Autumn Budget 2021 – Key Points
Rishi Sunak said today that his budget delivers a stronger economy for the British people. This brings stronger growth, public finances and higher employment.
The chancellor went on to give his assurance to provide people with the support they need with the cost of living and ‘levelling up’.
Rightly so, he said the budget does not draw a line under Covid – but it does, however, begin the work of building an economy post-pandemic.
“Let there be no doubt: our plan is working,” he says.
As Rishi Sunak has announced the Autumn 2021 budget, we highlight the main points of interest below:
- The chancellor says inflationary pressures are affecting the UK economy, with the Office for Budget Responsibility (OBR) forecasting that inflation will be above 4% next year.
- He says the pressures are global in nature and are “impossible for us to address alone”. However, the government will act to ‘support households’
- The chancellor says forecasts from the Office for Budget Responsibility show the economy will grow by 6.5% this year.
- Sunak says it will take until the start of 2022 for the economy to return to its pre-pandemic size.
- GDP will grow by 6% next year, 2.1% in 2023, 1.3% in 2024, 1.6% in 2025, and 1.7% in 2026.
- In March, the OBR had forecast growth of 4% this year, after a plunge of 9.9% in 2020 – the worst recession for 300 years.
- The OBR’s estimate for long-term scarring for the economy has been revised down from 3% to 2%.
- Unemployment is forecast to peak at 5.2% in the fourth quarter of 2021.
- In July 2020, the OBR had forecast unemployment would peak close to 12% by the end of that year due to the end of furlough. However, the scheme was extended until the end of September 2021.
- Sunak says borrowing in the current financial year, 2021-22, will be 7.9% of GDP, and will fall to 3.3% next year.
- In cash terms, the OBR forecasts borrowing will be £183bn, and fall to £83bn in 2022-23
- Borrowing in the last financial year, 2020-21, was estimated at £319bn, or 15.2% of GDP, the highest recorded level in peacetime.
- Debt levels will fall as a share of national income, from 98.2% in the current financial year to 88% by 2026-27
- The chancellor says he is setting new “fiscal rules” for management of the public finances. Debt must fall as a percentage of GDP. In “normal times” the state should only borrow to invest in future growth, balancing everyday spending. This must happen by the third year of each forecast period.
- Sunak says there will be a real-terms rise for every government department.
- Departmental spending in this parliament will rise by £150bn, in the “largest increase this century”. Spending will grow in real terms by 3.8% a year.
- Sunak says: “If anybody still doubts it, today’s budget confirms it. The Conservatives are the real party of public services.”
- The Institute for Fiscal Studies estimates average real-terms annual growth in departmental resource budgets was higher in previous years, above 4% in 2000 and 2002 under Labour, and 4.1% under the Conservatives in 2019.
- There will be grant funding for local government of £4.8bn, the “largest increase in core funding for over a decade”.
- Overseas aid will return to 0.7% of GDP by the end of the parliament, after a cut to 0.5% announced last year.
- Sunak says funding for each pupil will be returned to 2010 levels, in an increase worth £1,500 a pupil.
- The government is tripling investment to create 30,000 special school places, he confirms.
- Total support for catchup funding because of the Covid pandemic will be almost £5bn.
- Sunak announces £1.7bn of funding in the first grants from the Treasury’s Levelling Up Fund, for towns and cities including Stoke-on-Trent, Leeds, Doncaster and Leicester.
- The funding includes allocations to constituencies held by the Labour leadership, he indicates: “We’re so committed to levelling up we’re even levelling up the opposition front bench.”
- Libraries will be “renovated, restored and revived”.
- Tax relief on museums and galleries was due to be announced in March next year; it will be extended until March 2024.
Infrastructure and investment
- The chancellor says he will increase investment to support London-style transport across the regions of England.
- The government will invest £21bn on roads and £46bn on railways to improve journey times between cities.
- Sunak announces the government’s target for hitting research and development spending will reach £22bn by 2026-27, two years later than had been initially planned.
