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Budget 2021: Warwick economists comment on latest measures

Yesterday's Budget announcement continues to prompt discussion, and two University of Warwick economists have offered their views on some of the measures introduced by the Chancellor.

Dr Arun Advani of the University of Warwick Department of Economics said:

  • "at a macro level, the Office for Budget Responsibility's forecast that GDP will bounceback quicker than expected/unemployment will be lower than expected relies on vaccine timetable to keep going well, no changes in reopening plans because of new variants etc, and people really getting back to normal spending once things reopen (no new eat out to help out or similar).
  • "spending: chancellor is broadly continuing support for the economy through until September, by when all the COVID restrictions are planned to be lifted.
  • "personal tax: biggest change on personal side is freezing of tax thresholds, so 1.3m more people will be paying tax by end of this Parliament; 1m more will be on the higher rate. this is progressive, but about the most minimally progressive option plausible.
  • "corporate tax: the chancellor giveth and the chancellor taketh away. huge "superdeduction", 130% relief for investment for next 2 years means government is paying people to invest. likely to be effective given lots of companies have delayed making investments in the Brexit uncertainty of last 2 years, but also likely to be abused (all kinds of schemes). headline tax rate to go back up, to 25%, after that. this is the other big revenue raiser, though in a Gordon Brown-esque move, the Chancellor has kept low rates for small firms and has a stepped up rate of corporation tax with firm size. Maybe good politics, but definitely not good policy.
  • "environmental tax: the dog that didn't bark. for all the claims of greenest government ever, fuel duty, aggregates levy, HGV levy and other small environmental taxes all frozen. so while inflation will make people pay more in income tax, it will make them pay less on these green measures. tiny amounts of money in the scheme of this budget, but out of line with the rhetoric about environment."

Professor Abhinay Muthoo of the University of Warwick Department of Economics said: “The Budget presented yesterday by the Chancellor Rishi Sunak delivered what any sensible Chancellor would had to do in the midst of this generational crisis. He provided continued (and strong) support to people and businesses through various schemes such as by extending Furlough, which has prevented mass unemployment. It all means yet more borrowing to further unprecedented levels. Rishi Sunak is indeed keeping to his words from last March to do whatever it takes. At the same time, and not unsurprisingly, he has made a start on how all this debt will paid for, such as announcing a big increase in corporation tax, but from 2023. So it was a Budget of more spending now, and start to pay back later. That makes sense in these unprecedented times.

“What this Budget lacked, however, was creative (and bold) ideas to generate strong (and inclusive) economic growth, which is ultimately the way to pay back all this debt, over the next decade or so. The fundamentals of the UK are strong, and the Chancellor should have built on that to support and spur economic growth, by spending more on investment in, for example, education and skills, health and infrastructure. Perhaps he will do so next year as the focus in this Budget has had to be on dealing with crisis that is still very much with us.”

4 March 2021


Peter Thorley
Media Relations Manager (Warwick Medical School and Department of Physics)


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