Analysis: What the 2021 Budget means for Dorset

The spectacle of a Conservative chancellor offering huge cash giveaways, ratcheting up enormous public borrowing, and then pledging to raise tax on business profits is just another one of them.

Rishi Sunak’s second Budget yesterday set out plans to hand out billions more to see businesses and households through the Covid lockdown. But he also signalled how he would began to claw some of that money back.

As it happened: reaction as Rishi Sunak delivers 2021 Budget

For Dorset specifically, there was one multi-million pound boost and one serious disappointment.

On the morning after, we look at some of the effects the Budget could have in Dorset.

HELP FOR HOSPITALITY AND RETAIL

Dorset’s hospitality industry got some of the key concessions it asked for from the chancellor.

The reduced five per cent VAT rate for hospitality and tourism will stay in place util September 30 and will then go up to 12.5 per cent before reaching its original 20 per cent next April. Alcohol duty will also stay as it is.

For Andy Lennox, founder of the Wonky Table group that grew up to represent Dorset bars, restaurants and events companies in lockdown, that  was the key concession. “We’re standing here with shattered balance sheets, heavily in debt, with little to no cash reserves,” he said.

Hospitality industry boss backs Chancellor's VAT decision

There will also be “restart grants” of up to £18,000 for hospitality businesses. “However, after delays in previous grants being put into the hands of business owners, it’s vital that grant funding is made available as quickly as possible,” said Mr Lennox.

BUSINESS RATES AND RETAIL

As was predicted, the business rates “holiday” will be extended to June, when non-essential shops should be open.

That much will be welcome, but retailers will be frustrated that the government did not institute a more fundamental reform of the system, which penalises bricks and mortar stores to the benefit of the digital giants.

The government made no moves to tax online businesses more heavily. That will have frustrated some retailers, but was welcomed by Cas Paton, founder of the rapidly expanding, Poole-based online marketplace OnBuy.

“We’ve seen leaps in technological and digital innovations from British businesses in the past five years and these now have the ability to rocket in size and profit,” he said.

“ I’m also pleased that the introduction of an ‘online sales tax’ has not come to fruition – a step which will allow Britain to further grow its own e-commerce industry, supporting our retail ecosystem and allowing us to compete on a global stage.”

FURLOUGH

The furlough scheme which has kept millions off the unemployment figures will be extended until the end of September, with the government paying 80 per cent of wages for hours not worked. But employers will be asked to contribute 10 per cent in July and 20 per cent in August and September.

Number of BCP workers on furlough surged in January

Deborah West, head of employment at Steele Raymond in Bournemouth, said there will be a “collective sigh of relief” from employers.

“However, some employees will have been on furlough, at least off and on, for over 12 months by the time they eventually return to work,” she says.

“While many employers are doing their best to keep in touch with furloughed employees, being away from work for that length of time inevitably triggers all sorts of challenges for employers as to how they can best support employees with their return and re-integration into the workplace, for the benefit of both employer and employee.

“Whilst it seems that the furlough and other support schemes have so far had the intended effect of preventing mass unemployment, whether this will continue to be the case once the furlough scheme eventually ends remains to be seen. With his ‘whatever it takes’ mantra, the chancellor is pinning his hopes on the economy sufficiently rebounding by the time the current support scheme tapers of.”

STAMP DUTY AND MORTGAGES

Home buyers are currently paying no stamp duty, the tax on their purchase.

As many hoped, the chancellor decided to keep that break until June 30, for properties selling at up to £500,000. After that, stamp duty will apply above £250,000 before returning to its previous threshold of £125,000 on October 1.

The chancellor is also encouraging lenders to offer 95 per cent mortgages to people who cannot afford a big deposit.

Nigel Smith, managing partner of Dorset’s Ellis Jones Solicitors, said: “The extension of the stamp duty land tax holiday is welcome although this should have been announced very much sooner.

“Leaving this until the Budget has placed undue pressure on those involved in this sector, including the many families seeking to move, local authorities and various professionals.

“The future of stamp duty needs to be reconsidered as it is a tax which is expensive to administer yet brings in relatively little money. The recent holiday has clearly demonstrated how a reduction can stimulate the market and how beneficial this would be on a permanent basis.”

ENCOURAGING INVESTMENT

Britain already had a productivity problem – and many firms will be so bogged down in debt that they will have less money to invest in the business.

The chancellor announced “super-deduction”. It’s a tax relief that means for every pound businesses invest, they will be able to claim tax relief on £1.30.

David Chismon, partner at Saffery Champness Accountants in Bournemouth, said: ​“The devil will be in the detail as to how the 130 per cent deduction for costs will operate but it is hoped that this super-deduction is available for all businesses rather than just companies as mentioned in the chancellor’s speech.” 

HELP WITH DIGITAL

The chancellor announced that small and medium sized enterprises would be able to get free advice on technology through the Help to Grow: Digital scheme. They could also receive vouchers offering 50 per cent off productivity-enhancing software, up to £5,000.

