Chancellor Rishi Sunak made his much-anticipated Budget speech today (3 March), signalling the government’s plans for rebooting the UK’s post-Covid economy.
Speaking in the House of Commons, Sunak said global trade had a vital role to play in the UK’s future, saying “we can’t strengthen our domestic economy without remaining a global, outward-looking nation”.
However, while the extension to the furlough scheme and fiscal policy are dominating many of the subsequent headlines, we ask what were the major takeaways for the UK's international traders?
1: Eight freeports announced
The Chancellor gave the green light to eight English proposals for freeport status, with more to come in the devolved nations. The eight unveiled by the Chancellor today were:
- East Midlands Airport
- Felixstowe and Harwich (Freeport East)
- Liverpool City Region
- Thames (including London Gateway Port and the Port of Tilbury)
IOE&IT director general Marco Forgione has argued that the initiative will offer a “diverse package” of benefits to traders in each region, boost the UK’s growing green sector and encourage global integration.
Sunak announced a two-year tax break – or “super-deduction” – allowing companies to deduct 130% of the value of their UK investments from their taxable income.
The Chancellor described the move as “the biggest tax cut in modern history” and hopes it will kickstart the UK’s economic recovery from the pandemic's impact on investor confidence.
The move will also soften the blow of an increase in corporation tax from 19% to 25%, a hike to be introduced in 2023. The Chancellor said the rise was aimed at larger firms "so only 10% of companies will pay the full higher rate".
3: Green agenda
In a bid to ensure the UK’s recovery is a green one, Sunak announced that the Bank of England will now have a duty to ensure monetary policy is geared towards the country’s targets of reaching net zero emissions.
He announced £15bn in ‘green bonds’ to help finance the transition to carbon neutrality by 2050 and also said that a new Leeds-based National Infrastructure Bank will channel billions into environmentally sustainable projects.
4: New export strategy
Though not mentioned in the Budget itself, the government confirmed it is launching a new export strategy in its ‘Build Back Better’ plan published to coincide with the Chancellor's speech today.
The paper says the government will “develop a new export strategy to align our support for exporters with our plan for growth and sectoral priorities, opening UK government trade hubs in Scotland, Wales and Northern Ireland and increasing UK Export Finance lending capacity”.
The government also said it will work internationally to strengthen the World Trade Organization and negotiate further multilateral and bilateral trade agreements as a way of “expand trading opportunities for UK businesses”.
5: 2021 rebound on the way
Though Sunak confirmed that the UK economy shrank by 10% in 2020, he said that it is forecast to rebound in 2021, with the Office for Budget Responsibility predicting growth of 4% this year.
He said the UK’s economy will be back to pre-Covid levels by mid-2022, with the OBR expecting growth of 7.3% next year.
* Today's headlines were dominated by the Chancellor's announcement of a hike in corporation tax from 19% today to 25% in 2023.
At the same time, a 'super-deduction' in taxable income was also unveiled and we asked Paul O'Donnell, the IOE&IT's public affairs director, to explain why its good news for businesses:
‘Super-deduction’: a sea-change in corporation tax policy
The UK has a history, going back to mid-20th century, of a lower level of business investment than its competitor economies, Paul O'Donnell writes.
The Chancellor’s big rabbit out of the hat in today’s budget was the announcement of a so-called ‘super-deduction’ of 130% on taxable income, available for two years.
Effectively this means that companies investing in plant and machinery will be able to write off 130% of its value against their corporation tax liability.
This provides a huge incentive for companies to update and optimise their technology and is something that manufacturers in particular have been arguing for since the 1990s.
It is part of a sea-change in how governments have treated corporation tax, with the 2010-16 period seeing cuts to the headline rate coupled with curtailment of investment-friendly allowances.
In the last five years we’ve seen that policy go into reverse: at first with more minor tax breaks like the Annual Investment Allowance and then today with this unprecedented super-deduction and the delayed hike in the headline rate.