Rishi Sunak has unveiled his second budget as UK chancellor a year into the coronavirus pandemic and during the worst economic collapse in centuries. Our panel of experts offer their views on what he has announced. We'll keep adding updates as the day goes on, and you can also follow @ConversationUK on Twitter.
Despina Alexiadou, Senior Lecturer at the School of Government and Public Policy, University of Strathclyde
This budget steers the future of the country still further towards a liberal market economy like the US, and away from the social European model. With the creation of freeports, deregulation of the City, visa reforms to attract international talent, and an absence of any long-term commitment to higher funding in health or education, the UK is on course for even greater inequality.
Plans to help communities buy local pubs or sports centres are not serious measures for levelling up. And funding for apprenticeships are primarily helpful to employers rather than the long-term unemployed. Even a rise in corporation tax to 25% from April 2023 will not address rising inequalities. As the chancellor himself said, this will still be the lowest rate in the G7.
A more progressive budget would have raised public spending on social services and local councils, in direct response to the disproportionate effect of COVID-19 on lower income households.
And that may be a missed opportunity. There is evidence to suggest that the public is generally supportive of higher spending on unemployment and health, as well as more progressive taxation, in response to the economic harm done by COVID-19. Instead, what the chancellor presented was an economically conservative budget that seeks to boost growth and innovation at the expense of equality.
Jonny Munby, Principal Lecturer (International), Teesside University Business School
In the context of pressure to rein in the public finances, the chancellor took a generally progressive approach, supporting workers and business growth. Most COVID-19 tax support schemes received extensions, along with some plans to then taper relief rather than cutting it dead. The budget honoured the Conservative election pledge of not raising the rates of income tax, national insurance or VAT, though Sunak instead used another mechanism to raise revenue: threshold freezes.
From 2021 the thresholds for income tax will freeze for four years. This means that as individual earnings may increase along with inflation, the thresholds will not keep pace. There were also freezes announced on thresholds for inheritance tax, capital gains tax and VAT registration.
The other big tax hike was the increase to corporation tax to 25% for larger businesses from 2023, with some taper relief for smaller players. This will not be welcomed by big business but is still the lowest in the G7.
On the other hand, businesses will be encouraged by the "super-deduction", which will be a huge incentive for them to invest as they will essentially receive a tax rebate of 30% on any capital purchases over the next two years. The last announcement of note was the eight freeports, which will have special rules for duties and taxes. I can see a growing need for specialist freeport tax advisers.
Sunak has delivered a set of pragmatic announcements, with some innovations, that will be generally popular though will target big businesses with tax rises.
The public finances
W David McCausland, Professor of Economics, University of Aberdeen
Over the past year we have seen an unprecedented rise in government borrowing to support the UK through the effects of this pandemic. For a Conservative administration, this has been an unusually Keynesian policy stance. But, in my view, the right one. As we move beyond lockdown, the challenge facing this budget is a delicate balance.
On the one hand, you don't want support to evaporate before the expected "bounce-back" has got underway. Hence the extensions to furlough, business rate holidays and reduced VAT on hospitality, for example, as well as populist measures to support arts and sport and alcohol and fuel duty freezes.
On the other hand, there is nervousness in some quarters about running an ever-increasing deficit. The big-ticket tax increases in this budget, therefore, have been pushed into the future.
Though income tax rates are unchanged, the four-year fix freeze on tax allowance and higher income tax thresholds in cash-terms mean we will all be paying more income tax, but not until 2022. Likewise, the hike in corporation tax from 19% to 25% will not kick in until 2023 (and not apply to smaller companies).
If the deficit does begin to fall, and the forecast fall in debt as a share of GDP materialises, these changes leave potential headroom for a future budget to raise income tax thresholds or cut corporation tax in the run up to a general election. What is needed now is continued support for investment, such as rail infrastructure in the north, to build capacity to absorb future growth.
Importantly we should also be keeping a weather eye on potential structural issues such as the ever-increasing levels of household debt, which could have devastating effects if interest rates were to rise in future, as well as longer term effects of price rises in some sectors and sustained monetary easing feeding through into inflation.
