Spring Budget 2021: Austerity 2.0 in Disguise?

Analyses whether the measures set out in the Spring Budget 2021 shows that austerity has returned within the UK.
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3 min read
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On the 3rd of March 2021, Chancellor Rishi Sunak MP set out the next budget in Parliament. These budgetary measures were particularly focused on the UK’s economic recovery as the Coronavirus pandemic continues to take its toll on the nations’ financial prosperity. This has re-energised the economic debate of whether austerity is back on the horizon, or whether austerity is now a thing of the past.

The first measures announced were the extensions of the Coronavirus Job Retention Scheme (more commonly known as ‘furlough’) and the Self-Employment Income Support Schemes until September 2021. The retention scheme allows employees to recover up to 80% of their normal pay (up to £2,500 per month) in the event they are unable to work or their employer has no work for them due to Coronavirus. It ensures that employees are able to stay financially stable and meet everyday household expenses. Employers are then able to claim back furlough monies paid (the Government effectively indemnifies them) which incurs a great expense on the part of the Government. HMRC reported that a staggering 11.6 million people were covered by this scheme since the pandemic began, and the ONS released that over £64bn has been spent on this scheme alone. It widens the deep deficit that the UK had pre-Covid, and Covid-19 has forced the UK to borrow more than ever. These expenses will need to be somehow recouped. For these businesses, however, this scheme is an essential economic relief because paying their workers and meeting normal business expenses with no operating profit is financially infeasible.

Therefore, the Chancellor announced a steady corporation tax hike from 19% to 25% for profits exceeding £250,000, starting from April 2023. Even after this hike, the UK’s rate of corporation tax will still be one of the lowest in the G7. The tax hike will seem to only affect high-profit, larger businesses – preserving the Government’s commitment to small, local and independent businesses, which are a cornerstone of the UK’s services sector.

The Government also announced a £20 per week increase in the amount received by someone on Universal Credit (albeit limited to six months) and a one-off payment of £500 to those who are on Working Tax Credit. These are welcome changes that will help some, but for most, the financial distress that the pandemic has caused is not rectified by these measures. The reluctance for the Government to give real financial aid to everyday individuals shows that the call for austerity has become that little bit more voiced. The Government will now most likely aim to protect their nations’ financial platform by reducing public expenditure

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