He announced that income tax thresholds will rise once in line with the Tory manifesto pledge – but then be frozen for four years until April 2026.
The move means thousands of low income people will be sucked into 20 per cent tax bracket for the first time, while thousands of middle income people will be sucked into the higher 40 per cent tax band.
In another tax hike, corporation tax will rise to 25 per cent by 2023. But, strikingly, Mr Sunak did not parade spending cuts, suggesting he has no desire to return to the era of austerity.
– A “mortgage guarantee”, for up to 95 per cent of mortgages. He told MPs: “Lenders who provide mortgages to homebuyers who can only afford a 5 per cent deposit will benefit from a Government guarantee on those mortgages”;
– The stamp duty cut will continue until the end of June, with the nil rate band set at £250,000 – double its standard level – until the end of September;
– All alcohol duties will be frozen for the second year in a row and the planned increase in fuel duty has also been cancelled;
– The 5 per cent reduced rate of VAT will be extended for six months to September 30, along with the furlough scheme and the Universal Credit uplift.
One top economist expressed shock at the “risky” scale of the corporation rise hike, from 19p to 25p. “That’s a huge increase in rate of corporation tax,” tweeted Paul Johnson of the Institute for Fiscal Studies. “Right at top end of expectations. Extraordinary reversal of longstanding policy. Risky.”
Mr Sunak tried to sweeten the pill for business by announcing more generous tax relief for firms that invest in new plant. He called it a “pro-business tax regime” and told MPs: “While many businesses are struggling, others have been able to build up significant cash reserves. We need to unlock that investment, we need an investment-led recovery.”
Sunak: Stamp duty cut to continue until end of June
His scheme, called “super deduction”, means that for the next two years companies can reduce their tax bill by investing. The OBR said it could boost business investment by 10 per cent, or around £20 billion extra per year, Mr Sunak said.
The bad news – which Mr Sunak called “honesty” about the huge challenges left by the Covid-19 pandemic – was announced after he set out an array of new cash lifelines to firms and families, and then set out the terrifying scale of borrowing to pay for it.
“The amount we’ve borrowed is only comparable with the amount we borrowed during the two world wars,” he said. “It is going to be the work of many governments, over many decades, to pay it back.”
The Government has splashed out an astonishing £352 billion on help so far, rising to £407 billion after the new measures.
“Coronavirus has caused one of the largest, most comprehensive and sustained economic shocks this country has ever faced,” he told MPs.
“And, by any objective analysis, this Government has delivered one of the largest, most comprehensive and sustained responses this country has ever seen.”
The new help included some measures trailed in advance, like extending furlough to the end of September. From July 1, employers will contribute 10 per cent towards the costs, rising to 20 per cent in August.
The extension of the scheme, which has kept 11 million jobs open, partly reflects caution that the unlocking date might slip, but also the reality that some sectors will be slower to get back to normal.
He also kept the £20 uplift to Universal Credit going for an extra six months.
But in five years’ time it would still be three per cent lower than it would have been.
Urging “optimism” in the face of what he called “acute” damage to the country, he said the latest official forecasts showed growth this year of four per cent, compared with 5.5 per cent forecast by the OBR in November. Then it would jump 7.3 per cent in 2022, 1.7 per cent in 2023.
Mr Sunak began his speech by drawing attention to the £280 billion already spent on Covid 19 rescue measures. “I said I would do whatever it takes; I have done; and I will do.”
He pledged: “First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis.
“Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that.
Budget 2021: Rishi Sunak issues UK’s first green bonds to accelerate UK’s push to net-zero
“And, third, in today’s Budget we begin the work of building our future economy.”
In a landmark reform, Mr Sunak also announced that the Bank of England would be given a new role in ensuring the UK meets the “net zero” target by 2050.
Having unveiled a string of measures, the Chancellor added: “Underpinning all of this will be an updated monetary policy remit for the Bank of England. It reaffirms their 2% inflation target.
“But now, it will also reflect the importance of environmental sustainability and the transition to net zero.”Britain is hosting the COP26 environmental summit in Glasgow in the autumn, amid warnings that the world is running out of time to tackle global warming.
Earlier he briefed the full Cabinet on his package, which he called “Protecting the jobs and livelihoods of the British people”.
A Downing Street spokesman said: “The Chancellor said that, while we face challenging times, we will rise to that challenge and we can be optimistic about the recovery.
“He said the Budget will begin the work of building our future economy.”
Chancellor confirms extension of furlough scheme
Other measures confirmed in the Budget include:
– £5 billion for a new grant scheme to help businesses.
– £520 million to support small UK businesses with training and software.
– Nearly £410 million to support the badly-hit culture sector.
– £300 million to help cricket, tennis and horse racing in a summer sports recovery package.
– £150 million to help local communities save struggling pubs, sports clubs, theatres and Post Offices.
– £2.8 million to help fund a joint UK and Ireland bid to host the 2030 football World Cup.
Mr Sunak released a picture of himself raising his scarlet box with Treasury ministers socially distanced down the staircase at No 11.
After his speech, Mr Sunak is due to hold a rare Budget Day news conference at 10 Downing Street, before being grilled again by Conservative MPs in private.