Gary McDonald: More cash... and that old corporation tax chestnut

Chancellor Rishi Sunak
Gary McDonald Business Editor

DESPITE the already eye-watering cost of dealing with the pandemic, Chancellor Rishi Sunak has divvied up yet more borrowed cash, acting on calls to help struggling businesses reach the finish line of this gruelling Covid marathon and, for those still surviving, helping them take their first steps towards recovery.

The general consensus is that the already flagged up extensions to the furlough scheme (with new caveats for employers), and his business rates relief and VAT reductions will at least give companies a fighting chance not only to restart after lockdown (whenever that might be), but to rebuild.

Forget for a moment that the longer-term picture for public spending in Northern Ireland still looks pretty horrendous, with hundreds of millions a year set to be cut from Stormont departments from 2022/23 onwards.

In the here and now, where protecting lives and livelihoods is paramount, the Chancellor was forced to tread carefully to at least see us through this latest lockdown without triggering mass unemployment and a wave of business failures.

He outlined tax rises on companies and workers to pay for an additional £65 billion of financial support to see us through the pandemic, taking total government spending on this year-long crisis to a staggering £407 billion (that's equivalent to £6,020 for every man, woman and child in the UK).

We've known for some time that is money which will ultimately need to be paid back, at least in part, and when Sunak hinted that he was going to "level with us", the fear was that he'd start the clawback.

But he didn't. At least for now. And rather than Joe Bloggs picking up the tab, it will fall to big businesses.

BUDGET 2021: At a glance

BUDGET 2021: Stormont will receive just £4.2m extra from Budget for everyday spending - Conor Murphy

BUDGET 2021: Furlough extension prompts renewed calls for Executive to revisit reopening strategy

BUDGET 2021: Corporation tax for north's most profitable firms will soon reach double Republic's rate

The Chancellor resisted the temptation raise income tax, national insurance and VAT. But by holding the threshold for basic and higher rate earners steady until 2026, it's effectively a "stealth increase" and is estimated to raise close to £40 billion over the five years.

As for corporation tax (remember that old chestnut?), the rate at which our most profitable companies will be taxed will rise from its current 19 per cent to 25 per cent from April 2023, which will rake in £17 billion a year.

That, of course, creates a conundrum for the Executive, which since 2016 has had the power to vary from the UK rate. Should it adopt the latest increase? Or will it stick at 19 per cent to try to gain some post-Brexit competitive advantage, especially given that the north is competing against the Republic’s 12.5 per cent rate)?

ANALYSIS: The Big Extender and Big Freezer by Richard Ramsey

BUDGET 2021: Stamp duty extension as Sunak bring in 95 per cent mortgages

BUDGET 2021: Raising a glass to booze duty freeze (if only the pubs were open)

ANALYSIS: A Budget about protecting jobs and livelihoods

Elsewhere the Chancellor confirmed he's setting up a number of "freeports" around the UK to help deliver transformational improvements and drive forward the levelling up agenda.

Freeports are zones that don't function under the same tax rules as the rest of the country, enjoying simplified customs procedures and tax breaks on goods passing through. They can potentially attract millions of pounds of investment, create significant new jobs and support key sectors like clean energy, chemicals, transport and infrastructure.

While he named eight freeports, however, they're all in England at this stage, and whether Northern Ireland can eventually get its own special trade zone remains to be seen.

But as with all Budgets of recent years, where the devil is in the detail, a forensic perusal of the blue book will be required to dig right down to the regional nitty gritty.

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