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What’s in the U.K. Budget as Sunak Targets Covid and Deficit

(Bloomberg) — Chancellor of the Exchequer Rishi Sunak unveiled his second U.K. budget as he tries to balance the need to prop up the economy while the coronavirus pandemic endures with efforts to begin reigning in the deficit.With the prospect of the economy fully reopening still months away — Prime Minister Boris Johnson has set June 21 as the earliest that can happen — here’s what the chancellor announced on Wednesday:More Covid AidSunak said his priority is to protect jobs through the pandemic, and promised to support people and businesses as lockdown measures are gradually lifted. He outlined 65 billion pounds ($90 billion) of new Covid support, bringing the total since the crisis began to 352 billion pounds. When capital spending announced at last year’s budget is included, the total fiscal stimulus rises to 407 billion pounds.He announced:An extension of the flagship furlough program, under which the state pays idled workers 80% of their usual wages, up to a maximum of 2,500 pounds a month. It was due to expire at the end of April but will be extended in full through the end of June, and state support will then be tapered over another three months.A fourth three-month grant for self-employed workers will be paid to cover February through April. It will be set at 80% of average trading profits and capped at 7,500 pounds. A fifth grant will also be paid, at a level that depends on the change in recipients’ turnover. More than 600,000 people who previously weren’t eligible will qualify for these grants.A six-month extension to the 20-pound a week uplift in Universal Credit social security payments, with equivalent support for working tax credit claimants in the form of a one-off payment of 500 pounds.An increase in the National Minimum Wage to 8.91 pounds/hour from April.A new program of loans of as much as 10 million pounds for struggling firms. The program replaces 3 existing plans, is open for businesses of any size, and the loans are 80% backed by the state.A three-month extension of the business-rates holiday for retail, hospitality and leisure, running through June. Then a nine-month, 2/3 discount for firms that remain closed, and a lower cap for those able to reopen. Sunak priced this measure at 6 billion pounds.A six-month extension in the temporary reduction of value-added tax for the hospitality and attractions sectors, which will now run through September. The rate is down to 5% from 20%. For the following six months, a discounted rate of 12.5% will apply.A three-month extension to the stamp duty holiday for the first 500,000 pounds of property sales. Then for three months, the holiday will apply to the first 250,000 pounds of a property purchase, before reverting to 125,000 pounds.TaxationThe chancellor also signaled there’s pain ahead as he tries to rein in a fiscal deficit that the Office for Budget Responsibility predicted will swell toward 355 billion pounds this tax year.“The amount we’ve borrowed is only comparable with the amount we borrowed during the two world wars,” Sunak said. “It is going to be the work of many governments, over many decades, to pay it back.”Sunak said it would be “irresponsible” to allow debt to rise unchecked, and announced a series of tax measures to take effect in future years.Corporation tax will rise to 25% in 2023 from 19% now. Sunak said the U.K. can do that and still retain the lowest level among the Group of Seven major economies. The chancellor introduced a small profits rate keeping the tax at 19% for businesses with profits of 50,000 pounds or less. There will be a taper above that so that only companies with profits of 250,000 pounds or more pay the full rate.The tax treatment of losses will be more generous for the next two years, allowing companies to claim more tax refunds.From next year, the thresholds at which people start paying different levels of income tax will be frozen until April 2026. Rises to 12,570 pounds and 50,270 pounds for the basic and higher thresholds will go ahead as planned next year.Sunak said he’d also freeze until April 2026 the inheritance tax thresholds, the lifetime allowance on pensions savings and the annual exempt amount in capital gains tax.From April 2022, the VAT registration threshold will also be frozen.There was also a “Super Deduction” sweetener to encourage companies to invest: For the next two years, companies that invest will be able to reduce their taxable profits by 130% of the amount they’ve invested.Alcohol and fuel duties were frozen.Leveling UpThere were several announcements that fed into the ruling Conservative Party’s “leveling up” mantra aimed at spreading prosperity nationwide:22 billion pounds of capital and loan guarantees to capitalize a new national infrastructure bank, with the aim of supporting 40 billion pounds of infrastructure investment. The bank will be located in Leeds.5 billion pounds of grants worth up to 18,000 pounds each to help nearly 700,000 eligible businesses in the retail, hospitality, accommodation, leisure and personal-care sectors reopen.The Treasury and other government departments will set up a new campus in Darlington.Eight freeports were announced for East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.1 billion pounds of “Towns Deals” was announced for 45 locations.Funding in the budget of 1.2 billion pounds for the Scottish government, 740 million pounds for the Welsh government and 410 million pounds for the Northern Ireland executive.Other AnnouncementsSunak published an independent review into U.K. stock market listing rules as part of an effort to bolster the City of London post-Brexit.The world’s first sovereign green savings bond for retail investors. The funds raised will be earmarked for projects such as renewable energy and clean transportation.A mortgage guarantee program for 95% mortgages to help people get on the property ladder.1.65 billion pounds of funding for the U.K.’s Covid vaccination drive.55 million pounds to develop vaccines against new Covid variants and to study the effects of combinations of vaccines.375 million pounds for a new public-private fund to invest in fast-growing tech start-ups.A 520 million-pound ‘Help to Grow’ program to provide small and medium-sized businesses with subsidized management training, discounted software and technology advice.A 300 million-pound summer sports recovery package to get sports such as cricket, horse racing and tennis reopened.408 million pounds of funding for museums and the arts.126 million pounds for traineeships, and an increase to 3,000 pounds in the cash incentive for hiring apprentices.150 million pounds to help community groups take over struggling local facilities such as pubs and sports clubs.A new fast-track visa program to ease entry to the U.K. for highly-skilled researchers, engineers, scientists as well as those working in the financial technology and cyber sectors.The chancellor raised the contactless payments limit for credit and debit cards to 100 pounds from 45 pounds.The Bank of England will be given a new mandate to consider net zero targets.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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