The day of reckoning has arrived. The 2021 Budget is as to be expected – public spending and government borrowing is now at its highest level since the second world war. £407 billion. As painful to write as it is to say.
Rishi Sunak himself recognised the unpopularity of the new policies laid out in the Budget, choosing to describe them as “honest” and a way of “levelling” the enormous sum. But what does the new Budget mean for those entering the workforce in between now and the end of this parliamentary term and in the next five years?
The first thing to take note of is the weight of the importance of this Budget and economic policies since the beginning of the pandemic. We have witnessed an undeniable change of precedent in British politics – the Government can spend. And it can spend an awful lot. Those who push for free market economics are losing a losing battle. The head of the Institute for Fiscal studies, Paul Johnson, declared “a new phase of UK economic history” in light of the Budget announcements.
Despite this there were no talks of reform. Spending decisions are not often discussed in Budgets (which mainly centre around finance and borrowing) meaning the questions about the structure and capability of the NHS, social care and public sector will be left to Governments of the future which will include the young people of today.
Pedal to the metal, let’s start with tax. The Conservative Party in its manifesto created a triple lock – no raises to the rates of income tax, NICs or VAT. It has essentially stuck to that. What, however, the Government has also done is raise and then freeze the tax personal allowance boundary and higher rate threshold from 2022 until 2026. By doing so it has added 1.3 million people into the tax system and created an estimated one million higher rate taxpayers by 2025-26, according to the Office of Budget Responsibility. The Taxpayers Alliance estimate this policy to create £30 billion.
In the metaphorical sense – by keeping the hurdle low, more people can jump over.
A good example of this “hurdle jumping” is by raising the minimum wage to £8.91 an hour and lowering the minimum wage age threshold to 23. Whilst also raising the minimum wage for the younger age thresholds (16-18, 18-20). This means in effect, people will be paying more in National Insurance, and more people will be paying towards higher rates of National Insurance.
Yet, we must also consider what was left out from the Budget. No plans were announced to monitor/cap/raise Council Tax. Council Tax is ultimately set by each respective local authority and could see significant raises, especially for the areas hit hardest by the economic pressure of the pandemic.
Another announcement was a £126 million boost for “traineeships” which will aim to create 40,000 roles for people aged between 16-24, according to the Chartered Institute of Payroll Professionals. Quite what those “traineeships” are is unknown at this point; it is up to businesses to engage with the Government’s “payment-per-trainee” incentive.
However, this plan for aiding younger people includes a £7 million “flexi-job” apprenticeship programme, which allows young people to work with several employers in different roles, as opposed to a fixed employer. According to the Evening Standard, ministers expect the scheme to be picked up by the television and film industries and sectors with flexible-working patterns.
The Association of Employment and Learning Providers Chief Executive, Jane Hickie, said the boost for traineeships “is exactly the type of support that young people need”.
Also announced is the new Mortgage Guarantee Scheme which aims to turn “generation rent” into “generation buy”, by offering a five percent mortgage. The new scheme also includes those who are not first-time buyers or new-build homes, but there will be a £600,000 limit. Julian Jessop, of the Institute of Economic Affairs, explicitly deemed the scheme a “bad idea” and said:
“It will simply make it easier for young people to overstretch themselves in the housing market, while artificially stoking demand and raising house prices even further. The focus should instead have been on increasing housing supply.”
This was supported by Islay Robinson, the CEO of Enness Global Mortgages, who said the 95% mortgage scheme places the market into “overheated, dangerous territory”. Robinson added, “we’ve previously seen the results of this kind of precarious lending to those who aren’t really in the financial position to commit to it.”
Another notable policy is the continuation of low VAT (5%) until September and an interim figure of 12.5% (as opposed to the usual 17.5%), a business rates holiday until June with 75% reduction post-June and reducing taxable profits by 130% through a “deduction” of investment costs from firms’ tax bills. This may result in graduates and young people seizing these policies as an opportunity to start their own businesses.
Other policies in the budget were the continued freeze on alcohol and petrol duties, no tax on spirit, wine, beer or cider. Policies which will surely spark joy in most of us.
But what can we take away from this?
It is certainly a “Jekyll and Hyde” budget; it gives and it takes. For young people, students and graduates, the effects of this budget bring tax breaks for businesses, 5% mortgages, investments in learning potential and higher minimum wages. However, it will also see them face higher taxes on their first wages, an uncertain housing market and high job competition due to the 7.75% unemployment rate predicted by the Bank of England.
How these policies play out until the projected end date of the reforms (2026) is very unclear due to the well-known unpredictability of the past five years. What is very clear, however, is that the balancing of the fiscal books of the pandemic will place the majority of its burden on young shoulders in the years to come.