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* Sunak announces continuation of emergency support
* UK economy to recover pre-pandemic size by mid-2022
* Borrowing forecasts revised up sharply for 2021/22
* Tax take to increase to highest since 1969 by 2025/26
* Corporation tax to jump, income tax thresholds frozen
(Recasts, adds details)
By David Milliken, William Schomberg and Andy Bruce
LONDON, March 3 (Reuters) - Finance minister Rishi Sunak
delivered what he hopes will be a last big spending splurge to
get Britain's economy through the COVID-19 crisis, and announced
a corporate tax hike from 2023 as he began to focus on the huge
hit to the public finances.
Sunak said in an annual budget speech on Wednesday that the
economy would return to its pre-pandemic size in mid-2022, six
months earlier than previously forecast, helped by Europe's
fastest coronavirus vaccination programme.
But lasting economic damage equivalent to 3% of annual
output would persist, and 65 billion pounds ($91 billion) of
extra support was needed in the short term as restrictions were
lifted over the next few months, he said.
Sunak's early warning that he will demand more money from
companies - and most individual taxpayers too - makes him one of
the first policymakers from rich countries to set out a plan to
tighten budget policy after the pandemic.
Britain's first rise in corporation tax since 1974 will see
big, profitable companies pay 25% from 2023 compared to 19% now
and the overall rate of taxation in the economy increase to its
highest since 1969.
But before then firms can use a two-year "super-deduction"
tax break that Sunak hopes will snap them out of their pandemic
deep-freeze and invest to boost short-term growth.
The government's budget watchdog said the move was likely to
bring forward investment that would have taken place later.
In his speech to parliament, Sunak repeated his plan to do
"whatever it takes to support the British people and businesses"
after the economy slumped by 10% last year.
Britain has also suffered Europe's biggest COVID-19 death
toll.
"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," he said.
The support measures included a five-month extension of
Britain's huge jobs rescue plan, wider help for the
self-employed and the continuation of an emergency increase in
welfare payments.
A property tax exemption for retail, hospitality and leisure
businesses will now run until the end of June, by when Prime
Minister Boris Johnson hopes to have lifted most COVID-19
restrictions.
An existing tax break for home-buyers was extended by three
months until June 30 and then for cheaper homes until the end of
September.
PUBS AND HOUSE BUILDERS GAIN, BOND PRICES FALL
Shares in housebuilders gained on the news, with Persimmon
one of the top risers in the FTSE 100, up almost 7%.
Pub firms JD Wetherspoon and Premier Inn owner
Whitbread also rose more than 5%, helped by an extended
VAT cut for the hospitality sector.
But British government bond prices fell sharply after Sunak
said overall borrowing will be much bigger next financial year
than thought just a few months ago - 234 billion pounds, or
10.3% of gross domestic product, compared with a previous
estimate of 164 billion pounds, or 7.4% of GDP.
The UK Debt Management Office said it planned to sell 296
billion pounds of gilts in the coming year, well above the 247
billion pounds expected in a Reuters poll.
"The UK's fiscal stance has become much looser, and more
focused on investment, more in line with its U.S. and euro area
counterparts," Morgan Stanley economist Jacob Nell said.
"This shift changes our view of the UK. Near term, we see a
stronger and more investment-focused recovery bringing forward
the return to pre-COVID-19 levels of output."
To get a grip on borrowing, Sunak's future hikes will
increase the tax burden from 34% to 35% of GDP by the mid-2020s.
"The UK is thus to become the first major economy to
consider such measures," Valentin Marinov, head of G10 foreign
exchange research at Credit Agricole, said.
As well as the COVID shock, many companies are also under
strain from Brexit after Britain left the European Union's
single market on Jan. 1, and the government faces the challenge
of huge investment to meet its promise to create a net zero
carbon economy by 2050.
UK EARLY MOVER ON TAX HIKES
Britain's Office for Budgetary Responsibility (OBR) said the
economy was likely to grow 4% in 2021, less than the 5.5% it had
forecast in November, due largely to the current lockdown which
began in January. The growth forecast for 2022 increased to 7.3%
from 6.6%.
Sunak has already racked up Britain's highest borrowing
since World War Two, with the deficit reaching an estimated 17%
of GDP in the 2020/21 financial year that ends in April.
Sunak said the corporation tax rise would still leave the
headline rate lower than in the rest of the G7 group of rich
nations.
Rain Newton-Smith, chief economist at the Confederation of
British Industry, said the hike was "a huge jump" and that other
G7 countries would be more competitive than Britain when state
and federal level tax breaks were taken into account.
The Institute for Fiscal Studies said that after the tax
rises, corporation tax revenues would be a greater share of GDP
in Britain than in the United States, Germany, France or Italy.
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 at the 2021/22 level until April 2026.
($1 = 0.7161 pounds)
(Additional reporting by Guy Faulconbridge, William James,
Costas Pitas, James Davey, Estelle Shirbon, Elizabeth Piper,
Paul Sandle, Alastair Smout and Sarah Young; Writing by William
Schomberg; Editing by Catherine Evans)
