It’s that time of year again, Budget day. Although this one has come around a little sooner than usual as it’s the second Budget of 2021. The Chancellor’s spring Budget this year focussed on getting the country on the path to economic recovery following the pandemic.
However, today he stated that this Budget was about “investment in a more innovative, high-skilled economy”; an economy that will have the flexibility to deal with future crises should they befall us.
It has been an undoubtedly challenging time for this Government where spending is concerned. The UK borrowed a staggering £320 billion in the year to April 2021, reportedly the largest amount seen in peace time, and economists have forecasted that a further sum of £180 billion will be borrowed this year. So, the big question is, how will this be spent? And what measures have been introduced to help the UK thrive in this next phase?
The Chancellor said that inflation is set to rise to over 4% next year and cited two key reasons for this. Firstly, demand for goods is outstripping supply. All supply chains have been affected following a year of near-shutdown for many industries. Secondly, energy prices have surged, affecting all markets, and again all industries. These are problems being faced by nations the world over.
However, there was some good news; the economy has been forecasted to return to pre-Covid levels by next year, sooner than many had anticipated.
Not only that but the Government expects the economy to grow by 6% by the end of 2022. Further messages of hope included that wages have reportedly risen, in real terms, by 3.5% compared to February 2020.
There were details released of a new Charter for Budget Responsibility. This Charter is set to keep the Government on a “path of discipline” and has two fiscal rules that must be met:
- Underlying public sector net debt, excluding the impact of the Bank England, must, as a percentage of GDP, be falling.
- In normal times, the state should only borrow to further future growth and prosperity. Everyday spending must be financed through taxation.
Both rules are to be met by the third year of each forecast period.
With regards to borrowing, it was reported that as a percentage of GDP it is set to fall in every single year of the forecast. Debt, however, will peak at 85.7% of GDP in 2023/24 before beginning to fall.
Spending on health care will rise to £177 billion, an increase on the £133 billion that was pledged at the start of this current Government. Extra revenue from the recent increase in the Health and Social Care Levy will go directly to the NHS.
It was reported that 40 new hospitals, better newborn screening, 70 hospital upgrades, more operating theatres, 100 community diagnostic centres and 50,000 more nurses can be expected with this spending.
There was also a promise of £4.8 billion grant funding for local councils.
This Budget is set to invest in housing and home ownership, with a multi-year housing settlement totalling nearly £24 billion. There will be £11.5 billion put aside to build up to 180,000 new affordable homes and a further £1.8 billion for transforming 15,000 hectares of brownfield land into use.
Rough sleeping has been reduced by over a third but a further investment will be made of £640 million per year for homelessness. This is an 85% increase compared to 2019.
Early Years and Education
£300 million will be invested into the early years Start4Life programme, high-quality parenting programmes, tailored services to support perinatal mental health and funding to create a network of family hubs around the country.
There are plans to invest an extra £170 million into childcare providers pay by 2024/25. And there will be £150 million spent on providing training and development across the early years workforce.
A further £200 million will be invested in the Supporting Families programme and over £200 million per year will be set aside to continue the Holiday Activities and Food programme.
An additional sum of almost £2 billion was announced today to help education recovery, which when added to the £3.1 billion that had already been pledged, brings the total amount to be invested in education to just under £5 billion.
This is a term that has been banded around recently but what does it mean? Well, it is the Government’s commitment to invest in communities across the UK because, as the Chancellor put it, “for too long…the location of your birth has determined too much of your future.”
The Budget states that £560 million will be spent on youth services, over £200 million invested in community football pitches, funding to create pocket parks and £1.7 billion put into improving the infrastructure of everyday life in over 100 local areas.
It had already been reported earlier this week that the national minimum living wage is set to rise from next April up to £9.50 per hour for over-23s.
Following last Budget’s increase in Corporation Tax to 25% from March next year, there was a new business tax cut introduced alongside it called the Super Deduction. No change will be seen here but the £1 million Annual Investment Allowance will be extended from the end of this year to March 2023.
The bank surcharge will be retained at 3% and smaller challenger banks will have their annual allowance raised to £100 million.
Business Rates and Duties
It was declared that business rates will be retained. A new ‘business rates improvement relief’ was announced, whereby those making improvements to their business property will pay no additional business rates for 12 months.
There will also be a 50% discount on business rates for those operating in the retail, leisure and hospitality sectors. Together with Small Business Relief, this equates to a £7 billion cut in business rates.
It was announced that from April 2023, flights between airports in England, Scotland, Wales and Northern Ireland will be subject to a new lower rate of Air Passenger Duty.
And as well as this, a Draught Relief on draught beer has been introduced, along with duty cuts or rises on certain alcoholic drinks based on their strength.
There will be an investment of £30 billion to fund the Government’s NetZero strategy and the UK Infrastructure Bank recently announced £107 million to support off-shore wind in Teeside.
It was also announced that following the issuing of our second Green Bond, that the UK is the third-largest issuer of sovereign Green Bonds in the world.
The Chancellor drew his speech to a close with the words, “This Budget builds a stronger economy for the British people.” There is no doubt that a resilient and strong economy is what’s needed after the last 18 months. Let’s hope it delivers.
You can read the full Autumn Budget 2021 statement here.