Britain’s Chancellor of the Exchequer Rishi Sunak takes part in a national “clap for carers” to show thanks for the work of Britain’s National Health Service (NHS) workers and frontline medical staff around the country as they battle with the coronavirus pandemic, on the steps of the Foreign and Commonwealth Office (FCO) on April 16, 2020 in London.
Tolga Akmen | WPA Pool | Getty Images
LONDON — British Finance Minister Rishi Sunak announced Wednesday that U.K. corporation tax will increase to 25% in April 2023 as the government looks to restore public finances in the aftermath of the Covid-19 pandemic.
In his Budget statement Wednesday, Sunak said the changes would take effect after the Office for Budget Responsibility expects the economy to have returned to its pre-Covid level.
“Second, I’m protecting small businesses with profits of £50,000 or less, by creating a Small Profits Rate, maintained at the current rate of 19%,” Sunak told the House of Commons.
“This means around 70% of companies – 1.4 million businesses — will be completely unaffected.”
Above £50,000, a taper will be introduced so that only companies with profits of more than £250,000 will be taxed at the full 25% rate.
The OBR now expects the British economy to return to its pre-Covid level by the middle of 2022, with GDP growing by 4% in 2021 and 7.3% in 2022.
However, the government has borrowed a peacetime record £355 billion since the onset of the pandemic, 17% of GDP, and expects to borrow a further £234 billion, (10.3% of GDP) next year. Borrowing then falls to 4.5% of GDP in 2022/23 and 3.5% in 2023/24. Underlying debt is expected to rise from 88.8% of GDP this year to 93.8% next year, peaking at 97.1% in 2023/24.
Covid response hits £407 billion
The budget comes as nationwide Covid-19 restrictions are set to be gradually unwound over the coming months, culminating in full removal on June 21. Meanwhile, more than 20 million people in the U.K. have now received a first vaccine dose.
The government has embarked upon unprecedented public spending as the economy posted its sharpest contraction in more than 300 years in 2020. At Sunak’s last fiscal announcement in November, he unveiled the country’s largest peacetime budget on record.
On Wednesday, Sunak announced a further £65 billion worth of fiscal measures for the 2021/22 fiscal year, bringing the government’s total response since the onset of the pandemic to £407 billion.
This included an extension to the country’s furlough scheme and £20-per-week boost to Universal Credit, the British social security payment, until September, along with £5 billion in additional grants to businesses to aid reopening.
The Coronavirus Jobs Retention Scheme will continue subsidizing 80% of the wages of furloughed employees until the end of September, but businesses will be asked to contribute 10% in July and 20% in August as the economy reopens.
Sunak also extended the reduced 5% VAT rate (a value-added sales tax) until September 30, along with continuing reductions to business rates and stamp duty.
