Mar 2021 | Data Insights |
By Posted by Mohammed Chaudhri

“For business, certainty matters”

Those were the words of Chancellor Rishi Sunak as he delivered yesterday’s budget against a backdrop of a global pandemic and significant economic upheaval.

The juggling act between supporting jobs and ensuring public finances move back to a more secure footing was never going to be an easy one. While his furlough scheme has supported over 4.8 million jobs (as of the end of January), it has taken public sector debt to record peacetime highs with public borrowing likely to touch £350bn by the end of this financial year.

The backdrop of the budget is no less difficult. Whilst current low-interest rates make large-scale public borrowing more palatable, if market expectations of escalating inflationary pressures are accurate and the Bank of England is forced to raise rates prematurely, that could strike a significant blow to any economic recovery. And though the successful rollout of the vaccine has provided a much-needed upside to an otherwise gloomy outlook,  new virus mutations and new infection hotspots always pose the risk of derailing progress.

It is under these circumstances that the Chancellor tried to strike the right chord in supporting the economy whilst cautioning that fiscal restraint is inevitable. His announcements were largely expected. The most notable :

  • Coronavirus Job Retention Scheme (furlough) extended till the end of September.
  • The return of 95% mortgages backed by the government for all properties under £600,000.
  • Stamp duty holiday extended till the end of June.
  • Super-deduction on investment to spur investment, allowing companies to claim back 130% of the costs of an investment, and dubbed ‘the biggest tax cut in British history’.
  • £5bn grant scheme for businesses requiring support to reopen, to a maximum of £18,000 per business.
  • Corporation tax to go up in 2023 to 25% for businesses with profits more than £250,000 but will stay at 19% for companies with profits of less than £50,000.
  • Personal income tax threshold frozen at £12,500 until 2026

This brings the total government support in response to Covid-19 to £407bn. It is clear the Chancellor has subsidised current recovery and growth with future fiscal restraint. His hope is that when the rise in taxes hits, the economy will be on more secure footing and able to better absorb the burden . Indeed the Office of Budgetary Responsibility (OBR) forecast the economy will grow by 4% this year and by 7.3% in 2021, with unemployment showing a softer peak than previously anticipated (at 6.5%) by mid-2021. While the path ahead is undoubtedly fraught with economic and epidemiological risks, if the Budget is successful in supporting the economy through its fragile recovery period and policies are phased at the right time (in line with an economic revival), it could signal light at the end of a long and dark tunnel.

What can you do to prepare for these changes?

Successfully navigating the year ahead will require businesses to analyse their portfolios whilst also taking macroeconomic conditions into account. Pre-emptive action is essential with the economy still in such a vulnerable state. But how can you be more proactive? Experian’s award-winning Economics team can help you better understand your customers – at a portfolio, sectoral or regional level. By using variables such as unemployment indicators and income shock (a significant reduction in an individual’s monthly income) we can tell you which customer segments are most at risk of falling into arrears. This will help you tailor your communications and allocate resources where they’re needed most.

To find out more, contact us to arrange a free consultation with one of our experts.