Chancellor of the Exchequer, Rishi Sunak, delivered his
third Budget and the results of his Spending Review on
27 October, declaring that it begins "the work of preparing for a new economy post-COVID." The Chancellor struck an
upbeat tone during the key fiscal event, as he outlined his
vision of "an economy fit for a new age of optimism, where
the only limit to our potential is the effort we are prepared to
put in and the sacrifices we are prepared to make."
Economic Forecasts
The Chancellor began his statement by revealing updated
projections from the Office for Budget Responsibility (OBR), which
predict that recovery from the depths of the pandemic will be
quicker than previously thought. The revised figures suggest that
the UK economy will grow by 6.5% this year, a significant upgrade
from March’s 4% figure. The forecast implies the economy will
regain its pre-pandemic level by the turn of the year, six months
earlier than previously expected.
Medium-term GDP predictions were also upgraded as the OBR
now estimates that long-term pandemic-related economic scarring
will be 2% rather than the 3% assumed in March. As a result of
this, along with a number of government policy changes, public
sector net borrowing is now projected to be equivalent to 7.9% of
economic output, down from the previous forecast of 10.3%. In
addition, borrowing figures across each of the subsequent four
financial years have also been lowered.
The Chancellor did, however, acknowledge that the cost of
living is rising. The OBR predictions suggest the CPI measure of
inflation will average 4% over the next year, peaking at 4.4% in
the second quarter of 2022. Mr Sunak said, "The pressures caused
by supply chains and energy prices will take months to ease" adding
"it would be irresponsible for anyone to pretend that we can solve
this overnight."
Spending Review
Prior to Budget Day, the Treasury had released a series of funding
announcements including statements setting out spending plans
for transport, health and education. During his speech, Mr Sunak
stated that his Budget "increases total departmental spending over
this Parliament by £150bn, with spending growing by 3.8% a year
in real terms." He added, "As a result of this Spending Review, and
contrary to speculation, there will be a real terms increase in spending
for every government department."
The specific spending pledges mentioned during the Chancellor’s
speech include:
- £21bn on roads and £46bn on railways, with a guarantee to
spend £5.7bn on London-style transport systems across
city regions
- £3.8bn on skills and training over the course of this Parliament
- £1.7bn in grants from the Treasury’s Levelling Up Fund for towns and cities including Stoke-on-Trent, Leeds, Sunderland,
Doncaster and Leicester
- £5.9bn in funding for the NHS to tackle the immediate backlog
of patients awaiting treatment
- Scottish government funding will rise by £4.6bn; Welsh
government funding by £2.5bn, and £1.6bn more for the
Northern Ireland Executive.
Personal taxation, wages and pensions
Following the recommendations of the independent Low Pay
Commission, the government will increase the National Living
Wage for individuals aged 23 and over by 6.6% from £8.91 to
£9.50 an hour, effective from 1 April 2022.
The taper rate that applies in Universal Credit will be reduced from
63% to 55% by 1 December 2021 and the Work Allowance will be
increased by £500 a year.
The Chancellor announced that the year-long freeze on public
sector pay will be lifted as the economy recovers from the
pandemic, with the government seeking recommendations
from Pay Review Bodies where applicable.
The new Health and Social Care Levy, announced in September,
will be introduced across the UK from April 2022. The tax will
initially begin as a 1.25 percentage point increase in National
Insurance contributions, paid by both workers and employers.
From April 2023, it will become a separate tax on earned income,
calculated in the same way as National Insurance and ring-fenced
as a Health and Social Care Levy. Tax on share dividends that are
outside tax-free allowances is also scheduled to increase by 1.25
percentage points from April 2022.
As previously announced and following the government’s decision
to suspend its triple lock guarantee for one year, September’s CPI
rate will be used to calculate the uplift in the State Pension. As a
result, the value of the basic State Pension will increase in April
2022 from £137.60 to £141.85 per week, while the full new State
Pension will rise from £179.60 to £185.15 per week.
The 2022/23 tax year ISA (Individual Savings Account) allowance
will remain at £20,000. The JISA (Junior Individual Savings Account)
allowance and Child Trust Fund annual subscription limit will stay
at £9,000.
Many tax allowances remain unchanged, as previously announced
in the March Budget:
- The Income Tax Personal Allowance and higher rate threshold
are to remain at current levels – £12,570 and £50,270
respectively – until April 2026 (rates and thresholds may differ
for taxpayers in parts of the UK where Income Tax is devolved)
- Inheritance Tax nil-rate bands continue to remain at existing
levels until April 2026 – £325,000 nil-rate band, £175,000
residence nil-rate band with taper starting at £2m
- The Capital Gains Tax annual exemption remains frozen at
£12,300 for individuals, personal representatives and some
types of trusts, and £6,150 for most trusts
- The Dividend Allowance remains at £2,000
- The Lifetime Allowance for pensions will remain at its current
level of £1,073,100 until April 2026.
