Budget 2021: Help for retail but no online sales tax
Chancellor Rishi Sunak has unveiled what has been touted as the most important budget statement in decades. And there's plenty in the latest announcement that directly impacts the fashion and retail sectors.
For a start, the furlough scheme is being extended until the end of September, although businesses will contribute 10% of wages for employees on furlough in August and 20% in September. And the business rates holiday is to continue until the end of June with an up-to-two-thirds discount for the nine months after that. The Government had already announced earlier that it would be providing restart grants for retail businesses and for those such as hair and beauty salons, worth £6,000-£18,000 per store/salon.
Sunak has also said Government-backed bounce-back loans (BBL) and the coronavirus business interruption loan scheme (CBILS) are ending but a new loan scheme running until the end of this year will make loans of between £25,000 and £10 million available.
And he had bad news for some firms, but good news for their employees, saying that the minimum wage will rise to £8.91 in April with the age threshold to qualify lowered to 23 from the current 25. The government also wants to encourage companies to take on more young people and is doubling incentive payments for hiring new apprentices to £3,000. It will also make £126 million available to increase the number of new traineeships threefold.
What was noticeably absent from the announcement was any hint of the online sales tax that had been expected by some.
But we heard that corporation tax will rise from 19% to 25% in 2023, although not for smaller companies, and individual income tax thresholds have been frozen. The starting threshold will stay at £12,570 from next year until 2026, while the threshold at which the higher rate of income tax has to be paid will remain £50,270.
That may not be much of a worry for people at the moment, but with fears of inflation picking up pace in the years ahead, that could be a problem. Consumers who get wage rises and have to pay more tax as a result, also get a small benefit by the level at which they start paying tax going up slightly every year. With that increase not happening for the next few years, they'll pay out more tax annually as a result.
In fact, looking at the whole package, Sky News calculated that while tax may not be rising in the short term, the percentage of tax compared to GDP will be the highest in 2025-26 since the late 1960s.
In terms of putting more money into the pockets of consumers, there's more help coming for self-employed people, as those who became self-employed in the 2019/20 tax year will now be able to claim financial support. However those who earned £50,000 and over in recent years are still excluded from the benefit, even if their income has plunged due to the pandemic. This is something that has happened to a great many freelancers in the fashion and beauty sectors in the past year, so there's bound to be a lot of unhappy people after the latest Budget.
Finally, when consumers are spending, they’ll be able to use contactless more often as the limit is rising to £100 later this year.
Jace Tyrrell, Chief Executive of New West End Company, didn’t seem overly impressed by it all and bemoaned the lack of specific support for key cities. He said: “The Chancellor’s announcement of substantial economic support should be broadly welcomed. However, it delivers too little for major commercial centres missing out on tourism and office workers where rebuilding traffic, trade and tourists will require years of effort. Targeted relief and support is needed for centres such as London, Birmingham and Manchester, where recovery will take much longer. It cannot be a one size fits all approach. For the Government’s support to be successful, we must also be given more clarity around the issue of state aid in the wake of our departure from the EU so that businesses with multiple stores can be sure that they won’t miss out on funding due to regulations on state aid cap.”
British Fashion Council CEO Caroline Rush welcomed the budget measures, although she added that a report by Oxford Economics for the BFC “has shown that the impact of Covid could be twice as hard on the fashion industry than the economy as a whole, therefore collective action is required to ensure recovery and positive growth of the industry as there are many businesses and workers that fall outside of the government support measures”.
But Chris Brook-Carter, chief executive of retail industry charity RetailTrust was more upbeat, saying: “We welcome the promises and the desperately needed certainties that it provides the UK’s more than four million retail workers. Extending the furlough scheme will safeguard roles during the uncertain reopening period, while extending the business rates holiday and providing access to the new restart grant will help get retailers back up and running.
“Retail will have an absolutely vital to role to play in tackling issues like youth employment and social mobility as we move out of this crisis. People working in retail have been hit hard financially, emotionally and physically during the entire course of the pandemic. It is essential that the government and businesses now work together to safeguard our colleagues’ long-term interests and their wellbeing. And as a sector, we all have a responsibility to come together and make the most of initiatives which will help to protect, support and create roles”.
As well as announcing those specific areas of extra spending, the Chancellor said that the Office for Budget Responsibility believes the UK economy will grow by 4% this year and by 7.3% next year, with increases around 1.6% to 1.7% in each of the following three years. It shrank 10% last year.
What’s also important is that the economy is expected to get back to pre-Covid levels by the middle of 2022, which is six months earlier than had been thought not that long ago. Additionally, despite the raft of job losses in the retail and hospitality sectors, unemployment is expected to reach only 6.5% this year, rather than the 11.9% that had been forecast back in July.
But the Chancellor also stressed that there will have to be a payback moment at some point with government borrowing expected to reach £355 billion in 2020/21, adding up to 17% of national income. That's the highest level since World War II. It will borrow £234 billion next year.
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