- The government will invest £20bn in R&D by 2024-25. Sunak says this stands as a “record investment to secure the UK’s future as a global science superpower”.
- Sunak announces he will limit tax relief for business R&D spending so that it only applies to domestic activities.
Employment and skills
- The chancellor says the government will raise government spending on skills and training by £3.8bn over the parliament, an increase of 42%.
- He confirms the government will launch a UK-wide numeracy service called Multiply.
- He says the programme will help 500,000 adults improve their numeracy.
- Sunak says changes after Brexit will encourage British merchant shipping lines to fly red ensign flags.
- He jokes that this means “red flags are still flying somewhere in this country, even if they are all at sea”.
- Internal domestic flights will have air passenger duty cut. He says 9 million passengers will have their duty cut by half, “bringing people together across the UK”.
- The chancellor confirms that the bank surcharge will be cut from 8% to 3%.
- Sunak says changes to business rates will be reformed to support companies, including a new 12-month relief for firms to invest in their premises.
- The chancellor says the investment incentives are worth £750m.
- Next year’s planned increase in the business rates multiplier will be cancelled. That is worth £4.6bn over the next five years, he says.
- Sunak announces a 50% business rates discount for companies in retail, hospitality and leisure sectors, up to a maximum of £110,000. It is a cut worth £1.7bn.
- The chancellor says: “This is the biggest single year tax cut to business rates in over 30 years.”
Pubs and alcohol duty
- Sunak announces radical changes for alcohol duty, in what he calls the biggest changes for 140 years.
- The UK’s main duty rates on alcohol will be cut from 15 to six in a simplified system.
- Higher-strength alcoholic drinks will attract higher duties, including stronger red wines, fortified wines and high-strength ciders. Lower-strength drinks – such as rosé, fruit ciders and liqueurs – will attract a lower tax rate than currently.
- Pubs and bars will benefit from a new “draught relief” cutting duty on beer and cider sold in pubs by the most since 1923.
- The cost of a pint will be permanently cut by 3p.
- There will be a small brewers’ relief, including for cider makers.
- The chancellor says the reforms are taking advantage of leaving the EU to simplify the system.
- The chancellor says alcohol duties are “full of historical anomalies” as it dates back to 1643.
Cost of living
- The chancellor says an increase in fuel duty will be cancelled, saving motorists £8bn over five years.
- After 12 years of freezing fuel duty it will save the average motorist £1,900.
- The chancellor confirms the national living wage will increase from £8.91 to £9.50 an hour from April.
Taxation and universal credit
- Sunak announces that he will cut the taper rate in universal credit from 63p to 55p. This will be worth more than £2bn.
- The work allowance will be increased by £500.
- The chancellor says this will be implemented no later than 1 December.
- It comes after the government cut universal credit by £20 a week from early October after a temporary uplift during the coronavirus pandemic, in a cut worth £6bn.
- Sunak says his “goal” is to reduce taxes by the end of the parliament.
- He says: “By the end of this parliament I want taxes to be going down, not up.”
What Sunak didn’t mention
- The chancellor offered no direct support for soaring household energy bills after ruling out a cut in VAT for gas and electricity
- Substantial green measures were missing from the budget, including carbon taxes and spending plans above and beyond details announced last week for reaching net zero
- Business leaders had wanted more extensive reforms to business rates, including to support high street shops competing with online retailers. However, the Treasury merely said it would “explore the arguments for and against” an online sales tax
- Sunak did not announce any decisions on HS2, or on high-speed rail across the north of England, known as HS3
- The chancellor indicated he would cut taxes in the run-up to the next election, although did not spell out where he felt such changes were appropriate
So, all in all – it could have been worse. Given the extreme levels of borrowing, there does seem to be a clear plan in place by the government to invest in businesses and to support the general public as the economy rebuilds from the devastating effects of last year.
We will release further information as and when it becomes available in regards to any tax relief schemes, and grant funding opportunities.
If you would like to discuss anything further in the meantime, get in touch with the Jaccountancy team and we’ll be happy to help.
Source: BBC News/The Guardian