Exactly two years since the first lockdown was announced, the eyes of the public were…
With the Speaker of the House of Commons by tradition not presiding over the Budget, the Chancellor might have hoped he would escape a rebuke over the number of important announcements disclosed to the media in advance.
That was not to be, with the Chancellor instead receiving a ticking-off from Dame Eleanor Laing, the Chairman of Ways and Means, who takes charge on Budget day.
Before Rishi Sunak rose to the despatch box, we already knew the public sector pay freeze would end. The Treasury had also confirmed there would be £5.7 billion for public transport in city regions, £5.9 billion to tackle waiting lists in the NHS, an increase in the National Living Wage to £9.50 an hour, £1.8 billion for housing on brownfield sites, as well as further cash for education.
The question, then, was what the Chancellor was saving for the Budget and whether this would include any significant tax changes.
The 2021 Spring Budget marked a post-pandemic turning point in the Government’s approach to tax and spending. Already this year, the Government has announced several significant tax rises. Corporation Tax is rising in 2023 and next year will see Dividend Tax and National Insurance Contributions rise by 1.25 percentage points.
Any taboo around tax rises had been blown apart. But, at the same time, the cost of living has risen rapidly, putting pressure on households and businesses.
The question, then, was how the Chancellor would balance the cost of the spending plans already set out and the need to recognise the pressure on households and businesses against his desire to repair the public finances following the pandemic.
Would taxes rise and, if so, who would be the winners and losers?
- The economy and public finances
- Spending review
- Science and technology
- Hospitality, arts and culture
- Business and personal taxes
In contrast to his two previous Budgets in Spring 2020 and Spring 2021, the Chancellor struck a strikingly optimistic tone about the country’s economic prospects.
He said that forecasts from the independent Office for Budget Responsibility (OBR) predict economic growth of 6.5 per cent this year, with the economy returning to its pre-pandemic size at the beginning of 2022.
Next year, the OBR expects GDP to rise by six per cent, followed by increases of 2.1 per cent in 2023, 1.3 per cent in 2024 and 1.6 per cent in 2025.
The forecast is significantly better than that presented at the Spring Budget when the OBR predicted economic growth of four per cent this year.
Meanwhile, the OBR’s forecasts for long-term economic scarring as a result of the pandemic and for unemployment have been cut from three per cent to two per cent and 12 per cent to 5.2 per cent respectively.
Acknowledging the increasing pressure on households and businesses, the Chancellor said that inflation is predicted to average four per cent next year.
Turning to borrowing, the Chancellor announced a revised Charter for Budget Responsibility, which will require that:
- Debt falls as a percentage of GDP in normal circumstances
- Borrowing is restricted to investment in future growth and not used for day-to-day spending
- Public net investment does not exceed 3.5 per cent of GDP on average
He said these rules have been met.
Moving to the spending review, the Chancellor said there would be real terms increases in spending for every Government department, with overall spending over the parliament rising by £150 billion, averaging 3.8 per cent a year.
He said local authorities will receive grant funding of £4.8 billion, while overseas aid will once again reach 0.7 per cent of GDP by the end of the Parliament.
The Chancellor went on to say that schools funding for each pupil will return to 2010 levels and a tripling of investment would create 30,000 new special school places.
He then set out 1.7 billion of Levelling Up funding for places include Stoke, Leeds, Doncaster and Leicester.
Next, he said there would be £21 billion for roads and £46 billion for railways as well as funding to bring public transport in regional cities in line with that available in London.
Finally, he outlined a £3.8 billion investment in skills and training.
Moving to his plans for science and technology, the Chancellor said that Government research and development (R&D) spending would reach £20 billion by 2024-25 and £22 billion by 2026-27.
However, he said there were problems with the way R&D tax reliefs have been working, announcing plans to expand them to cover investment in cloud technology and data, but also to restrict their use to domestic activities. He did not set out what would constitute domestic activities.
Elsewhere for science and technology, he announced the launch of visa programmes for highly skilled individuals.
He also confirmed a new UK Shared Prosperity Fund worth £2.6 billion to boost skills.
Hospitality was a significant theme in the Budget, with the Chancellor making several announcements targeted at the sector.
400,000 properties used by retail, hospitality and leisure businesses will be able to benefit from a 50 per cent business rates discount.
Meanwhile, the Chancellor announced extensive changes to alcohol duties, which included simplifying the banding to ensure the drinks with the highest alcohol content had higher duties and those with the least alcohol, the lowest duties.
He said this would mean high percentage drinks would attract more duty and the lowest percentage drinks would attract less than they have done until now.
Meanwhile, Small Brewers will be expanded to other small alcohol producers, while there will also be reliefs for draught beers and sparkling wines.
Turning to the arts and culture, he said tax reliefs for the sector would be doubled and extended until March 2024.
Before the Budget, there was some suspicion that business and personal taxes might be at the forefront of the Chancellor’s announcements. However, that turned out not to be the case with them receiving relatively little attention in the speech itself.
The Chancellor made no mention of the Capital Gains Tax (CGT) and Inheritance Tax (IHT) reforms that had been predicted in some quarters.
Instead, he turned his attention to business rates, saying he would not heed calls to scrap them, instead opting for more frequent revaluations every three years, starting in 2023; introducing an investment relief for green technologies and an improvements relief that would delay increases in rates, in the following 12 months; as well as cancelling the planned increase in the multiplier.
Away from business rates, the Chancellor confirmed a further extension to the £1 million Annual Investment Allowance until March 2023.
He said that, as expected, the planned increase in fuel duty would be cancelled. Also expected, was confirmation that the National Living Wage will rise to £9.50 in April 2022.
The Chancellor announced details of the Residential Property Developer Tax, announced in February 2021, confirming a four per cent levy on companies and corporate groups’ profits from UK residential property, where they exceed £25 million a year.
While not announced in the Budget, the documents published after the Chancellor sat down confirmed that the deadline for paying Capital Gains Tax (CGT) on property would be extended from 30 to 60 days.
The Chancellor struck a markedly different tone from his Spring Budget, with optimism that could have been mistaken for the Prime Minister.
There were no new major tax rises and good news for the beleaguered hospitality sector.
Strikingly, the Chancellor felt sufficiently optimistic to say he planned to see taxes going down by the end of Parliament.
Whether that ambition will come to pass will depend on whether the economy meets the new, more upbeat expectations set out by the OBR.