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Summary
- Tax hikes announced by British finance minister Rishi Sunak would push the nation’s overall tax burden to its highest level since the 1960s, said OBR.
- This is despite the fact that the budget has postponed many tax hikes till the economic recovery begins.
- The government borrowings are forecasted to fall to a lower value of £74 billion by the end of FY2026.
The tax hikes announced on Wednesday in the Budget 2021 would push up the overall taxation burden from 34 to 35 per cent of the UK gross domestic product by the year 2025-26, highest since the late 1960s. This was quoted in the Office for Budget Responsibility latest economic outlook. The OBR is the UK government’s independent economic forecasting body.
Nearly half of the total tax rises planned in the budget would be coming from the raised corporation tax rate from 19 to 25 per cent, which is pre-announced for April 2023.
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Also Read: Budget 2021: UK economy to regain its pre-pandemic size by mid-2022, says Sunak
Many taxes on hold
At the same time, this is despite the fact that Sunak has chosen to postpone many taxes for a later time till the economy recoups back at least to its pre-pandemic levels it seems. For instance, the economic recovery will get boosted by a temporary tax break worth over £12 billion per annum for two years in terms of a super deduction capital allowance. Under this initiative, for FY22 and FY23, businesses would be allowed to offset up to 130 per cent of their investment expenditure on plant and machinery against the profits. Further, tax on spirits and beer is put on hold to give a fillip to the pubs sector.
Government borrowing to gradually fall
The OBR’s forecast says that the UK government borrowings to touch a peacetime-high value of £355 billion for FY 21, 16.9 per cent of the GDP. They are then predicted to gradually drop to £234 billion in FY22 and eventually to £74 billion in FY26 (2.8 per cent of the GDP value), as the government focuses on revenue generation.
Also Read: Budget 2021: How Sunak Plans to Protect Jobs and Livelihoods
Unemployment woes
The OBR has predicted the peak unemployment rate to rise to 7.5 per cent for the second quarter of this year, despite a slew of measures announced in the budget to support jobs and businesses. The rate is predicted to reduce to a value of 6.5 per cent for the last quarter of 2021.
Nevertheless, the government policies like extension of the furlough scheme till end of September have definitely delayed some of the higher unemployment numbers and business closures during the ongoing unprecedented pandemic times.
