Budget 2021: Sunak resets UK's spending focus for a post-covid economy

·8 min read

Watch: What are the key takeaways from Rishi's budget?

UK chancellor Rishi Sunak laid out sweeping plans for the next three financial years in his Autumn Budget and Spending Review speech on Wednesday in parliament.

The key pillars of health, transport and the cost of living were brought into sharp focus in his speech, with changes announced including the removal of the freeze on public sector pay and an increase in the national living wage.

Speaking to a packed house on Wednesday, Sunak emphasised the growing proportion of people in work as well as the economic bounce back so far, saying: "Our plan is working".

"The budget does not draw a line under covid, we have challenging times ahead," he said.

With that in mind, here's what Sunak announced in the Autumn 2021 Spending Review:

Emphasising the pressure inflation is putting on the economy, as well as strains in the supply chain and energy markets, the chancellor said these will "take months to ease". 

He said the government is therefore due to pump new funding to improve lorry park facilities. Sunak also said it would freeze vehicle excise duty for HGVs. 

Speaking on energy bills, he affirmed a half a billion pound household support fund for those struggling with the cost of living. 

Chancellor of the Exchequer Rishi Sunak delivering his Budget
Chancellor of the exchequer Rishi Sunak delivering his Budget to the House of Commons in London on Wednesday. Photo: House of Commons/PA via Getty

A new charter on spending

In order to strengthen public finances, the chancellor laid out a new charter for budget responsibility with two fiscal rules:

— that underlying net debt must, as a percentage of GDP, be falling;

— and that everyday spending must be met by taxation — the country should only borrow to invest in growth, he said.

International aid spend

Sunak renewed the government's commitment to a return to spending of 0.7% of gross national income (GNI) on aid.

Health and the NHS

Sunak said that health spending will increase by £44bn, to over £177bn and that from this, social care will get the biggest increase in its budget for over a decade. 

As suggested earlier in the week, there will be a £6bn boost for the NHS to help tackle long waiting lists and COVID-induced backlogs.

The policy has so far been criticised for assigning money to the wrong things — it is set to buy equipment rather than plug staffing gaps which have put an ongoing strain on the health service over the past year.

Other boosts in store for the health service include £5bn for healthcare research including genomic testing, cancer and obesity.

Plan for jobs and education

As some sectors clamour for government support to train workers, Sunak has announced several measures to improve access to training and education.

These include:

— £3bn skills training investment for 16-19 year olds with T-levels and traineeships

— £2.6bn boost for children with special educational needs and disabilities

— £560m for maths coaching with ‘multiply’ programme

— £700m to improve sports and youth clubs

There is also £500m set out for childcare projects including family hubs. The Labour party has criticised these as a similar approach to the Sure Start centres, which were closed as a result of Conservative spending cuts.

Read more: UK food prices likely to rise as Christmas approaches

Housing 

Investment in housing will total nearly £24bn, Sunak says, reiterating the commitment to a £5bn fund to remove unsafe cladding. 

There will also be a levy on developers with profits of more than £25m, worth 4%. 

An investment of £11.5bn will help build up to 180,000 affordable homes – with 65% of the funding for homes outside London.

Watch: Sunak unveils tax cuts and benefits boost

Culture

The chancellor said that museums and cultural attractions will receive £800m and tax relief on museums and galleries will be extended for another two years.

Investment in business and enterprise

Sunak said a £1.4bn British investment fund is being set up to promote inward investment and that a new scale-up visa will make it easier for firms to attract foreign talent. 

He also announced a £1.6bn increase in financing for the British Business Bank, and £20bn for R&D. 

There will be tax relief on R&D with the scope expanded to cover cloud computing and data.

Shipping tax gets a post-Brexit makeover

As the supply chain crisis drags on, the shipping industry tax system is set for post-Brexit overhaul.

In the first shake up the rules have had in over two decades, from April 2022 flying the UK flag will give global shipping companies more chance to be accepted when applying to join the UK’s Tonnage Tax Regime.

Shipping companies investing in net-zero will also stand to benefit under new rules.

Flight taxes cut for short-haul

Sunak announced a lower rate of air passenger duty, cutting it in half for return legs of domestic flights. 