Ernestine Gheyoh Ndzi, Senior Lecturer in Law, York St John University
Since the pandemic, many people have lost their jobs and unemployment figures have soared. Unemployment has reached its highest level since 2015, with about 1.7 million people out of work.
The chancellor has announced an extension to the furlough scheme and the self-employed grants to September 2021. The schemes have helped to prevent a more substantial increase in unemployment, but the budget had nothing to say about the problem of precarious work in the UK.
The 2007-09 global financial crisis was the catalyst for the gig economy, with the jobs market becoming increasingly precarious as employers switched to zero hours contracts and agency work to cut costs. Poverty in work increased as a result and the wellbeing of many workers got worse.
Demand for temporary workers surged during the pandemic, with some employers, particularly in the food industry, recruiting to meet increased demand in such a way that they could lay the staff off when not needed. And if sectors like hospitality and retail experience booms after the lockdown ends, this will mean another big rise in demand for precarious workers.
Mark Williams, Reader in Human Resource Management, Queen Mary University of London
Continuing the furlough and other job support schemes until September will bring huge relief to the millions of workers whose jobs are propped up by them. The other big labour market announcements concern apprenticeships and training funding, building on recent similarly themed announcements aimed at subsidising job creation, training and revamping vocational qualifications, especially for the young and those with low levels of qualifications.
Such schemes may be effective in holding off unemployment, creating jobs and getting people back into work, but the structural problem facing the UK labour market is not necessarily its workforce's lack of credentials (with the exception of management training - which this budget does address), or even its capacity for creating jobs. The main issue is the quality of the jobs that the UK has grown accustomed to creating.
Pre-pandemic, alongside the well-known rise in precarious jobs, long-run median wage growth floundered, while the growth in managerial and professional occupations ground to a halt. Propping up existing jobs and tinkering with training and qualifications is unlikely reverse to these trends.
Instead, more promise is to be found in the bold announcements concerning industrial strategy, including the "super-deductions" on capital investment, a new UK infrastructure bank, and R&D support. It is in these announcements where chances of "building back better" the labour market are greatest.
Phil Tomlinson, Professor of Industrial Strategy, University of Bath
Since the 2019 election, there has been a lot of talk from government about "levelling up" and reducing regional inequalities. In the budget, Sunak announced eight new freeports, which will mainly be located in so called "left behind places". A freeport levies no taxes (tariffs) on imported goods and may offer resident firms temporary tax breaks and easier planning rules. It is hoped this will attract new investment and jobs.
Yet freeports are not a silver bullet to address the UK's spatial imbalances. Rather than encouraging new employment and investment, they are just as likely to divert business activity away from one area to the freeport, as firms relocate to benefit from any tax breaks and possibly looser regulations. It is also difficult to ascertain the potential for businesses to benefit from no import taxes, since average tariffs on intermediate goods into the UK are already very low. And freeports will create an additional set of customs barriers and bureaucracy for business - this time within the UK.
Instead, it would have been better if the chancellor had focused more on addressing the fundamentals that underpin regional economies. This would have meant providing specific funding for implementing local industrial strategies and more support for local government and public services. Many of these services have been significantly weakened through a decade of austerity cuts and the pandemic, which has hit local government finances especially hard. The budget did not really address this vital step towards recovery.
Andrew Cumbers, Professor of Regional Political Economy, University of Glasgow
According to Sunak: "Britain's future economy demands a different economic geography. If we are serious about levelling up, that starts with the institutions of economic power".
I wouldn't disagree with that. But moving a few parts of the Treasury to Darlington does little to remedy Britain's dysfunctional economic geography.
The announcement of eight deregulated freeports feels like a reheated enterprise policy from the Thatcher years, but there is little evidence they will create hubs of innovation or attract high quality private investment. A new series of city deals announced for Scotland, Wales and Northern Ireland will provide some funds for cash-strapped areas, but on terms heavily managed by the Treasury, with little local autonomy.
Seriously transforming the country's economic geography requires a real devolution of power in one of the most centralised and unequal countries in Europe, after a decade in which local government has been dramatically hindered by austerity.
As a result, eye-catching announcements about dispersing central government largesse to targeted ventures scratch the surface, while lacking the scale required for real change. For example, giving Aberdeen Pound 27 million to create a renewable energy zone sounds like a lot, but is a drop in the ocean compared to the €9 billion that Munich is committing to reaching a 100% renewable energy supply by 2025.
