Chancellor Rishi Sunak announced the dissolution of the UK government’s highly popular Bounce Back Loan Scheme (BBLS) in his Budget this lunchtime, which included £65 billion in new fiscal measures to support the UK’s economic recovery from the pandemic.
The new Recovery Loan Scheme (RLS) will replace the existing government guarantee schemes that supported £73 billion of lending to date and will close at the end of March. The RLS mirrors the Coronavirus Business Interruption Loan Scheme (CBILS) state guarantee, which capped government backing at 80%. The BBLS light-touch due diligence saw £45.6 billion extended across more than 2 million loans since the launch of the scheme last May, compared to £22 billion across almost 93,500 loans under CBILS.
The chancellor’s new measures include:
- Extension of the furlough scheme until the end of September at the existing 80% level will be guaranteed until the end of June. The extension of the furlough scheme, officially known as the Coronavirus Job Retention Scheme (CJRS), will cost around £20 billion.
- The Treasury will taper support from July for the final three months of the CJRS, which has protected more than 11 million jobs since last March and was due to close at the end of April. It will help prevent a surge in unemployment that is expected to peak at 6.5% next year, down from 7.5%.
- £5 billion in grants to retail, leisure and hospitality sectors.
- Business rates will continue to be waived until the end of June and will be cut by two-thirds for the rest of the year, at a cost of £6 billion.
- The stamp duty holiday will continue until the end of June for purchases up to £500,000, and up to £250,000 for purchases until the end of September when it will return to the previous level of £125,000.
- An extension of the VAT cut to 5% for hard-hit sectors will remain until the end of September, rising to 12.5% for six months and 20% thereafter.
- A new mortgage guarantee scheme will enable homebuyers to secure a mortgage up to £600,000 with a 5% deposit. An extension to the temporary cut in Stamp Duty Land Tax to September will support the housing market and protect and create jobs. Housebuilders share prices rose on the news, which will also remain supportive of the institutional BTR sector in the short term.
The chancellor said all fiscal support, including last year’s measures and those announced in today’s Budget which cover this year and next, amounts to £407 billion – the largest peacetime support package for the UK economy on record.
UK borrowing will spiral to £355 billion in 2020–21, before falling to a still considerable £234 billion in 2021–22, which exceeds the OBR’s forecast of £164 billion in November, due to the government’s increased Covid-19 spending.
But the OBR expects the UK economy to recover quicker than previously forecast when restrictions are lifted. With the addition of £100 billion in new capital investment, the OBR estimates that the UK economy will return to pre-Covid levels by mid next year, six months earlier than previously forecast.
The UK economy will rebound from last year’s record-breaking -9.9% GDP decline to grow by 4% in 2021, according to the OBR, followed by 7.3% in 2022, up from the previous forecast of 6.6%, thanks to a “swifter and more sustained recovery”. For the final three years of the five-year forecast, annual GDP growth is now estimated to be 1.7%, 1.6% and 1.7%, respectively. However, according to OBR’s model, this will leave the UK economy 3% smaller than would otherwise have been the case.
Sunak said: “Coronavirus has caused the largest and most sustained economic shocks this country has ever faced. The amount we’ve borrowed is only comparable with the amount we borrowed during the two world wars. It is going to be the work of many governments, over many decades, to pay it back.”
Sunak outlined an early policy announcement to begin the big payback, which will be an increase in corporation tax to 25% from April 2023. A separate small profits rate at the current 19% level will remain for small companies with profits below £50,000. A tapered rate on profits between £50,000 and £250,000 will be introduced after which the full 25% level will apply, which will still be the lowest in the G7.
Elsewhere, the chancellor announced:
- A new UK National Infrastructure Bank will be located in Leeds with an initial capitalisation of £12 billion. It will support projects that help towards meeting the government’s target of net-zero carbon emissions by 2050.
- A new Treasury campus will be established in Darlington. The northern location of the Darlington Treasury campus and the Leeds National Infrastructure Bank will provide a fillip to regional office markets.
- A series of eight new UK freeports, called “special economic zones”, with regulations designed to encourage business – all eight are in England
In the coming days, BTG Advisory will analyse the implications of the 2021 Budget for SMEs and large corporates, including the broader environment for financing and market for M&A activity.