This will be followed by an increased air passenger duty on ultra-long haul flights for which fewer than 5% of passengers will pay more. 

'Levelling up' transport

“The government promised an infrastructure revolution, we will give an infrastructure revolution,” said Sunak.

He confirmed a £6.9bn boost for local transport. Of that, £5.7bn will go to sustainable transport settlements for city regions to boost productivity through train and station upgrades and the expansion of tram networks in cities outside of London.

£1.2bn of new funding is also earmarked to transform bus services, as part of the £3bn committed by the prime minister.

This will deliver Transport for London-style improvements to speed up journey times, simplify fares and increase the number of services outside of the capital, the Treasury previously said.

The budget for business: Banks and business rates

Sunak said that getting rid of business rates would be irresponsible because they raise £25bn.

However he said there will be a 50% business rates discount for hospitality and leisure businesses up to £110m.

Sunak says this is the biggest tax cut to business rates in over 30 years, cutting business rates by £7bn. 

He also confirmed that corporation tax will rise. The £1m annual investment allowance will be extended to March 2023, instead of ending in December. However, the banking surcharge will be cut, he said. 

FULL REPORT: Rishi Sunak announces 50% business rates discount for retail and hospitality sectors

Alcohol tax: Raising a glass to producers and pubs

Alongside the headline numbers, it was announced that alcohol companies and pubs are set for a tax overhaul, sparing the industry from the current system which has previously been described as fiendishly complicated and "a complete mess" by the Institute for Fiscal Studies.

He said the principle will mean the higher the alcohol, the higher the tax. 

The teetotal chancellor said that the tax will also be restructured to give English sparkling wine an advantage over popular foreign sparkling wines such as champagne and prosecco. It will also give tax cuts to small producers making beer and cider. 

There is set to be a 5% tax cut on beer. 

FULL REPORT: Budget 2021: Sunak cuts draft beer draught in most radical reforms in 100 years

Fuel duty

The planned rise in fuel duty has been cancelled. 

Pay and the national living wage

The speech confirmed news trailed by the Treasury earlier this week that the government would move to unfreeze public sector pay. The freeze had been put in place due to the fact that private sector pay has been on unsteady footing over the past two years.

Inflation warnings have meant maintaining the freeze has been difficult to justify, with the Bank of England (BoE) saying that the Consumer Price Index could potentially reach as high as 5% early next year.

The government has, however, avoided saying whether pay increases would match the bump in the cost of living.

Sunak has also moved to raise the national living wage to £9.50-an-hour ($13) from £8.91 from next April for workers aged 23 and over.

For a full-time worker it will mean a pay rise of more than £1,000. 

The increase will be welcomed by those on the lowest incomes and will mean there are fewer low-paid workers, but doesn't address widespread concerns about how cutting the £20 Universal Credit uplift might affect the poorest.

Universal credit

The Universal Credit earnings taper rate is currently 63%. This means that for every £1 you earn over your work allowance (if you are eligible for one) your Universal Credit will be reduced by 63p. this amount will be deducted automatically from your Universal Credit payment.

Sunak announced an 8% tax cut on this, from 63% to 55%. 

Sunak said the tax cut will be worth more than £2bn per year, introduced within weeks and no later than 1 December. 

Green energy commitments

Ahead of COP26, the chancellor pledged £380m for our world-leading offshore wind sector and £6.1bn to deliver the Transport Decarbonisation Plan by boosting the number of zero emission vehicles, helping to develop greener planes and ships, and encouraging more trips by bus, bicycle and foot.

£3.9bn will decarbonise buildings, including £1.8bn to support tens of thousands of low-income households to make the transition to net zero while reducing their energy bills.

Money for the devolved nations

This Spending Review also provides an additional £8.7bn per year to the devolved administrations through the Barnett formula:

  • the Scottish Government will benefit from a £4.6bn per year funding boost

  • the Welsh Government a £2.5bn per year funding boost

  • the Northern Ireland Executive a £1.6bn per year funding boost

This is being updated on a rolling basis.

Watch: What is inflation and why is it important?

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