A Spend and Tax Budget
Back in front of a packed Commons Chamber, the central theme of Rishi Sunak’s Autumn Budget was greater investment in UK PLC as part of the government’s long term economic plans and priorities. Investing taxpayer money in long-term plans will, the Chancellor believes, secure the economic future of the country. Everything from the NHS, schools, local transport and the culture and leisure sector appear set to benefit from the better-than-expected economic outlook from the Office for Budget Responsibility (OBR).
The previously announced freezing of personal tax allowances and thresholds and the introduction of the new Health and Social Care Levy are due to raise significant revenue over the next five years. Together with corporate tax increases and the forthcoming increase in dividend tax, the tax burden as a percentage of GDP will be the highest since Clement Attlee’s post-war Labour Government in the early 1950s. This provides the crucial backdrop to the spending increases and tax changes announced in the Autumn Budget.
Economic Outlook
The OBR’s Economic and Fiscal Outlook, released simultaneously with the Autumn Budget, was full of good news. The success of the vaccine roll out, combined with consumers’ and businesses’ surprising degree of adaptability to public health restrictions, has seen a recovery faster than expected in March. This means stronger economic growth, higher net tax receipts and lower government debt.
The biggest area of concern is the impact of rising inflation. Energy prices have soared, labour shortages have emerged in some occupations, and there have been blockages in some supply chains. The OBR expected inflation to reach a peak of 4.4% next year but have revised this upwards closer to 5% with a warning inflation could hit the highest rate seen in the UK for three decades.
Government Spending
This Budget was an opportunity for the Chancellor to deliver some tangible evidence of the government’s approach to Levelling Up, including investment in 180,000 new affordable homes, and a Levelling Up Fund that will be invested in local areas across the UK.
Businesses in the retail, hospitality and leisure sectors received particular sympathy from the Chancellor. Still reeling from months of Covid-enforced shut down, they were recognised as needing ongoing support, with a cut in business rates in 2022/23.
In the week leading up to COP26, it was of considerable surprise that the Chancellor chose to cut air passenger duty for flights within the UK. This will be paid for with a new ultra-long-haul band, covering destinations located more than 5,500 miles from London. However, more environmentally friendly modes of transport were not left out, with significant commitment for improvements to public transport.
Personal Tax
Immediate changes to improve the finances of households and businesses increasingly worried about rising costs over the next 12 months were thin on the ground. Those on minimum wage and in receipt of Universal Credit will benefit from changes announced, although the temporary £20 uplift to Universal Credit will not be made permanent.
For everyone else, they will have to make the best of a restructuring of alcohol duties, the 12th consecutive cancellation of fuel duty increases, and a modest increase to the lower band for National Insurance. For those selling second homes, they will benefit from an additional 30 days in the deadline for reporting and paying capital gains tax.
Thankfully the Chancellor chose not to use this Budget to tamper further with pensions, investments or inheritance tax, but as always, ensure you use the allowances and tax breaks while you can.
Should you have any questions or concerns, please get in touch with the team.
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