Autumn Budget and Spending Review 202127 October 2021
Budgets are usually set once every year in the UK, as the main statement from the Chancellor of the Exchequer, with a spring or autumn statement given some six months apart from the main Budget. This year we will see two Budgets being announced, as anticipated. Rishi Sunak MP was relatively cautious on tax rises in his Budget of March 2021, owing to the ongoing coronavirus crisis, and many commentators expected a more aggressive stance in his announcements today, 27 October. This did not happen from today's despatch box.
However, as we are all well aware, we are not out of the woods yet in terms of the pandemic. The major announcement regarding increases in national insurance contributions and dividend tax (1.25% from April 2022, subject to conditions) to provide more money for the NHS and social care was made well before the October Budget, and the Chancellor steered clear of any further significant changes to personal and business taxation. He indicated that he wanted to return to lower taxes at the end of the current parliament, and it will be noteworthy to see if he can achieve this, especially if borrowing costs rise.
A significant amount of detail was leaked to the press prior to the actual Budget – more so than usual, and much to the annoyance of the Commons Speaker, Lindsay Hoyle, who pointedly noted that ministers used to resign if they briefed about a Budget.
We have put together some key headlines of today's Budget which we hope will be helpful.
Coronavirus and the NHS
- The Chancellor reconfirmed the £5.9bn support for the NHS which had been announced before the budget. This fund is aimed at tackling backlogs caused by the coronavirus pandemic and providing additional funding for diagnostics and elective surgeries.
Government debt and the state of the UK economy
- The Office for Budget Responsibility (OBR) has revised its forecast for UK economic growth for 2021 from 4% to 6.5%. Growth of 6% is expected in 2022, 2.1% in 2023, 1.3% in 2024 and 1.6% in the following three years. The UK economy is forecast to return to pre-Covid levels by 2022.
- Borrowing as a percentage of GDP is projected to fall from 7.9% this year to 3.3% in 2022/23, 2.4% in 2023/24, 1.7% for the subsequent two years and 1.5% in the final year of the forecast.
- Inflation in September 2021 was 3.1% and the OBR expects inflation (Consumer Prices Index / CPI) to average 4% over next year.
- According to the ONS, unemployment was expected to peak at nearly 12% next year – however, it is now expected to peak at 5.2%.
- The personal income tax allowance remains frozen at £12,570 until April 2026.
- The higher rate income tax threshold remains frozen at £50,270 until April 2026.
- The inheritance tax threshold remains frozen at £325,000 until April 2026.
- The Lifetime Allowance (LTA) for pension benefits remains frozen at £1,073,100 until April 2026.
- The annual exempt amount for capital gains (CGT) remains frozen at £12,300 until April 2026.
- The adult ISA allowance will remain unchanged at £20,000 and the JISA and Child Trust Fund allowance at £9,000 for tax year 2022/2023.
- The Universal Credit taper will be cut by 8%, and this will be introduced no later than 01 December 2021.
- The pay freeze for public sector workers will be lifted from April 2022, having been put in place in November 2020 in response to the pandemic.
- The National Living Wage will increase from £8.91 to £9.50 per hour from 01 April 2022. This is a 6.6% increase in the minimum wage for all aged 23 and over. The National Minimum Wage for those aged 21-22 will also rise, from £8.36 to £9.18 per hour, as will rate for younger workers.
- A 'green' retail savings product through NS&I has been launched. This will give UK savers the chance to take part in the collective effort to tackle climate change. More here: https://www.nsandi.com/green-saving
- From April 2023, air passenger duty will reduce for flights between airports in the UK nations, but will rise for ultra-long-haul flights, meaning that those who fly furthest will pay most.
- Alcohol duties were first introduced in 1643 to help pay for the civil war! The Chancellor introduced simplification and changes to these duties from April 2023, essentially meaning that the stronger the drink, the higher the rate. The duty premium on sparkling wine will end, and there will be additional support for small producers, as well as 'draft relief' – a new lower rate of duty on draft beer and cider.
- The planned rise in fuel duty has been cancelled.
No other changes to areas such as pensions and inheritance tax were notified, other than the charges cap review (0.75% pa) to allow institutional investors to invest in infrastructure from auto-enrolment pension funds.
Research and business
- As already announced, corporation tax is to rise to 25% from 2023. However, it was announced the overall corporation tax rate on mainstream banks will increase from 27% to 28% from 2023.
- The 'super-deduction' announced at the March 2021 Budget to encourage businesses to use their cash reserves and invest will be extended to March 2023. This allows companies to offset 130% of investment cost in qualifying plant and machinery against their tax bill.
- There were several announcements regarding business rates, including incentives to improve buildings and add 'green' technologies, and a 50% business rates discount for retail, hospitality and leisure businesses up to a maximum of £110,000. In addition, it was announced that next year's planned increase in the multiplier will be cancelled.
- Tax reliefs for theatres, orchestras, museums and galleries were due to end in March 2022, but will now be extended to March 2024. Tax reliefs until April 2023 will be doubled.
- It was noted that UK business investment in research & development (R&D) is less than half the OECD average. R&D tax reliefs are not working as well as they should, and these reliefs will be expanding to include cloud computing and data costs. In addition, R&D tax reliefs have been subsidising research that was not taking place in the UK. Tax reliefs from April 2023 will be focused on domestic R&D activity.
- There will be a revision of the visa system with the aim of attracting international talent to the UK.
UK infrastructure and growth
Amongst other initiatives:
- £6.9bn will be provided to England's city regions to spend on public transport and cycle projects. £4.2bn of this spending was already promised, so this is an uplift of around £1.5bn.
- £1.8bn will be invested into building new homes on derelict or unused land in England, with the aim of delivering 160,000 greener homes. The government also pledged to invest £9m towards 100 urban 'pocket parks' (green spaces the size of a tennis court) across the UK.
…and for full details
The notes above are only part of the headlines revealed in today's speech, and full details may be found here: https://www.gov.uk/government/publications/autumn-budget-and-spending-review-2021-documents
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We hope this update is helpful in looking at today's Budget and Spending Review. If you need help with your own financial planning, then please contact the team at Chapters Financial Limited and please note that no individual advice has been provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899