Wednesday 3 March 2021

The 2021 Budget - Some good things but a failure to see the bigger picture

Any comments made about the 2021 budget should be made in the context of the effects of the global pandemic.As a business owner, my comments are largely made from this perspective. I believe that without a healthy business sector, especially for small businesses, the economy will fail. There are several very sensible measures that we've seen 

1. Lower corporation tax rate for businesses with profits under £50,000 per annum. Whislt this is a very welcome move, I am not sure how many businesses this will help this year, when we most need help. I am not sure any small business owners I know will be making any profits at all in the next few months. Just getting the doors open again and getting customers back will be a Herculean effort and such a move will have no effect until well after it is needed. I would give the Chancellor 5/10 for this measure. In normal times, it would be a 9/10 but it isn't help when it is needed.

2. The Chancellor has also set up a fund of £150 million to help communities take over pubs, clubs and theatres. Again I think that this is a measure that in normal times would be amazing, but right now, we need measures to address the immediate challenges for these businesses. Many have earned nothing for a year. We need to save as many of these as possible. Again it is a 5/10 for a measure that would normally have got a 10/10, just due to the timing.

3. Creation of a UK Infrastructure bank. The Chancellor is setting this up with £12 billion. This seems to me to be a great idea, but the sum is tiny. It is about a tenth of the budget for Crossrail and would not even have funded the Thameslink upgrade. I believe that big infrastructure projects are vital to the UK and need serious money. The Thameslink upgrade helped me build Mill Hill Music Complex Studios, as maybe 30% of our customers use the service in normal times to attend rehearsals and recordings. We need more and better transport in the UK and especially in London.

4. Scrapping of rises in Alcohol and fuel duties.  The freezing of fuel duties is a sensible, practical measure in these times. Fuel taxes have been used to drive the shift to green transport, but with the economy in tatters, this is a sensible move. Personally I would like to have seen alcohol duty cut for pubs and clubs, that would help get people back in the pubs and clubs. So I'd give him an 8/10 for transport duty and a 4/10 for alcohol duty. 

5. Income tax rates. The chancellor has done nothing to help those on low wages, the people at the coalface of the crisis. I think that this is a shameful, sorry state of affairs. Those who are in work and in poverty needed a break. They didnt' get one 0/10

6. VAT. This is a huge cost and administration overhead for business and its customers. 20% of what I charge the bands using my studio is VAT. They are largely not VAT registered, so they can't get it back. There is no help for them and this is a massive disappointment. During the credit crunch, the then Labour government cut VAT which meant an instant price cut for many goods and services. 0/10

7. Business grants. There will be a whole new swathe of covid support grants. This is sensible. However they should be easy for all businesses to access. I have spent the morning helping my neighbours at Bunns Lane Car Wash sorting out a grant application as their business has been closed. The process is difficult. The Chancellor should address this.  More support for claimants should be available. I've assisted five different local businesses, mostly owned by people who do not have English as a first language. This is not recognised. 7/10 

8. Extension of the Furlough. This is a sensible move. I would have preferred to see it continued until the end of the year. Businesses will bring staff back as their businesses recover.To me it makes sense to continue it until it is not needed and the economy is largely functioning normally. I do not believe we will be there by September. Many firms would bring staff back in November and December for Xmas business. It seems a bit ill thought out in this regards. 6/10 

I hear the more Moneterist inclined armchair economists out there saying "There's no magic money tree". Such arguments are flawed. We will recover by growing the economy. I recognise that if my business returns to rude good health, we will be paying more tax in 2025. The tab will have to be picked up at some point, but this can only happen when businesses have returned to profitability and new ones have sprung up to replace those that didn't survive. This will take a minimum of 2-3 years. The chancellor has done a bit, but not enough to ensure this recovery happens as quickly as possible. There are many assumptions made about the strength of the economy and when things will return to normal. I suspect that in the Autumn, we will need another Budget to pick up the pieces. However, I suspect that this may be true whatever he did. The biggest flaw in this budget is the failure to help hard pressed families in work but struggling. These are the people who's spending drives the economy. If they can't afford to spend, then the recovery will be sluggish. There seems no measures to take a little bit more from the wealthiest. I fully understand that the chancellor needs to keep his big backers happy, but there have been big winners from the pandemic. The likes of Amazon and the supermarkets have coined it in. I was surprised that there has been no effort to get them to share a little of their huge profits. It would be unfair to say he's done an awful job, I doubt there has been a more difficult budget to present. The truth is that he's failed to see the bigger picture. Economies do well when there is a degree of fairness, where infrastructrue gets built when its needed and when people have enough cash in their wallets to spend on more than the essentials. Billionaires sitting on huge piles of cash, whilst hard pressed families can't afford a trip to the cinema or a pint at the dog and duck is not a recipe for recovery. An infrastructure bank that doesn't even have enough cash to fund a modest rail upgrade like the Thameslink project is nothing more than an irrelevance, when we have a huge need for national renewal. The fact that the likes of Amazon pay almost no tax, whist a small gift shop will not only have been shut by the government and will have to start paying rates in June seems completely inequitable.

Lets just hope that we don't get a covid variant that sets us back to the start of all of this. I suspect that by 2025, the economy will have largely recovered, but that will be more due to the hard work of the British people than this myopic budget that fails to see either the obvious problems or solutions in our nation. Sadly having heard Sir Keir Starmers response, it is clear that we had a very good Lawyer who understands nothing about economics, business finance or even being skint responding. It seems that in the Valley of economically blind, we are still looking for a one eyed man to become King and lead us back to prosperity.

1 comment:

Fraser said...

It is little known, but the reason VAT is such a burden is the rate. 20% is the highest in Europe. OK, we're now out of the EU, but very high taxes like this are grit in the economic machine. For me it would have been better to have put 2p on income tax. This would not have affected low income workers all that much as the tax-free allowance is quite large at £12500. Under the last Labour government, shamefully, it was about half of this and one did wonder why people at lower incomes bothered working at all !

I can see some swingeing increases coming next year, though. The Treasure will be very keen to get finances back on an even keel again. Obviously the massive amounts borrowed this year will take decades to reduce. It was only in 2006 that the last of the bonds issued for WW2 was cleared.