Rishi Sunak today presented yet another £65billion of Covid support in his annual Budget.
The Chancellor extended most schemes until September and gave businesses another shot in the arm as they wait for a vaccine.
But all that help comes at a cost, and we’re not just talking about a hike in Corporation Tax.
A stealth tax hike on working Brits will raise £8bn a year and schemes could run out in September while 2million are still furloughed.
The Budget speech is always a triumphant affair, burying the awkward details to a few lines or none at all. To get a real feel for what’s going on, you must read the hundreds of pages of documents slipped out when the Chancellor sits down.
We’re still trawling through the mammoth pile of Budget documents, including analysis from the Office for Budget Responsibility watchdog (OBR). But here are the biggest surprises in the small print that have leaped out at us so far.
1. NHS spending overall looks set to be cut
Rishi Sunak said precious little about the day-to-day NHS in his Budget – and the small print shows spending on the NHS will actually fall in 2021/22.
With Covid-19 spending included, the Department for Health and Social Care will spend £169.1bn in 2021 – down £30bn from £199.2bn this year.
And NHS England will spend £139.1bn, down from £147.7bn.
Government sources pointed out spending is rising significantly if you strip out the amounts for Covid-19, hitting record levels by 2023/24. They added the NHS was already given money in a long-term plan – and more Covid spending could be announced further down the line.
But Shadow Health Secretary Jon Ashworth said: “ Rishi Sunak promised to be ‘open and honest’ with the British public. But buried in the small print of his budget is a cut to frontline NHS services that will increase pressure on staff and do nothing for patients stuck on growing waiting lists.”
2. Public spending could be ‘cut by £4bn a year’
The OBR has projected there will be “cuts” of £4bn in 2022-23 to Whitehall departments – followed by cuts of £3.5bn, £3.9bn and £4.2bn in the years that follow.
Government sources insisted part of those cuts are just technical adjustments after inflation was different to predictions – and on current trends, public spending will rise by 4% by 2024.
But it’s understood part is down to foreign aid being cut and most public sector workers’ pay being frozen. And Whitehall departments could yet face a reckoning with a spending review this Autumn.
The respected IFS think tank warned: “Mr Sunak is planning to spend £14bn to £17bn less on public services each year after 2021 than he had planned pre-Covid.
“Given the mounting pressures on the NHS, schools, courts and other services, the credibility of such a tight settlement is questionable. There will certainly be strong pressure for future top-ups.”
Torsten Bell, Chief Executive of the Resolution Foundation, added: “The idea that public service spending can be cut by another £4bn in the years ahead compared to previous plans, when the pandemic has seen pressures build for more spending not less… is a risk.”
3. 2million people ‘will still be on furlough’ just before it ends
Up to two million people will still be on furlough just before the scheme comes grinding to a halt, Budget projections suggest.
Rishi Sunak’s Budget today announced a six-month extension to a string of Covid support schemes to the end of September – including the 80% wage top-up.
The extension was much longer than expected, with firms paying more from July, as the Chancellor said he would give support “well beyond the end of the roadmap”.
But the small print from the Office for Budget Responsibility – the government’s Budget watchdog – suggests 2million jobs will still be furloughed in September.
The OBR projects the number of claims falling from 5.3million this month to 5m in March, 4m in April, 3.6m in May, 3.3m in June, 2.6m in July, 2.5m in August and 2m in September.
That is despite the fact the roadmap aims to lift all legal restrictions from June 21 at the earliest.
The projections could raise fears that some workers will still face a cliff-edge when furlough, along with the £20 Universal Credit uplift and a 5% VAT rate for pubs, end around September 30.
4. Brexit will leave us worse off – it’s official
Rishi Sunak did not say the word “Brexit” once in his Budget speech. But the OBR watchdog did. It declared Brexit will lead to “a long-run loss of productivity of around 4%” compared with remaining in the EU.
And short-term disruption to trade between the UK and EU will knock 0.5% off GDP in the first three months of this year, the OBR said.
Boris Johnson ’s trade deal – which spares the UK trade tariffs but introduces new paperwork and customs checks – has failed to shift the bleak forecast first made in November.
And in fact, “the implementation of the agreement and introduction of health checks at the border has involved more short-term disruption to UK-EU trade than was assumed in our November forecast”, the OBR said.
5. The self-employed face a hit earlier than expected
While most support schemes are being extended to September, the small print reveals one hit to the self-employed will return earlier.
The Minimum Income Floor – which limits the benefits self-employed people can claim – will be reintroduced at “the end of July” after a 16-month suspension.
The Budget says the measure still has a one-year grace period and work coaches will get “discretion” not to apply it if they feel someone is still hit by Covid.
The MIF is designed to stop taxpayers propping up failed businesses for self-employed people who make a loss.