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Business Taxes
Business rates will be reduced by a total of over £7bn over the
next five years:
- Up to 400,000 eligible retail, hospitality and leisure properties
can claim a new 50% business rates discount (max £110,000)
for one year – worth £1.7bn of business rates relief (2022/23
tax year)
- The business rates multiplier will be frozen in 2022/23, a tax cut
worth £4.6bn over the next five years
- From 2023, a new business rates relief will support investment
in property improvements so that no business will face
extra business rates for 12 months after making qualifying
improvements to a property they occupy
- Also from 2023, exemptions will be introduced for eligible
plant and machinery used in onsite renewable energy
generation and storage as well as a new 100% relief for
eligible heat networks.
The government also intends to support UK businesses by
extending the temporary £1m limit of the Annual Investment
Allowance to 31 March 2023, providing businesses with upfront
support, encouraging them to bring forward investment and
simplifying tax for businesses investing between £200,000
and £1m.
Children and education
"The evidence is compelling that the first 1,001 days of a child’s life
are the most important," the Chancellor said as he moved onto
the government’s spending plans for childcare and education. Mr
Sunak therefore announced additional funding to support young
families, help schools recover from the pandemic and improve
education across the UK, including:
- £300m for the ‘Start for Life’ scheme to fund Family Hubs,
perinatal mental health support, breastfeeding services and
parenting programmes
- An extra £200m for the Supporting Families Programme
- An additional £170m for childcare providers by 2024-25
- £150m to support training and development for early
years workers
- £200m per year to continue the holiday activities and food
programme for disadvantaged children
- An extra £4.7bn for schools by 2024–25, restoring real-terms
investment in schools to 2010 levels
- A £1.8bn package across the Spending Review period to help
schools and colleges recover from the effects of the pandemic
- £2.6bn provision for children with Special Educational Needs
and Disabilities (SEND), to help fund 30,000 new places, improve
existing buildings and add new facilities
- £560m for the new Multiply programme to improve basic maths
skills among UK adults.
Housing
In his speech, Mr Sunak commented, "We are investing more in
housing and homeownership with a multi-year settlement totalling
nearly £24bn." This includes £1.8bn of funding announced in this
Budget (helping meet the government’s commitment to £10bn for
new housing) to be spent on housing developments on brownfield
land. The Chancellor also reconfirmed the government’s £11.5bn
investment in the Affordable Homes Programme (2021-26) to
deliver 180,000 units.
He pledged £5bn for the removal of unsafe cladding from highrisk
buildings, to be partly funded by the Residential Property
Developer Tax, which will be levied at a rate of 4% on profits in
excess of a £25m threshold.
Other key points
- Green measures include – £3.9bn to decarbonise buildings,
including £1.8bn to support low-income households to make
the transition to net zero while reducing their energy bills
- Community – 20,000 new police officers, an extra £2.2bn for
courts and rehabilitation facilities and £3.8bn for prison-building
- R&D investment – £20bn by 2024–25
- Alcohol duty reform – the planned increase in alcohol duty
that was due to take effect from midnight on Budget Day will
be cancelled. A new five-point plan, which takes effect in 2023,
will restructure duty to tax drinks in direct proportion to their
alcohol content (including a new ‘Draught Relief’ policy set to cut
duty on beer and cider sold in pubs). Consultation will close on
30 January 2022
- Tobacco duties – duty rates on all tobacco products increased
by RPI+2% from 6pm on Budget Day
- Fuel duty rates – frozen UK-wide for the 2022/23 tax year
- Company vehicles – from 6 April 2022, the van benefit charge
and the car and van fuel benefit charges will increase in line
with CPI
- Tonnage Tax reform – a package of measures to reform the
UK’s Tonnage Tax regime will be introduced from April 2022
- Aviation tax reform – from 1 April 2023 a new domestic band
for Air Passenger Duty (APD) will be introduced. For 2023-24,
the economy rate for the domestic band will be set at £6.50 and
rates for the short and long-haul bands will increase in line with
RPI. A new ultra-long-haul rate will be introduced
- Capital Gains Tax (CGT) property payment window – from
Budget Day the deadline for residents to report and pay CGT
(where applicable) after selling UK residential property increases
from 30 days after the completion date to 60 days.
Closing comments
Rishi Sunak signed off his announcement saying, "This Budget helps
with the cost of living. This Budget levels up to a higher-wage, higher-skill,
higher-productivity economy. This Budget builds a stronger
economy for the British people. And I commend it to the House."
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