culture and heritage institutions, and £14m a year in scale up funding for creative SMEs – is hugely welcome, supporting the cultural sector when most needed,” Norbury says.
At-home R&D incentives
Sunak’s announcements on R&D were a mixed bag. Using his speech to emphasise the UK’s historic contribution to innovation, the chancellor promised to maintain the Tories’ target to increase R&D investment to £22 billion – and added this would be achieved earlier than planned, in the year 2026-27.
However R&D investment is in need of a shake-up, Sunak said. Companies claimed UK tax relief on £48 billion of R&D spending last year, but business investment was around half of that at £26 billion. “We’re subsidising billions of pounds of R&D that isn’t even happening here in the UK,” Sunak said. “That’s unfair on British taxpayers.” In response to this, the chancellor says that from April 2023, greater incentives will be available for companies looking to undertake R&D “at home”.
Still, Norbury says the news is “limited”, not least because R&D incentives and benefits largely exclude those in the creative sector. “[The news] is disappointing, as is the missing arts premium, an election manifesto commitment made only two years ago,” she says. “The creative industries have the power to drive economic growth and regeneration across our country, and creative skills are vital for a future-proof workforce.”
What else was said?
- The planned increase in fuel duty will be cancelled, Sunak says, in a bid to mitigate the rising cost of living in the UK. This move will save motorists £8 billion over the course of five years.
- Sunak has agreed to unfreeze public sector wages and has raised the national living wage from £8.91 an hour to £9.50.
- A “radical” shake up of alcohol duty will go ahead – higher strength alcoholic drinks will attract higher duties, while lower strength drinks (which Sunak says are currently widely “over-taxed”) will attract lower duties. The cost of a pint will also be permanently cut by 3p.