Suzanne Withrington, Principal Lecturer in Business Engagement and Enterprise, Teesside University
A key feature of the government's stated approach to recovery is a commitment to levelling up across the UK, so it was good to see plans for significant investment in the north east of England. Teesside is one of eight locations selected as a freeport, and Darlington will be the home of a "new economic campus" for the treasury and other departments.
The introduction of a "super tax deduction" will hopefully instil confidence in small businesses to innovate, particularly those reluctant to invest in an uncertain economic landscape. Extending grants for self-employed people may well help towards stimulating growth across many sectors and aiding recovery. The announcement of a Pound 5 billion scheme for the high street and hospitality is also welcomed, as is Pound 400 million for the arts, sport, and traineeships.
Local investment in business and enterprise is key, and entrepreneurs will be gearing up to turn recent disruption into creative and sustainable opportunities. But it is perhaps time for a more meaningful redistribution of resources to the regions (and sub-regions) and a renewed focus on allowing local people to be part of the solution.
Such an approach would empower communities and guarantee that local priorities take centre stage - as with the spending of the Pound 150 million to support communities in buying their local pubs. Furthermore, it would stimulate innovation and opportunities for business start-ups and create more jobs in the long term. Overall, we need to re-imagine the way we do business. We need to be enterprising in our thinking and adopt innovative sustainable solutions that tackle societal as well as economic concerns.
The view from Europe
Karl Schmedders, Professor of Finance, IMD
The chancellor's speech should have made it clear to every last EU politician that the UK government has left the EU far behind and is firmly focused on Britain's post-Brexit future. Sunak did not make a single material statement on either Brexit or the EU. Instead, he grounded his budget presentation on a three-part plan for the British economy.
The first part calls for further spending to mitigate the effects of the economic turmoil stemming from the pandemic and the resulting lockdowns. Again and again, the chancellor repeated his mantra: "We want to protect the jobs and livelihoods of the British people." The government's key steps are the extensions of the furlough scheme and the support plans for the self-employed until September 2021.
The government's expensive virus response led to record-breaking borrowing during peacetime. The deficit was a whopping 19% of GDP in 2020-21. A Conservative government hardly likes such numbers. Therefore, part two of its plan is a feeble attempt to repair the public finances in the post-COVID era. Somewhat surprisingly for Conservatives, the hallmark is to increase the corporate tax rate to 25%, which will, however, only affect 10% of UK companies. It appears rather unlikely that this and other modest measures will have the desired effect of limiting the country's debt-to-GDP ratio below 100%.
The third part of the plan contains measures to build Britain's future green economy. The chancellor repeated November's announcement of the first UK infrastructure bank, to be headquartered in Leeds, to finance a "green industrial revolution". He neglected to mention, however, that the UK has been the only G7 country without such an institution. Also, to a considerable degree the bank will just take up activities performed by the European Investment Bank pre-Brexit.
On a positive note, the government is to be applauded for introducing NS&I green savings bonds. The funds raised will support Britain's move towards net-zero emissions by 2050. It will be interesting to see whether it achieves a decent uptake.
Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University
Income is the engine that drives most people's financial wellbeing. So it is good news that support for employees and the self-employed will continue until September 2021.
The Pound 20 uplift to universal credit for lower-income households is also being extended, but Sunak did not respond to calls for this to be made permanent. Yet the pandemic has revealed the weaknesses of the UK's benefit safety net. This income calculator, for example, suggests a single person with no children needs around Pound 1,100 a month (excluding housing costs) for a decent standard of living. Even with the uplift, the universal credit standard allowance is just under Pound 410 a month.
For homebuyers, from next month the government will provide guarantees to encourage lenders to offer 95% mortgages to those with only a small deposit. The temporary extension of the exemption from stamp duty on properties costing up to Pound 500,000 is also extended and will gradually be phased out from June. But such schemes, while helping some, also put upward pressure on house prices, making it harder for others to get onto the housing ladder.
