Budget 2021 - CSA CEO Reaction

Given the economic circumstances facing Rishi Sunak before he stood up to deliver Wednesday's Budget (3 March), you could be forgiven for thinking he faced one of the most difficult tasks a Chancellor has had to grapple with for decades. After all, the pandemic has seen the economy shrink by ten percent, business investment collapse by 22% in the early stages of lockdown, and the public purse forced to provide financial support to individuals and businesses to the tune of £407bn.

Yet the Chancellor has managed to walk the tightrope carefully, without undue ideological bias, balancing the need to offer help through unprecedented times with the requirement to repair public finances over the longer term. The primary goal for the Budget was “to do no harm” and in that respect the Chancellor appears to have succeeded.

Economic outlook:

The principal economic policy of the Government has been the rapid programme of vaccinations against Covid, with 20m adults inoculated to date. If there is one intervention likely to help growth return and obviate serious business failure and unemployment, it is this.

The fate of the economy rests on four pillars: business investment, government expenditure, exports and consumer spending. The first three of these have their own challenges from this point onwards. But it is upon the fourth pillar of consumer confidence that most economists are placing their expectations as the chief driver of recovery. The Office for Budget Responsibility forecasts underline this point when they predict:

“Consumer spending should rebound strongly as restrictions are eased…We expect this to add about £45bn to spending over the five years of the forecast, with some of it being front-loaded as households buy more durables, especially those (such as cars) on which spending was depressed during the pandemic. Consumption returns to its pre-virus peak by the first quarter of 2022, slightly earlier than output as a whole.”

Impact for our sector:

For the credit and debt services sector, the overall health and recovery of the economy will be the chief determinant of business conditions in the year ahead. If consumers struggle to maintain credit repayments because of a drop in income or joblessness, then impairment levels may be greater but the ability-to-pay is diminished. In this respect, the path for credit markets looks slightly clearer now that society as a whole has grown more used to lockdown conditions and can see light at the end of the tunnel.

According to Bank of England card data, aggregate consumption held up better in the second and third lockdowns than in the first, with shortfalls of 14 and 34 percent respectively, compared to 44 percent in April. Interestingly, the means of consumption has also transformed; internet sales leapt to 36% in January, up 15% on last year’s volumes.

Overall, the forecast for economic growth is four percent this year, rising to 7.3% in 2022 and then reverting to more normal 1.5% levels thereafter. This still means a significant period of output has been lost and is not bouncing back straightaway.

Nevertheless, the OBR was less gloomy than in November about other key metrics. They believe unemployment will still rise by a further 500,000 from this point, which will be incredibly painful in some sectors in particular, but their expectation is that unemployment will remain at below seven percent and fall back subsequently. Meanwhile the housing market is not expected to see the level of price retrenchment as initially thought.

None of these predictions should be taken as gospel. The country is still in an artificial state of limbo with government interventions masking true market realities. The level of forbearance provided by our sector has been phenomenal and creditors have provided over 2.7m mortgage and over 1.7m consumer credit payment holidays to borrowers so far.

Chancellor’s main announcements on business taxation:

The Chancellor is banking on the volumes of consumer savings squirrelled away in deposits to be unlocked and help get things moving – but he did not choose to provide additional consumer stimulus this time around. Instead he wants to stimulate business investment as quickly as he can – and do so before his large increase to 25% in the corporation tax rate kicks in.

The new ‘super-deduction’ of 130% allowance for business investment will make firms seriously review their plans as they emerge from lockdown. Some commentators worry that existing investment plans will simply be earmarked to claim that allowance and so there could be a large deadweight cost to the Exchequer. But in a nutshell, the Chancellor is investing early hoping to boost productivity with this £12bn giveaway before 2023, after which he’s looking to take £16bn a year more in corporation tax receipts. That is quite a quid pro quo (if indeed those plans sustain as far as 2023).

Beneath the headlines – other notable announcements:

The newspapers will focus on corporation tax changes. But there are a myriad of other smaller announcements in the detail of the Budget which are worth spotting for our sector, and here’s my list of issues I think are worth noting:

• The Government have announced a ‘No-Interest Loans’ Scheme pilot, providing initially £3.8m to “help vulnerable consumers who would benefit from affordable short-term credit” which they say is “an alternative to relying on high-cost credit”. This is a small scheme but it is noteworthy that the Chancellor has done this.
• Following the CSA’s Report in January “Squaring The Circle – Setting the Strategy for Bounce Bank Loan Collections”, it is notable that the Treasury have announced a new £100m ‘Taxpayer Protection Taskforce’ of 1,265 HMRC staff to combat fraud within Covid-19 support packages, including the CJRS and SEISS, which they admit represents “one of the largest responses to a fraud risk by HMRC”. In addition, the government say they will “raise awareness of enforcement action in order to deter fraud, and will significantly strengthen law enforcement for Bounce Back Loans”. The Government have also committed a budget also of £51m for “HMRC additional resource for debt pursuit, delayed from September 2020 to April 2021”.
• Contactless payments will rise up to £100, which shows an eagerness to focus on consumer convenience and accelerate some of the fintech gains for customers in recent years.
• For firms looking to repair balance sheets in the medium term, the Chancellor announced that the trading loss carry-back rule for businesses pushed into a loss-making position will be extended from the existing one year to three years.
• In the tiny small print of the Budget tables is an objective for HMRC & DWP to recoup £1bn in additional revenues annually through the “Investment In Compliance” scheme. We will explore what specific changes this entails for public sector collections.
• For member firms considering CSA Apprenticeships, the doubling of the employer incentive to £3,000 regardless of the age of apprentice and extension of the incentive until 30 September will be very welcome news. Any members wanting more information should contact our Director of Learning & Development at fiona.macaskill@csa-uk.com.

The Government also announced a £7m fund to support apprenticeship portability across different employers, providing additional scheme flexibility. We will also look closely at the new ‘Help To Grow’ initiative providing support for business management training.

Further analysis of the Budget and its impact on our sector will no doubt emerge in the coming days, but I wanted to share my initial impressions.

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