Political overview
Rishi Sunak’s second Budget of the year followed a similar tone to his first, a plan seeking to deliver a “stronger economy to the British people and fit for a new age of optimism”.
The Chancellor was typically upbeat and was quick to deliver the better than expected growth predictions and lower than expected unemployment figures from the OBR. It was also the second Budget in succession that saw much of the details being pre-briefed, much to the ire of Labour and the Speaker.
While he stopped short of drawing a line under Covid-19, Sunak was clearly keen to position this as a post-Covid budget, and by extension, himself as a Chancellor who will be remembered for something other than helping the country through the pandemic.
There were continued attempts to position the Conservatives as the “real party of public services” via a series of positively framed spending pledges around the NHS, education, and public infrastructure, amid continued efforts by the party to appeal to disaffected Labour voters in and around the Red Wall.
However, he offered a sombre warning on rising inflation in a notable break from previous comments from ministers. He announced that it will likely hit 4% and that its main causes - supply chain pressures and energy shortages - will take months to ease and won’t be solved overnight, as opposed to before Christmas.
To an extent, Sunak was able to ride the wave of the positive OBR forecasts, and time will tell as to whether he can fulfil his lofty spending pledges. However, the accusations that he and the Government are not doing enough to support the myriad of short-term crises - an expected cut to VAT for energy bills did not materialise, for instance - will not go away.
Macroeconomic overview
- GDP growth – the OBR expects the UK’s economic recovery to be quicker than originally predicted – it is forecasting a return to pre-Covid level of growth by 2022. The UK’s GDP growth is predicted at 6.5% for 2021, up from 4%. 6% in 2022, and 2.1%, 1.3%, 1.6% for 2023, 2024 and 2025.
- Inflation - OBR expecting inflation to average 4% by the end of 2021.
- Unemployment - OBR expects unemployment to peak at 5.2% for 2021, which Sunak said amounted to 2 million fewer people without work than previously feared.
- Covid-19 ‘scarring impact’ - OBR have revised down their “scarring assumption” of the UK economy as a result of Covid-19 from 3% to 2%.
Personal Finance
- Energy – a total of £3.9 billion for England and Wales to ensure buildings are warmer and cheaper to heat.
- National Living Wage - from 1 April 2022 this will rise to £9.50 per hour.
- Universal Credit – the taper rate will be cut by 8%, from 63p to 55p.
- State Pension – suspension of the earnings link. This action will protect taxpayers from a significant fiscal pressure, while protecting pensioners from higher costs of living.
- Household Support – confirmation of the £500 million Household Support Fund, which will provide £421 million to Local Authorities in England.
- Housing - £1.8 billion to meet the government’s commitment to £10 billion investment in housing supply and unlock over 1 million new homes.
- 5 billion funding (£3 billion by 2025) for remediation of the highest risk buildings with unsafe cladding to ensure everyone can feel safe and secure in their home.
- £450 million to grow the heat pump market in England and Wales to help reduce the costs of heat pumps by 25-50% by 2025.
- £950 million for the Home Upgrade Grant and £800 million for the Social Housing Decarbonisation Fund to help low income households make their homes more energy efficient and reduce their energy bills.
Sustainability/Green Finance
- Net Zero Strategy - sets out the steps the government will take to keep the UK on track for its carbon budgets and 2030 National Determined Contribution, and establishes the longer term pathway towards net zero by 2050.
- Includes £380 million for the world-leading offshore wind sector and significant investments in nuclear: up to £1.7 billion of direct government funding to enable a large-scale nuclear plant to achieve a final investment decision this Parliament; £385 million towards advanced nuclear R&D; and £120 million for a new Future Nuclear Enabling Fund to address barriers to entry.
Infrastructure/Transport
- HGV levy - will be suspended for a further year. Vehicle excise duty for heavy goods vehicles will be frozen and temporary visas introduced to address driver shortages. These measures were specifically designed to ease the supply chain crisis.
- Rail - over £35 billion of rail investment over the next three years. Everyday journeys will be improved, through investing more than £5 billion until 2025 in buses and cycling, and £5.7 billion of investment over five years in eight City Regions through City Region Sustainable Transport Settlements.
- Road - £24 billion between 2020-21 and 2024-25 in strategic roads, delivering upgrades such as the A66 Trans-Pennine.
- The Integrated Rail Plan – there was no mention of the plan which is expected to set out the government’s plans for HS2’s eastern leg, Northern Powerhouse and other regional rail investment in the Midlands and north of England.
Business support
- R&D - the government is increasing public R&D investment, providing £20 billion across the UK by 2024-25, including funding for EU programmes. There will also be R&D tax reliefs to support modern research methods by expanding qualifying expenditure to include data and cloud costs.
- Business rates – the government will reduce the burden of business rates in England by over £7 billion over the next five years.
- Up to 400,000 retail, hospitality and leisure properties will be eligible for a new, temporary £1.7 billion of business rates relief next year – amounting to 50%
- The government is also freezing the business rates multiplier in 2022-23, a tax cut worth £4.6 billion over the next five years.
- Bank Corporation Tax - the government is setting the rate of the surcharge at 3% from April 2023.
- Bank annual allowance – the government will raise the annual allowance within the surcharge to £100 million to promote competition in the UK banking market
- Alcohol tax - the Alcohol Duty system will undergo a major simplification. Drinks will be taxed in proportion to their alcohol content, meaning the likes of sparkling wine will be cheaper. There are also reductions in duties on beer, cider and sparkling wine and increases on fortified wines and spirits.
Employment support
- Apprenticeship funding - £2.7 billon increase in apprenticeship funding by 2024-25, including the extension of its £3,000 apprentice hiring incentive for employers.
- Help to Grow - more funding for the Help to Grow schemes which it anticipates will aid SME productivity through actions like digital adoption and expanded the Lifetime Skills Guarantee as part of its agenda to “boost skills”.
- Public sector pay – workers will see pay rises over the next three years as the pay freeze comes to an end.
Health and Social Care
- NHS – £44 billion growth in NHS spending between the beginning and end of this parliament. This represents a growth in real terms of 3.8% per year.
- Health and Social Care Levy – it will raise £13 billion per year from April 2022 and will be primarily used to fund adult social care.
- Start for Life – the government’s new £500 million programme to support children and families focused on a range of service from mental health to breastfeeding support.
- Holiday activities and food – the £200 million programme will continue to support disadvantaged children during school holidays after the end of the pandemic.
- Schools – a £4.7 billion increase in the core schools’ budget by 2024-25.
Culture support
- Theatre - temporary rates uplift to Theatre, Orchestra and Museums, Galleries Exhibition tax relief was extended, this represents a tax cut worth £250 million.
- Local culture - an £800 million fund to protect local culture including libraries and galleries was also announced.
- Creative industries - £42 million to support the UK’s creative industries, including supporting SMEs to scale up and providing bespoke support for the UK’s independent film and video game industries.
This analysis was created by our UK PR partner Hill+Knowlton Strategies.
