Spring Budget 2021: A summary

The UK is just beginning to slowly emerge from the latest lockdown put in place to slow the spread of the virus. The UK Government has set out a roadmap for the lifting of restrictions in England. Restrictions will begin to ease from 8 March when, among other smaller changes, children will be able to return to school. Subsequent steps will see more restrictions eased until, no earlier than 21 June, all legal limits on social contact in England can be removed.

In addition, a new UK-EU economic relationship has begun following the end of the Brexit transition period.

This is the context within which the Chancellor, Rishi Sunak, presented his Budget and the Office for Budget Responsibility published its latest set of forecasts for the economy and public finances.

The Chancellor extended various virus-related support measures, which were due to close in March or April 2021. Some changes were made to some of the extended measures.

Extensions announced included:

• the Coronavirus Virus Job Retention Scheme (until September 2021)
• the Self-Employment Income Support Scheme (until September 2021)
• Business rates relief for retail, hospitality, leisure and nurseries (until 30 June 2021). A relief of 66% will then take effect for the rest of 2021/22
• the VAT reduction to 5% for the UK’s tourism and hospitality sector (until 30 September 2021). A 12.5% rate will apply for the rest of 2021/22
• The stamp duty holiday for house purchases under £500,000 (until 30 June 2021)
• The £20 per week uplift in Universal Credit (for six months). A one-off £500 payment will be made to eligible recipients of Working Tax Credit.

The most significant non-virus tax measures, in terms of the amount of revenues raised included:

• increasing the main corporation tax rate from 19% to 25% on profits over £250,000, from April 2023
• freezing, from April 2022 until April 2026, both the point at which people start paying income tax (the personal allowance) and the higher rate of income tax (the higher rate threshold)
• freezing other allowances in the tax system, including for inheritance tax, VAT registrations and the pensions lifetime allowance.

Fuel duty in 2021/22 has been frozen, as have alcohol duties.

Non-virus spending announcements were smaller, in financial terms, than tax measures.

The OBR published new forecasts for the economy and public finances alongside the Budget.

Some key highlights from the OBR’s forecasts for the economy:

• Compared with its previous November 2020 forecasts, the recovery is delayed due to the early 2021 lockdown. The OBR forecasts GDP to fall by 3.8% in Q1 2021.
• Once the economy reopens, the economy is expected to grow more strongly than the OBR previously anticipated. As a result, the OBR forecasts GDP will return to its pre-pandemic level in Q2 2022, six months sooner than it expected in November.
• The OBR’s latest forecast for the GDP level in Q1 2026 is unchanged from its November forecast (6.5% above its pre-pandemic level of Q4 2019).

Some key highlights from the OBR’s forecasts for the public finances:

• Government borrowing – the budget deficit – is forecast to be £355 billion (16.9% of GDP) in 2020/21, as a result of the pandemic’s effect on the economy and cost of the Government’s economic support measures. This is, however, lower than the OBR’s November forecast of £394 billion (19.0% of GDP).
• The OBR estimate the total cost of spending related to the pandemic is £344 billion. This Budget adds £3 billion in virus-related spending in 2020/21 and a further £43 billion in 2021/22 (including the extension of the employment support schemes). Previous estimates of spending in 2020/21 have been revised down.
• This additional spending leads to the budget deficit being higher in 2021/22, at 10.3% of GDP, than the OBR’s November forecast of 7.4%.
• From 2023/24, tax rises and lower-than-previously forecast public spending leads to lower deficits. The OBR forecasts the budget deficit to be 2.8% of GDP in 2025/26, compared to a deficit of 3.9% in its previous November forecast.

The Library Insight Budget 2021: Forecasts for life after the pandemic focuses on the later years of the forecast.

The Library briefing The Budget and the annual Finance Bill discusses the way that Parliament debates the Budget and scrutinises the Finance Bill.