The 2021 Autumn Budget was issued by Chancellor Rishi Sunak this week and we’ve broken down what it means for businesses.
This was the last spending review for the year and was expected to map the UK’s move out of the uncertainty of the COVID-19 pandemic into easing financial difficulty and the promised ‘green industrial revolution’ that Prime Minister Johnson has been pushing forward as the future of the nation.
Health of the economy
The Office of Budget Responsibility (OBR) has forecast that the UK economy is now expected to return to pre-COVID levels by 2022, a far quicker bounce-back than previously anticipated.
Sunak also declared that the forecast for economic scarring from the pandemic has decreased from 3 to 2 per cent, after initially expected to be 12 per cent.
The OBR has stated its 2021 forecasts have also seen a rise in growth from 4 to 6.5 per cent, and in 2022, OBR projections are expecting the economy to grow by a further 6 per cent.
Unemployment is also expected to peak at 5.25 per cent this winter – 2 million less people out of a job than anticipated.
The UK has also now been recognised as the third largest issuer of green bonds, with London being acknowledged as the best in the world for green finance.
A new charter for budget responsibility is to be published, stipulating that in normal times, the underlying net debt for the public sector must be falling, with the budget currently being balanced and the government only able to borrow to invest in normal times.
These rules must be met by the third year of each forecast period.
The UK’s spending on overseas aid will return to 0.7 per cent of GDP by 2024-25 and, due to the height of the pandemic last year, international aid spending had been reduced to 0.5 per cent.
The minimum wage will also increase for those over 23 years of age to £9.50 an hour in April 2022, instead of the current £8.91, while all Whitehall departments are to receive increases in their spending with around £150 billion to be invested over the course of this Parliament.
Sunak has made known that the taper rate on universal credit will be cut by from 63 to 55 per cent –a far deeper cut than anticipated. This means that workers will earn more and keep more of their benefits. This tax cut is worth £2 billion and will be initiated no later than December 1st this year.
The chancellor announced a sum of £1.8 billion to be invested in brownfield land new developments to ensure no usable land is going to waste and will provide up to £1m worth of new housing, with over 1,500 hectares of land invested in.
The government has also invested £11.5 billion into the Affordable Homes Programme from 2021-26 to assist with the building of 180,000 homes, with 65 per cent of the funding allocated to homes outside of London.
It has also been confirmed there will also be a new tax on larger residential developers with profits of over £25 million to assist with the funding of tower blocks with unsafe cladding.
Sunak also announced £640 million will be provided per year to tackle homelessness and rough sleeping.
Local Government Funding
One of the milestones of the Budget was the announcement of the Levelling Up Fund. Around £1.7 billion will be spent on projects nationwide to tackle regional inequality, including areas such as Aberdeen, Doncaster and West Leeds.
Local government funding will also receive a boost of £4.8 billion over the next ten years, with the chancellor describing the boost as ‘the largest increase in core funding for over a decade’.
The Scottish government will receive a funding increase of around £4.6bn each year, £2.5bn for the Welsh Government and £1.6bn for the Northern Ireland executive – the largest block grants since 1998.
Prior to the Budget statement, £7 billion in transport funding was announced in line with the government’s plans to pioneer the ‘green industrial revolution’ with transport at the forefront.
The funding will be applied in areas such as Greater Manchester, South Yorkshire and the West Midlands, and will include projects like tram and infrastructure improvements intended to emulate London’s transport efficiency.
The suspension of the HGV road user levy has also been extended until 31 July 2023, along with a freeze on vehicle excise duty for HGVs in 2022, and new funding to upgrade lorry park facilities.
Around £250 million in tax relief has been provided for theatres, galleries and other cultural institutions. This relief will be doubled until April 2023 to assist with recovery from the pandemic, while museums and galleries will receive extra support with another two years’ relief included.
Sunak has also announced about £800 million will go towards renovating local arts establishments such as libraries and museums.
Education and Skills
£4.7 billion has been promised for the core schools’ budget by 2024-25 in England. £2.6 billion was also confirmed to create 30,000 new school places for children with disabilities and special educational needs.
Investment in skills will also increase by 48 per cent over the course of the current parliament. Sunak declared that £3.8 billion will be invested, with £560 million set aside for the national numeracy programme included to improve numeracy skills in adults in England.
Air Passenger Duty
Internal flights in the UK between England, Scotland, Wales, and Northern Ireland will be subject to a lower rate from April 2023. This will be reduced to a 50 per cent cut in air passenger duty to £6.50.
The government has also introduced another band of long-haul flights to be able to manage the air passenger duties dependent on.
Longer haul flights, such as those to Australia or Japan, will now be included in the highest band of flying – the ultra long-haul band. This will include higher fees to offset the carbon damage – applying to flights 5,500 miles and over, and a new economy rate of £91 has been introduced, £4 higher than the middle long-haul band. Direct long-haul flights from Northern Ireland do not apply as this is a devolved government.
Sunak has also stated the government’s plans to change alcohol duties is based on the premise of “the stronger the drink, the higher the rate”. With a complete overhaul of the entire system, there are hopes that this will be enough to support the hospitality industry out of COVID-19 damage.
Taxes on red wine, sherry and port will rise slightly, while rosé, fruit ciders and low percentage beers will lower. The 28% duty premium on sparkling wines and fruit ciders will also be cut and these changes begin in February 2023.
A ‘draught relief’ has also been announced, applying a lower tax rate to draught beer and cider in pubs, who have all suffered greatly throughout the pandemic.
As expected, the planned rise in fuel duty has been scrapped for the twelfth year in a row.
On the back of the current high fuel prices and the myriad of issues this has caused the average UK household and business, Sunak claims this will save the country £8 billion and will save the average car driver £1,900 over the next five years.
The British Business Bank invested £150m introduced a Regional Angels Programme – a new angel investor scheme aiming to “help reduce regional imbalances in access to early-stage equity finance for smaller businesses across the UK”.
The programme is aimed at helping young businesses across the UK by granting them access to the necessary finance to grow their companies.
The Recovery Loan Scheme has also been extended by six months until 30th June 2022.
Under the scheme, businesses can apply for loans of up to £2 million, but these loans will now be 70 per cent backed by the British government (down from the original 80 per cent).
After a forecast increase in business tax due to inflation, it was a surprise to many when Sunak cancelled next year’s planned increase in the multiplier. This is worth around £4.6 billion in tax cuts over the next five years.
Up to £7 billion in selective cuts to property tax is also being provided to further investment and benefit the high street and revaluation periods have been reduced to once every three years.
A newly introduced investment relief will also support investment in property and allow businesses to make improvements to their properties and not have to pay extra rates from 2023. This falls in line with the government’s push for net zero by 2050 and is hoped to encourage firms to adopt green and renewable energy and technology, such as solar panels.
In a further push to encourage a greener Britain, on-site plant and machinery used for renewable energy will also be exempt from business rates until 2035.
A 50% discount has also been provided to retail and hospitality businesses in tax – worth up to £110,000 per business for one year, excluding the largest retail chains and outlets.
However, in a blow for the hospitality industry, despite pleas from businesses to keep the currently slashed VAT rate at 5 per cent, Sunak announced that VAT rates will return to pre-pandemic levels as planned in April 2022 – despite the sector’s #VATsEnough campaign.
Tonnage tax reforms to the shipping industry have also been unveiled. The reforms are to be more competitive and simpler, with the aim to “reward companies for adopting the UK’s merchant shipping flag, the Red Ensign”.
Ships assisting the UK with their net zero goals will also be able to join this tonnage tax system.
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