Paul Tansey, managing director of Poole digital marketing firm Intergage, said: “Cloud-based technology has played a vital role in helping companies to work more efficiently and explore new business opportunities – without it, many more would have struggled to survive the Covid-19 pandemic.”

But Michael Oszmann, Lymington-based founder of the online marketplace BuyBritain.com, said: “In a time of crisis, I don’t think an ‘MBA-style’ training scheme is what SMEs need right now. They are extremely busy and stressed just staying afloat. In more normal times, this could be a great initiative to boost productivity but right now, I think that our SMEs need simpler and more direct support and funding in the form of grants or adjustments to taxation.”

TAX

Britain is borrowing a lot. Public borrowing is at wartime levels – 97 per cent of national income, or £360billion this financial year.

Rishi Sunak said he would not be putting up the rate of income tax. Instead, he will freeze the personal tax thresholds after April.

That means more people will start paying tax, or move into a higher band, as their wages rise. It is forecast that more than a million more people will be paying tax in the next five years.

David Chismon Saffery Champness said: “From a personal tax perspective there has been a great deal of anticipation as to whether we would see changes to capital gains tax rates or inheritance tax after the Office for Tax Simplification recommendations last year, but there was nothing about this in the speech. 

"Whilst chancellor maintains the manifesto pledge of not raising tax rates for income tax, VAT or National Insurance contributions, he has implemented a freeze on allowances and thresholds from April 2021 to April 2026, which will clearly collect more tax over this period."

However, a tax rise is on the horizon for many businesses. Corporation tax on company profits above £250,000 will rise from 19 per cent to 25 per cent in April 2023, while staying at 19 per cent for around 1.5m companies with profits of less than £50,000.

Chris Downing, director at Poole accountancy firm Inspire, said: “The chancellor outlined that now is still too early for any major changes, but he gave a hint of what is to come with some hefty scheduled corporation tax changes from 2023 and that personal tax bands would be frozen until 2026.  Interesting by its absence was any mention of capital gains tax or pension rate reviews.

“Mr Sunak also acknowledged the debt from the extra £407bn spent on support measures would be with us for many years (and governments) to come.”

He said that “at least now we have an indication of what’s coming and businesses can start to prepare for that”.

Neil Andrews, managing partner at Dorset’s Coles Miller Solicitors, welcomed the absence of immediate tax rises.

“The stamp duty holiday and the hospitality/retail VAT cut will continue for the moment without ‘cliff edge’ changes as the UK moves out of lockdown,” he said.

But  he added: “Corporation tax increases in 2023 are the start of the fiscal tightening needed to pay for the crisis.”

BENEFITS AND TAX CREDITS

Britain has 1.7m people unemployed, with many more to join them, in addition to those claiming benefits for other reasons.

The chancellor announced he would keep the £20-a-week rise in Universal Credit for another six months, although he was facing calls to make the increase permanent. People on Working Tax Credit will get a £500 one-off payment.

Caroline Pope, community and corporate engagement manager at the families charity Home-Start South East Dorset, said: “The universal credit extension announced in the budget is welcome news for many local families in Bournemouth, Christchurch and Poole. Covid-19 has placed even greater strain on families who are already isolated, facing financial hardship, disability and mental health challenges.

"That £20 a week extra could make a real difference, allowing families to afford basic necessities like food, clothing and heating.”

BOSCOMBE’S £22M REVAMP

The very specific boost for Dorset came in the form of almost £22m for Boscombe.

The money is from the government’s £1bn Town Deal fund to boost 45 struggling towns.

Boscombe's £21.7m regeneration project backed in Budget

It means replacing the Sovereign Centre, hundreds of new homes, a public square, and reviving the Royal Arcade.

Among those involved with the bid was Cherries chairman Jeff Mostyn, who said: “It goes to show what can be achieved when you draw upon the collective knowledge, expertise and talent across our partners and the local community.”   

THE FREEPORT SETBACK

To balance the good news for Boscombe, there was disappointment.

The BCP area’s application for a “freeport” – a trading area benefitting from low tariffs and low red tape – did not find favour with the government.

Dorset freeport bid fails to get go-ahead in Budget

The planned name was not Dorset Freeport, but the London South Logistics and Cargo Hub, and it would have spanned the Port of Poole and Bournemouth Airport.

Council leader Drew Mellor said  the idea “made the final ministerial decision”.

“We’re ready and waiting for round two,” he said.

The worry may not be that the BCP area missed out, but that Hampshire, and other areas, succeeded.

Neil Andrews from Coles Miller notes: “The Port of Poole will face challenges now that eight other areas are being designated free ports. Local businesses and the economy will not gain the support of being in a free port area.

"They will face increased competition from free ports.”

That may be one of the more worrying elements in the budget for Dorset, once we all get past the short-term problems in front of us.