Analysis

Political Insider: 2021 Budget

Today’s Insider focuses on the Chancellor’s Budget statement.

Alongside outlining the key announcements, we analyse the political tightrope that Rishi Sunak is having to navigate and look at how the Budget has landed so far.

WHAT DID THE CHANCELLOR SAY?

The Chancellor outlined the Government’s three-part plan: continuing COVID support, fixing the public finances and building the future UK economy.

OBR forecasts

  • The economy will recover to its pre-COVID level by the middle of 2022 – six months earlier than the OBR previously reported in November 2020
  • Growth of 4% this year, then 7.3% in 2022 and 1.7%, 1.6% and 1.7% in the years up until 2025. Despite this, the OBR still expects the economy to be 3% smaller than it would have been in five years’ time

COVID support

  • Extension of the Job Retention Scheme until the end of September, and as businesses reopen the Government will ask them to contribute to the cost alongside the taxpayer, by paying 10% in July and 20% in August and September
  • Support for the self-employed will be extended, with a fourth grant to be made available to cover February and April, and a fifth to be available from July. 600,000 more people will be able to access the fourth and fifth grants
  • The Universal Credit £20 weekly uplift will be extended for six months, in the form of a one-off payment of £500
  • The National Living Wage will increase from April, to the equivalent of almost £350 a year
  • The Government will double the incentives payments between April and September for all new apprentice hires to £3,000
  • Domestic violence programmes will receive an additional £19m and an additional £10m will be made available to support veterans with mental health support needs
  • Business rate relief will be extended until the end of June and discounted by two thirds until the end of 2021. Sunak also announced the extension of the reduced rate for VAT on hospitality and tourism to the end of September
  • The Restart Grant Scheme will allow retail businesses to apply for a grant up to £6,000 per premises, while hospitality and leisure including personal care businesses will be able to apply for up to £18,000
  • Housing: a tapered extension of the stamp duty holiday with the current holiday extended until the end of June and a higher nil rate band of £250,000 until the end of September, and a mortgage guarantee scheme to encourage lenders to lend to those with a 5% deposit

Fixing the public finances

  • The Government will borrow almost £355 billion this year, equivalent to 17% of national income, and next year borrowing will be 10.3%. Due to the measures announced today, this will fall to 4.5% in 2023, then 3.5%, 2.9% and 2.8% in the years up until 2026
  • The income tax personal allowance will go up to £12,750 in 2021/22 as planned and the higher rate threshold will go up to £50,270, however both will remain at that level until 2026
  • Corporation tax will rise from 19% to 25% in April 2023. Companies with profits below £50,000 will continue to pay 19%, and only 10% of firms will be impacted by the change
  • Sunak announced a super-deduction tax break to encourage businesses to invest in the UK right now. It will allow businesses to reduce their tax bill by 130% of the cost of their investment
  • Alcohol duty will be frozen for the second year in a row and fuel duty will be frozen for the eleventh

Building the future economy

  • The National Infrastructure Bank has been set up to support projects that go towards meeting the Government’s target of net zero by 2050. The Bank will be located in Leeds, will have an initial capitalisation of £12billion, and is expected to support up to £40billion worth of capital investment
  • Sunak announced the Government will be launching a sovereign green bond, which will offer retail investors the chance to invest in projects dedicated to greening the economy
  • The Government will take advantage of the offshore wind opportunities in Humberside and Teesside
  • Support for businesses to improve productivity, through a new set of Help to Grow UK-wide schemes to support management and digital skills
  • A new Treasury economic campus will be set up in Darlington. There will be three new city growth deals in Scotland, a further three in Wales and over £8billion for 45 new town deals
  • Eight freeports will be established, at East Midlands Airport, Liverpool, Felixstowe, Humber, Plymouth, Thames, Teesside and on the Solent

POLITICAL ANALYSIS

Today’s Budget statement showed the political balancing act that the Chancellor has to strike as he seeks to balance the books, not least given splits within the Conservative Party (including, according to reports this morning, at Cabinet level) over whether fiscal retrenchment should start immediately and international opinion being more lukewarm towards austerity than a decade ago.

Moreover, the ‘boosterish’ instincts of the PM on public spending, the need to continue emergency COVID spending over the coming months and more than a decade of spending restraint on the public sector have all led to the Chancellor being boxed in to an approach focused on tax rises – perilous territory for Conservative governments typically elected on platforms of lowering the tax burden.

With the run-up to the Budget focused heavily on looming tax increases, Sunak will hope that the delayed introduction of the hike in the main corporation tax rate, ‘sweeteners’ such as freezes in fuel and alcohol duties and several ‘red wall’ friendly moves such as the announcement of new freeports will be enough to placate party unrest whilst still getting his way on the Government’s medium-term fiscal strategy.