Once economic recovery is back on the cards, it will be time to start swallowing the bill for all of the government support. Planned increases to the income tax personal allowance (from Pound 12,500 to Pound 12,570) and threshold at which higher-rate tax starts will go ahead (from Pound 50,000 to Pound 50,270) for 2021-22, saving a basic-rate taxpayer Pound 14 over the year and a higher-rate taxpayer Pound 68. These amounts will then be frozen until April 2026, meaning that over time, inflation will erode the real value of the allowance and more people will be drawn into the higher-rate tax bracket.
Lisa Scullion, Professor of Social Policy, University of Salford
I was expecting that the Pound 20 increase in universal credit would be extended and six months had been previously hinted at. Although the extension is welcome, it is clear from our research that for many people, this is just not going to be enough.
We recommended keeping the Pound 20 uplift as a permanent measure and extending it to all benefit claimants. But even with the uplift, people are still struggling so without addressing fundamental issues about the adequacy of payment levels, the system will continue to leave people struggling.
A national survey of 6,431 benefits claimants has shown that universal credit claimants who received extra money through the Pound 20 weekly uplift still struggled with a considerable gap between their basic cost of living and the amount of benefit they received. Around half of claimants experienced some form of more severe financial strain, including falling behind on housing costs or not being able to afford fresh fruit and vegetables.
And what about benefit claimants who didn't receive the increase, such as those on "legacy" benefits like Jobseekers' Allowance and Employment and Support Allowance? The survey found that were most likely to have experienced food insecurity.
As time goes on, the challenges of poor job market conditions and prolonged benefit claims remain, meaning strategies for "getting by" are more likely to be exhausted while fundamental issues about payment levels are left unaddressed.
Alexander Tziamilis, Senior Lecturer in Economics, Sheffield Hallam University
Johnson and Sunak seem to understand the critical role of real estate in the UK economy as well as society. Real estate not only offers jobs to millions of tradespeople and professionals but encourages wider consumer spending since it makes people feel wealthier. It generates revenue for pension funds and investors while supporting the UK trade balance by attracting funds into the country. Needless to say, it is a tried and tested platform for political popularity too.
As expected, the chancellor extended the stamp duty holiday by a few months, in an attempt to prevent a sudden drop in real estate transaction volumes and prices. Beyond June, the best scenario for the government would be if rising optimism about the future of the UK economy partly made up for this scheme winding down.
This is being coupled with support of the 5% deposit mortgage market in the form of the new mortgage guarantee scheme. This seeks to reassure banks that low deposit mortgages are a good idea for them, just before property prices are forecast to fall.
As Labour were quick to highlight, what is missing from this budget is a green initiative around property insulation. The market expected such a move to make up for the spectacular failure of the green scheme of the March 2020 budget.
But most of all, what is missing is a persuasive construction strategy to alleviate the chronic shortage of housing in the UK. The UK government's plans for a multi-purpose infrastructure bank endowed with Pound 12 billion is only a drop in the ocean compared to the investment that is really required.
In sum, I foresee a re-aligning of property demand. Brexit, in combination with a possible long term trend of working from home, may create substantial downward pressure on the London residential market as well as in the high-street commercial property. On the other hand, quality accommodation within or near national parks may hold up better, since it has already been benefiting from the rise in remote working.
Authors: Jonquil Lowe - Senior Lecturer in Economics and Personal Finance, The Open University | Alexander Tziamalis - Senior Lecturer in Economics, Sheffield Hallam University | Andrew Cumbers - Professor of Regional Political Economy, University of Glasgow | Despina Alexiadou - Chancellors Fellow and Senior Lecturer at the School of Government and Public Policy, University of Strathclyde | Ernestine Gheyoh Ndzi - Senior Lecturer at York Business School, York St John University | Jonny Munby - Principal Lecturer (International), Teesside University | Karl Schmedders - Professor of Finance, International Institute for Management Development (IMD) | Lisa Scullion - Professor of Social Policy, University of Salford | Mark Williams - Reader in the School of Business and Management, Queen Mary University of London | Phil Tomlinson - Full Professor in Industrial Strategy Deputy Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of Bath | Suzanne Withrington - Principal Lecturer in Business Engagement and Enterprise, Teesside University | W David McCausland - Professor of Economics, University of Aberdeen