The 2021 Budget and the future UK economy

The UK economy contracted by 10% during the height of the COVID-19 pandemic, which is the greatest economic slump in the UK for over three centuries. However, the Office or Budget Responsibility (OBR) predicts the UK economy will bounce back to where it was pre-Covid by the middle of 2022. These predictions are promising, and the recovery is now six months ahead of initial estimations.

The OBR believes 2022 will be the key year with economic growth in excess of 7%, but it also claims the UK economy would have been 3% healthier than these predictions if it was not for the pandemic. Part of the route to recovery lies in the undeniable success of the vaccine programme and the UK Government’s 2021 budget plans to protect businesses.

Here are some of the key takeaways from the budget that will help the economy heal.

1.    Furlough Scheme Extended

The furlough scheme has been extended until September, which will provide a blanket of security for businesses affected by the pandemic. Businesses that continue to claim in July (when the UK is hopefully in full swing again) will be asked to pay 10% of workers’ wages, rising to 20% if their claims continue in September. This balances the support between helping businesses and increasing household wealth.

2.    Self-Employed Support More Accessible

Self-employer workers who were first left off the COVID support package will be able to claim two more grants covering up to six months of income. The terms remain the same as they can claim 80% of profits up to a maximum of £7,500 for each three-month period. However, there is some good news as the grants will now be available to self-employed workers who started trading in the 2019-2020 tax year. This will result in 600,000 more recently self-employed workers being eligible to make a claim.

3.    Non-Essential Business Support

A myriad of schemes will be continued to help UK businesses in other ways, especially businesses deemed non-essential during the pandemic and forced to close. The reduced 5% VAT rate during the Eat Out to Help Out campaign will stay in place until September, and then it will remain below the usual rate for a further six months after that. Moreover, gyms and shops forced to close will continue to benefit from a business rates holiday for three months.

4.    Minimum Wage Increase

From April 2021, the National Minimum Wage (NMW) will be set at £8.91 per hour. The current National Living Wage (NLW) is currently £8.72 for adults over 25, which means it is the first time the NMW may go above the NLW, but he NLW could also increase. Nevertheless, it brings the tow figures closer than they have been in recent years. With more money in pockets, it could encourage further spending among low-income workers.

March 2021