A key part of whether the Chancellor remains safely on this tightrope or falls to the crash mat below (potentially taking his hopes of moving next door to Number 10 with him) will be how the statement lands outside of SW1. Commentary in the run-up to the Budget has been conflicting on this; support for paying back the bills incurred through the pandemic and for higher taxes (for example, on businesses) juxtaposed with continued voter hostility to money being taken out of their pockets (as opposed to somebody else’s). The seeming fluidity of public opinion underscores the importance of the Chancellor using his post-Budget press conference to decisively shape the narrative around the Budget in his favour among a majority of the electorate.

However, ‘landing’ his Budget with Parliamentary colleagues and the public this week will be only half the challenge for the Chancellor. A further spike in the cost of public borrowing could make his cautious approach seem wise; conversely, if the Government’s roadmap out of lockdown is delivered and robust economic growth from the summer reduces the size of the UK’s fiscal ‘black hole’, today’s announcements may in hindsight seem hasty.

In addition, by putting rises in corporation tax at the heart of his plans for the public finances (rather than, for example, VAT, as other Chancellors have done), the Chancellor is betting that this doesn’t represent too much of a downer on business confidence and the economic recovery which is expected to do much of the heavy lifting in terms of reducing the budget deficit.

In short, whilst the Chancellor’s balancing act begins today, whether he can safely make it to the other end of the tightrope will be determined way beyond the next few news cycles.

Michael Dowsett
Account Director, Public Affairs

MEDIA ANALYSIS

There was a time when a Chancellor of the Exchequer would tender his resignation if details from his, and hopefully one day her, Budget were leaked to the media. But that was 1947, and 2021 is a world away from Hugh Dalton’s resignation with much of today’s intentionally leaked Budget trailed in the press in recent days.

Much to the relief of the hospitality industry, The Times’ Steven Swinford last night revealed the Chancellor’s immediate plans to extend the furlough scheme until September, an extension of business rates relief and VAT support, and a six month extension to the £20-a-week rise in Universal Credit. The Treasury’s medium-term plans on corporation tax increases were also briefed to the press overnight.

Today, the reaction has been swift and mixed. The Telegraph’s Chris Hope welcomed the OBR’s better than expected forecasting for next year in a nod to the Government’s overall management of the economy during the pandemic. In the same breath, Hope also argued that the financial support for the self-employed and the extension of the furlough scheme will lead to taxpayers paying the bill for years to come.

Harry Cole, the Sun’s Political Editor, also wrote about the fiscal black hole facing the Government following its coronavirus support measures, adding further pressure on the Government to explain in greater detail which taxes they will eventually raise – pressure also applied from their own backbenchers. Cole claimed victory following the freeze in fuel duty in light of the Sun’s Keep It Down campaign.

There are few bellwethers better placed to determine the success of today’s Budget than the response of the regional press. Following the scores of new seats won by the Conservatives in December ’19, Downing Street will be closely monitoring the response of titles such as the Yorkshire Post, the Manchester Evening News and the Birmingham Mail, who all seemed content with today’s measures.

The Post’s Rob Parsons celebrated the announcement that the new National Infrastructure Bank will move to Leeds in a nod to the red wall, with the next generation of offshore wind projects going to Teesside and the Humber. Parsons argued that there were enough items in the Budget to satisfy those looking for “levelling up” news in Yorkshire and the North of England. The Treasury will be pleased to see they landed most of their key messages in the Manchester Evening News including the Stamp Duty Extension, Universal Credit uplift and increasing to the National Living Wage.

In the absence of any actual fun events in recent times, the Government has certainly aimed to make today’s fiscal event a landmark political moment for the public. In a bid to manage future expectations by levelling with the public about the difficult decisions ahead, the Chancellor will today go on an extended exercise of transparency in a breakaway from traditional Treasury communications. The choreography of today’s Budget is critical for ‘Brand Rishi’. Following his statement in the Commons, the Chancellor will, in Duracell Bunny style, give a press conference at Downing Street this evening, meet with backbench Conservative MPs tonight, hold a sit-down interview with consumer champion Martin Lewis and finally do tomorrow’s extended broadcast round.

Dominic Stewart
Account Manager, Public Affairs

DIGITAL ANALYSIS

Interestingly, considering current levels of public trust in the media, the top Twitter authors for posts on #Budget2021 were the news channels and papers. Downing Street and Jeremy Corbyn also featured in the top 10, whilst influential economic commentators, such as Paul Johnson, did not gain as much traction as we usually see.

The public seems pleased, as our sentiment analysis on emotional reactions from social media users showed that the “love” and “joy” responses to posts on the Budget were five times more popular than those responding with “sadness” or “fear”.

Social media users, and indeed pubs, unsurprisingly, celebrated the freeze in alcohol duty with drink emojis shared widely across Twitter.