2021 Budget – What You Need to Know

Published: 21st March 2021
The 2021 UK Budget, delivered by Chancellor Rishi Sunak, outlined plans for the country’s post-pandemic economic recovery.

Chancellor delivers budget 2020

Photo:  Chancellor Rishi Sunak delivers the budget – Metro

 
Find out what the Budget announcements mean for you.

 

Key Points at a Glance

Coronavirus – extension of support schemes to help individuals and businesses.

Tax – higher tax-free Personal Allowance, but frozen rates could mean higher tax bills in the next few years.

Low Earners – minimum wages increased.

Housing – stamp duty holiday extended, plus mortgage boost for first-time buyers.

 
 

Coronavirus (COVID-19) Measures

 
With the continuing risk to lives and livelihoods, the Budget was focused on providing short-term support for people’s jobs and finances.

 

Furlough scheme extended

The furlough scheme was designed to protect jobs from redundancy and will be extended until the end of September. Anyone on furlough will continue to receive 80% of their salary from the government, up to £2,500 a month. (From July onwards, employers will have to contribute to these payments).

 

Support for the self-employed

The furlough scheme only applies to employees. But the self-employed can obtain further grants through the Coronavirus Self-Employed Income Support Scheme (SEISS), covering 80% of three months’ average profits, up to £7,500. The final payment will depend on the amount of lost turnover.
Although it now reaches further, this scheme has been criticised for still leaving some self-employed people ineligible.

 

Extension of benefits

Universal Credit: The £20/week universal credit top up will be extended for another six months (worth £1,000 a year). This is aimed to help people who have lost their jobs or have been struggling financially during the pandemic.

 

NHS

The government has allocated £1.65bn to support the vaccine rollout and £50m to boost vaccine testing.  The objective is to cover all adults by the end of July, which should mean people can return to work and the economy will start to recover.

 

Support for businesses

  • The business rates holiday for retail and hospitality firms forced to close during the pandemic will continue until the end of June, with hefty discounts after that. Businesses that had to close will also be eligible for Restart grants.
  • VAT for the hospitality industry remains at a reduced rate (5% until September, then 12.5% for 6 months).
  • Companies will be offered financial incentives to take on apprentices and trainees.

 

Find out more:

Coronavirus – what it means for you – Money Advice Service

 

 

Tax Changes

 

Income Tax

Tax thresholds will rise in April and will then stay the same for the next 5 years.
You will pay no tax until you earn £12,570 a year* (up from £12,500), and then any earnings above this threshold are taxed at the basic rate of 20%.
The starting point for higher rate income tax 40% is £50,270 (up from £50,000).
 
* This is your tax-free Personal Allowance. It may be more than £12,570 if you are entitled to  Marriage Allowance or Blind Person’s Allowance.  It’s smaller if your income is over £100,000.
 
Whilst raising thresholds is good news, the fact they will stay the same until April 2026 is not so welcome, because it means people receiving a pay rise might then find themselves in a higher tax bracket, which will increase their tax bill.

See more about tax rates and bands here.

 

National Insurance 

Like Income Tax, National Insurance thresholds increase by 0.5% in line with inflation, but rates remain the same. So, in the 2021-22 tax year, employed workers can earn £68 more before they start paying National Insurance.

Find out more about National Insurance here.

 

 

Low Earners

 
By law, there is a minimum hourly rate that most employees should be paid, which has been increased from April 2021.
The National Living Wage will rise from £8.72 to £8.91/hour and will now apply to those aged 23+ (rather than 25+ in previous years).

 

 

What is the National Living Wage?

The lowest wage that can legally be paid to employees aged 23+.
It is reviewed annually and is supposed to reflect the amount someone needs to earn to cover the basic costs of living and lead a decent life.
 

 
The National Minimum Wage also increases (for those above school leaving age but under 23, or an apprentice)

 

Minimum Wage Rates from April 2021

 

Age 23 and over (National Living Wage) Age 21 to 22 Age 18 to 20 Under 18 Apprentice
£8.91 £8.36 £6.56 £4.62 £4.30

Source: GOV.UK

 
Check here to see if you’re earning the legal minimum, or if you’re owed payments from past years.
Note most interns should be paid at least the minimum wage, whatever the length of your internship. If there are any problems, you should take it up with your employer in the first instance, and if it remains unresolved, get advice from Acas, or report it to HMRC, who will investigate.

 

 

Housing

 
The stamp duty holiday has been extended to the end of June.
This means no stamp duty is paid on the first £500k of a property purchase (England and Northern Ireland). The threshold will then be reduced to £250k until the end of September, returning to normal rates after that. The move follows campaigning in the housing sector, over concerns that the housing market would collapse.
 
Mortgage boost for first time buyers: In a bid to stimulate the housing market and get more young people onto the property ladder, the Government is offering 95% mortgage guarantees from April.
The new scheme means that first time buyers or current homeowners wanting to buy a home of up to £600k will need a deposit of just 5% of the property value in order to secure a mortgage. The Government incentivises mortgage lenders to cover the remaining 95%, by offering to guarantee the loan, subject to the usual affordability checks. (The pandemic had meant that most banks stopped offering these riskier low-deposit mortages).
Example: To buy a home worth £500k, you would need to put down £25k deposit and could borrow the rest.
 
However, low-deposit mortgages currently carry high interest rates and property prices remain high, so home buying could still be out of reach for many people.
 

 

The UK Economy

 
Economic forecast: The UK economy shrank by 10% in 2020, but is expected to rebound with a predicted annual growth of 4% this year.
 
Unemployment: 700,000 people have lost their jobs since the start of the pandemic, and unemployment is expected to peak next year, reaching 6.5%.
 
Borrowing: As a result of the pandemic, the Government will borrow £355bn this year to cover public spending plans.
 

 

How Will the 2021 Budget Affect You?

 
Use this calculator to find out the impact on your pocket from the new Budget measures:
Budget calculator 2021 – Sky News
 
 
Sources:
GOV.UK – Budget 2021: What you need to know
Which? – Budget 2021: what you need to know
BBC News – Summary of Budget 2021: Key points at-a-glance
BBC News – Budget 2021: 10 ways Rishi Sunak’s speech affects you

 
 
 

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