British Finance Minister Rishi Sunak has today announced a costly extension of his emergency aid programmes to see the UK economy through its current coronavirus lockdown.
But he also announced a tax hike for many businesses as he began to focus on fixing the public finances.
Delivering an annual budget speech, Sunak said the economy will regain its pre-pandemic size in the middle of 2022.
This is six months earlier than previously forecast and is helped by Europe's fastest Covid-19 vaccination programme.
But the UK economy will remain 3% smaller in five years' time than it would have been without the damage wrought by the coronavirus crisis and extra support is needed now as the country remains under coronavirus restrictions, he said.
Among the new support measures was a five-month extension of his huge jobs rescue plan and more help for the self-employed, the continuation of an emergency increase in welfare payments, and an extension of a VAT cut for the hospitality sector.
A tax cut for home-buyers was also extended until the end of June.
"First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis," Sunak told the Commons.
"Second, once we are on the way to recovery, we will need to begin fixing the public finances and I want to be honest today about our plans to do that. And, third, in today's Budget we begin the work of building our future economy," he added.
Announcing forecasts by the Office for Budgetary Responsibility (OBR), Sunak said the economy was likely to grow by 4% in 2021, slower than a forecast of 5.5% made in November, reflecting the current lockdown which began in January.
Looking further ahead, the OBR forecast gross domestic product would grow 7.3%, 1.7% and 1.6% in 2022, 2023 and 2024 respectively. In November, the OBR had forecast growth in those years of 6.6%, 2.3% and 1.7%.
Sunak promised to do "whatever it takes" to steer the economy through what he hopes will be the final months of pandemic restrictions.
He has already racked up Britain's highest borrowing since World War Two, which hit an estimated 17% of GDP in the 2020/21 financial year that is about to end and should fall to a still historically high 10.3% in 2021/22.
In a first move to raise taxes, Sunak announced he would raise corporation tax to 25% from 19% from 2023, by which time the economy should be past the pandemic crisis.
"Even after this change the UK will still have the lowest corporation tax rate in the G7 lower than the United States, Canada, Italy, Japan, Germany and France," he said.
Businesses with profits of £50,000 or less would pay a new Small Profits Rate, maintained at the current rate of 19%.
Sunak also said he would freeze the amount of money that people can earn tax-free and the threshold for the higher rate of income tax until 2026.
UK to review surcharge on bank profits
The UK finance minister also said the government will review the surcharge levied on bank profits, in a bid to keep the UK competitive with rival financial centres in the US and the European Union.
Sunak said in his Budget statement today that he was launching the review so that the combined tax burden on banks did not rise significantly after planned increases to corporation tax.
Leaving the surcharge unchanged would make UK taxation of banks "uncompetitive and damage one of the UK's key exports", the government said in its Budget document.
Changes will be laid out in the autumn and legislated for in the forthcoming Finance Bill 2021-22, the document said.
The surcharge on bank profits raised £1.5 billion for the government in 2020, the document showed.
It is separate to the more lucrative bank levy on bank balance sheets, which raised £2.5 billion.