Normally, for every £1 of earnings a low-paid worker loses in a pay cut, they get 63p back in Universal Credit. But under the MIF, DWP assessors treat people who are “gainfully self-employed” as though they earn minimum wage – even if they don’t actually earn that much.
That means once a person’s earnings dip below the “floor”, their Universal Credit is capped and can’t rise any further.
6. Massive firms could escape the Corporation Tax hike
By far the biggest tax grab is a massive U-turn on years of Tory Corporation Tax cuts.
From April 2023 firms will have to pay up to 25% on their profits – up from 19% now, a rate George Osborne repeatedly slashed.
It’s the golden egg for Rishi Sunak as he predicts it will bring in £17.2bn a year by 2025, funding 3.2% of all national income.
Yet there’s a catch – firms with profits under £250,000 a year will pay less than 25%, on a sliding scale all the way down to the current 19%.
This is supposed to spare 1.4million small firms a hike, and it will. But it could also let massive firms with tiny profit margins slip (deliberately, perhaps) off the hook.
The respected IFS think tank gave a brutal verdict: “Low-profit companies do not correspond to low-income people. And it introduces unnecessary complexities and distortions into the tax system.”
7. New Stamp Duty cut won’t actually help first-time buyers
The Stamp Duty cut is being extended to June 30 – and then again in a compromise form all the way to September 30.
Those final three months are to “smooth the transition” back to normal tax rates. But the final three-month period won’t actually help first-time buyers at all.
At the moment, the threshold to pay tax on buying a house is a much higher than usual £500k. That saves first-time buyers up to £10,000 and ladder-movers up to £15,000.
But between July 1 and September 30 the threshold will change to £250k. That’ll still help people moving up the ladder, whose threshold would usually be £125k. Yet it does nothing for first-time buyers – because they already had a special threshold of £300k anyway.
Meanwhile the extensions will cost a staggering £1.6bn – while the Budget announced no new help for struggling renters.
8. Stealth tax raid on working Brits will rake in £8bn a year
Rishi Sunak announced a stealth tax raid – and true to form, it will creep up on you.
The Income Tax personal allowance – the amount you don’t pay tax on – will be frozen at £12,500 until 2025/26. So will the 40p tax threshold of £50,000.
On the one hand these were raised massively by the Tories so seem a fair target. And next year, a £15,000 earner will be deprived of a grand total of £12.50 in saved tax.
But the impact will quickly pile up as the cumulative impact of years of freezes takes hold. The freezes go from raising £1.6bn for the Treasury in 2022-23, to an eye-watering £8.2bn in 2025-26.
Freezing the lifetime allowance for wealthier pensioners will also rake in £300m a year by 2025-26.
9. Eye-watering cost of the fuel duty freeze
Fuel duty has now been frozen for the 10th year in a row – and while it’s a boost to motorists, the small print reveals the eye-watering cost to the taxpayer.
Scrapping the planned rise this year alone will deprive the Treasury of just shy of £1billion a year by 2025.
And that’s without all the cumulative increases that would have come in the last decade if it had kept going up.
Friends of the Earth’s head of policy Mike Childs said: “It’s astonishing that a government pledging to confront the climate emergency has frozen fuel duty yet again. No wonder passenger cars’ contribution to the climate crisis has barely fallen in the past decade.”
10. We have no idea how much 95% mortgages will cost the nation
Very unusually, there is no predicted cost for the massive mortgage guarantee scheme to be launched next month.
The programme will see the state promise to pay a portion of banks’ losses in return for them offering “risky” mortgages with a 5% deposit.
While this will cost the taxpayer almost nothing if the housing market stays buoyant, we’ll be left on the hook for billions if home prices collapse.
Yet the OBR admitted: ”The new mortgage guarantee scheme has not been sufficiently specified to be incorporated in our forecast.”
The finer details of the scheme – including what “loan to value” rates will be covered by it – aren’t spelt out in the Budget.
11. The Green Homes Grant looks to have been buried
Nowhere in the small print does the Budget mention the Green Homes Grant – which suggests it is dying a death.
The scheme – which allowed homeowners to claim £5,000 vouchers to make their home more energy efficient – has been beset by controversy after its £2bn of funding in 2020/21 was slashed back to £320m in 2021/22.
Yet the Budget made no pledge to extend it. Sources admitted there had been “delivery challenges” with the Grant, including that it had been harder to install new insulation during Covid, but that the existing commitment to helping people reduce their energy bills had not been removed.
Greenpeace branded the handling of the grant “shambolic”.
Business, Energy and Industrial Strategy Committee Chair, Darren Jones, said: “The sad reality is that climate change and net-zero were barely mentioned in today’s Budget and major policies such as the Green Homes Grant seem to have been cancelled altogether.”