CHANCELLOR Rishi Sunak’s decision to raise corporation tax to 25% from 2023 looks like a sensible move, given this will still be very competitive in a global context but will yield crucial revenue.
Major reliefs have been put in for smaller companies, and the corporation tax changes also include significant measures to boost investment.
Business investment appeared to receive little or no boost from the Tories’ previous cutting of the main corporation tax rate from 28% in 2010 to 19%.
The scale of the previous cuts was eye-catching at the time, given they occurred over a period in which ordinary people were picking up the tab for the global financial crisis through the likes of savage welfare cuts.
Former chancellor George Osborne had envisaged a “march of the makers” in his March 2011 Budget but this failed spectacularly to materialise.
READ MORE: Ian McConnell: Budget 2021 : Can Rishi Sunak ignore inbuilt Tory instinct and avoid past errors?
At the same time, the welfare cuts and public sector pay freezes and caps dragged heavily on the broader economy, with recovery from the global financial crisis proving entirely unconvincing, even before it was hampered by Brexit.
The freezing of the income tax personal allowance at the £12,570 level confirmed for the 2021/22 tax year, all the way out to 2026, will have a very significant effect on lower earners.
READ MORE: Ian McConnell: Brexit could have taken many forms. Cheshire Cat Boris Johnson chose this one
This looks to be exactly what is not needed, given the impact on aggregate demand from effectively raising the tax burden (assuming an inflationary environment and pay rises) on those who have to spend all they have to live.
Among other Budget measures, the extension of reduced value-added tax rate for hospitality businesses will come as a major relief to this sector.
The extension of the coronavirus job retention scheme until September, announced overnight, is crucial, but employers will be asked to make greater contributions from July, on top of meeting pension and national insurance contributions as they do now. And their contributions will increase further before the scheme draws to a close in September.
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