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March 4, 2021, 3:31 p.m. EST

U.K. plans to hike corporate taxes in move to pay for COVID spending splurge

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By Rupert Steiner, Jack Denton, Callum Keown

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“Moving corporation tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the U.K.,” said Tony Danker, director general of industry trade body the Confederation of British Industry. 

The government will also freeze personal tax thresholds (the amount of tax-free earnings people receive) from next year until April 2026. The question of whether or not to raise personal taxes was closely watched in the run-up to the budget, with former prime minister David Cameron urging the chancellor to hold off on tax hikes.

“This government is not going to raise the rates of income tax, national insurance or VAT. Instead our first step is to freeze personal tax thresholds,” Sunak told Parliament on Wednesday.

To encourage companies to invest in the U.K. as it recovers from the pandemic, Sunak set out plans for a “Super Deduction” that will allow them to cut their tax bill. For the next two years, when companies invest they can reduce their tax bill by 130% of the cost of that investment.

Plus: The U.K. increased the minimum wage. How does it compare with the U.S. and rest of the world?

David Owen, chief European economist at Jefferies, said: “Pre-announced rise in corporation tax to 25% will make headlines — but super allowance for business investment is interesting — especially with £100 billion of excess cash sitting on the corporate balance sheet (since pre-COVID levels).”

The raft of measures Sunak announced in the 2021 budget included extending the furlough program until the end of September. Under the program, the government pays up to 80% of a worker’s salary for hours not worked due to the pandemic. In July, employers will have to contribute 10% as government support dips to 70%, and in August and September government contributions will fall to 60% as employers’ support rises to 20%. As of the end of January, 4.7 million workers were furloughed.

In addition to an extension of a stamp duty holiday — stamp duty is a property tax on house buyers — until the end of June, the budget will support increasing the accessibility of homeownership through a new mortgage guarantee plan that will lower deposits to 5%. The chancellor said that lenders HSBC /zigman2/quotes/203901799/delayed UK:HSBA -3.17% , Barclays /zigman2/quotes/208409333/delayed UK:BARC -2.94% , Lloyds /zigman2/quotes/202285510/delayed UK:LLOY -2.46% , Santander /zigman2/quotes/202859081/composite SAN -0.38% , and NatWest /zigman2/quotes/209265718/delayed UK:NWG -3.07% will start offering 95% mortgages in April.

The budget also supports Prime Minister Boris Johnson’s ambitious plan for a “green industrial revolution” through a massive investment in infrastructure for a green transition, including building new port infrastructure for offshore wind energy projects. The £40 billion investment will begin with an initial capitalization of £12 billion in the spring.

More on that: Boris Johnson wants a Green Industrial Revolution that bans new petrol cars, adds jobs

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UK : U.K.: London
£ 191.00
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