Budget update 2021
The Chancellor, Rishi Sunak, announced his plans for the UK Budget on 27th October 2021. The plan aimed to support the country and prepare it for a post-Covid economy and ‘age of optimism’ after the devastating impact of the pandemic over the last 18 months. Building on the plan he set out earlier this year, Mr Sunak addressed how the government will allocate spending to continue to get the UK back to normal.
His ambitions for the Budget were to deliver stronger growth, a stable economy, more jobs, and reduce debt levels. Investments and spending would be concentrated on those areas that would deliver this ambition. He warned of “challenging months ahead”, but his Budget would return us back to a pre-pandemic economy.
The current economic situation
The budget was set against the current economic backdrop which the Chancellor outlines as follows:
- Inflation – This is currently at 3.1% but likely to rise to 4% by end of the year and throughout next year, and affects the cost of living. The increase is due to global factors of the world opening up after the pandemic and demands for goods increasing quicker than they can be supplied, leading to price hikes.
- Growth – The growth expectation has increased from 4% at the start of the year to 6.5% by the end of 2021, as businesses get back up and running post Covid-19, and then 6% in 2022.
- Unemployment – The Office for Budget Responsibility (OBR) now expects unemployment to peak at 5.2%, instead of 11.9%, which means over 2 million fewer people will be out of work than previously expected as a result of the pandemic.
Key takeaways for business:
In the Spring Budget, there were a number of initiatives announced. Below are some additional announcements from today that relate to business.
- The VAT rate of 12.5% will remain until April 2022, when it will return to 20%.
- Hospitality businesses will receive 50% business rate discount in the retail, hospitality, and leisure sectors, lasting for one year. This means pubs, music venues, cinemas, restaurants, hotels, theatres, gyms, and any eligible business can claim a discount on their bills of 50%, up to a maximum of £110,000.
- For pension schemes, there will be a review on regulatory charge caps to unlock institutional investment and protect savers.
- Improvements to visa eligibility criteria allow businesses to attract highly skilled employees from outside of the UK.
- National Living wage rising from £8.91 to £9.50 per hour. Whilst public sector pay freezes will end.
- New funding to improve lorry park facilities.
- Suspended the HGV levy further until 2023, and freezing Vehicle Excise Duty for heavy goods vehicles.
- £24bn for “a multi-year housing settlement”, £11.5bn to build up to 180,000 new affordable homes.
- £5bn to remove unsafe cladding from the highest risk buildings, which will be partly funded by the Residential Property Developers tax. This will be levied on developers with profits over £25m at a rate of 4%.
- Regional libraries, museums and theatres will also benefit, from tax relief measures. Tax relief for museums and galleries will be extended for two years, to March 2024.
- Various taxation changes were mentioned which are detailed below.
Environment and Science
The government wants to continue to invest in infrastructure, skills and innovation to support the UK’s economic recovery and their ambition of making the UK a science and tech super power. They will maintain the target to increase research and development (R&D) investment to £22 billion.
- New High Skills Visa eligibility criteria has been improved to allow businesses to recruit highly skilled overseas workers thus attracting the best talent in science, research and technology to the UK.
- Research and development tax relief will be available for those focusing on UK activities.
- As well as the Help to Grow and Break Through schemes, an additional £1.4 billion fund is available for transformative innovations, allowing businesses to get access to the funding they need.
Other updates
- For lower income workers on Universal Credit, the taper rate will be cut by 8% from 63p per £1 to 55p per £1 from 1st December.
- £300 million will go towards “Start for Life” scheme for families, offering parenting programmes and help with perinatal mental health. £170 million to create a network of Family Hubs in England to support childcare facilities.
- £150 million to support and train those who work in early years, along with more funding for holiday and activity programmes.
- A UK-wide numeracy programme called Multiply will be launched to improve basic maths skills among adults.
- Budget to fund 20,000 new police officers, with an extra £2.2 billion for courts and rehabilitation services.
- £3.8 billion for a prison-building programme.
- £1.7 billion fund to invest in local areas to ‘level up’ 100 local communities across the UK. £560 million will be invested in youth services to build youth clubs and 8,000 state-of-the-art community football pitches across the UK.
- £21 billion will be spent on roads and £46 billion on railways, plus £5.7 billion in spending for London-style transport systems across a number of city regions.
- £5 billion to fund the cycling infrastructure and local minor roads.
Taxation
Corporation tax
In the budget earlier this year, the Chancellor announced Corporation tax would rise to 25% on profits from April 2023. Although, this will only apply to those companies with profits over £50,000 per year. He confirmed that this will still go ahead as planned.
A new 50% business rates discount up to £110,000, for companies in the retail, hospitality, and leisure sectors, lasting for one year.
Bank surcharges will be cut by 3% which means they will pay 28% tax, instead of 33%.
Businesses will be able to retain their business rates for 12 months and not have to pay the increase if they make any improvements to their business aimed to improve sustainability and employee wellbeing.
Duties
Alcohol duties
- The planned rise in the duty on spirits, wine, cider and beer will be cancelled. There is a simplification of alcohol duties which means higher strength drinks will see a small increase in their rates, but lower alcohol drinks including rose wine, fruit ciders, liqueurs, beers and wines will see a decrease.
- All sparkling wines will now pay the same duty as still wines of equivalent strength.
- Draught relief will mean a 5% cut to duty on draught beer and cider served from draught containers over 40 litres.
Fuel duty
- The proposed rise for duty on fuel will also be cancelled due to the highest pump prices in 8 years.
Air travel
- Flights between airports in the UK nations will be subject to a new lower rate of Air Passenger Duty from April 2023. Covid-19 financial support for English airports will be extended for a further six months. A new ultra-long haul band in Air Passenger Duty for flights of over 5,500 miles will be introduced from April 2023.
Funding for national governments across the UK
The government will increase funding by an average of £4.6bn for the Scottish Government, £2.5bn for the Welsh Government, and £1.6bn for the Northern Ireland Executive. The Scottish government will publish its Budget on 9 December.