Chancellor Rishi Sunak was on his feet for an hour when he delivered his Autumn Budget and Spending Review 2021 – but what did he announce and how will it affect businesses, households, and the UK’s economic outlook?

Much of what he announced was already in the public domain, following briefings to the media ahead of his statement to the House on 27 October. But there were some new announcements, too.

Key takeaways:

  • National Living Wage increased by 6.6% to £9.50 an hour for those aged 23+ from April 2022. There are also increases in the minimum wage for younger workers.
  • Universal Credit taper rate cut from 63% to 55% “within weeks”- for every £1 a person earns over their work allowance their Universal Credit payment will be reduced by 55p instead of 63p.
  • Public sector pay freeze lifted from April 2022.
  • A planned fuel duty rise put on hold.
  • A 50% cut to next year’s business rates for most in the hospitality, leisure, and retail sectors.
  • An overhaul of alcohol taxation, cutting the cost of items such as Prosecco and Champagne, and a lower rate of duty on draught drinks.
  • Consultation on further changes to the regulatory charge cap for pensions schemes to unlock institutional investment while protecting savers.
  • A new ‘business rates improvement relief’ – from 2023, every business will be able to make property improvements and for 12 months, pay no extra business rates.
  • Investment in infrastructure, innovation, and skills development.
  • A lower rate of Air Passenger Duty on flights between airports in England, Scotland, Wales and Northern Ireland from April 2023.
  • A cut in the surcharge levied on bank profits from 8% to 3%.
  • Whitehall departments will receive a real term rise in funding, amounting to £150 billion by 2024-25.

What didn’t happen …

  • No extension to the stamp duty holiday.
  • No new announcements about climate change investment.
  • No big changes to capital gains tax or inheritance tax.
  • No VAT cut on energy bills to help with rising gas and electricity prices.

Mr Sunak ended his statement by saying: “Growth up. Jobs up. Wages up. Public finances back in a better place. More investment in infrastructure, innovation, and skills. A pay rise for over 2 million people. And a £2bn tax cut for the lowest paid. This Budget helps with the cost of living. This Budget levels up to a higher-wage, higher-skill, higher-productivity economy. This Budget builds a stronger economy for the British people.”

Earlier, two big tax decisions had already been announced that will also have an impact on people’s income in the years ahead. In the last Budget, Mr Sunak said the thresholds at which income tax is paid would be frozen in England at April 2021 levels for five years, potentially pushing people into higher tax bands if they get pay rises. And in September, the government announced that employees, employers and the self-employed would all pay 1.25p more in the pound for National Insurance from April 2022 to fund health and social care.

Reaction from business organisations

Following the Chancellor’s statement, the government’s official, independent forecasters, The Office for Budget Responsibility (OBR) said the economy is now expected to grow by 6.5 per cent in 2021 – that’s 2.4 percentage points faster than they predicted in March. However, the OBR is also forecasting that inflation might approach 5% next year. And, it said that the tax burden is now at its highest since the early 1950s, squeezing household finances: “Taking his March and October Budgets together, the Chancellor has raised taxes by more this year than in any single year since Norman Lamont and Ken Clarke’s two 1993 Budgets in the aftermath of Black Wednesday.”

The Federation of Small Businesses (FSB) said the Budget didn’t offer enough. The FSB warned: “This Budget has delivered some measures that should help to arrest the current decline in small business confidence. But, against a backdrop of spiralling costs, supply chain disruption and labour shortages, is there enough here to deliver the Government’s vision for a low-tax, high-productivity economy? Unfortunately not. If the OBR’s concerning inflation forecasts come to pass at the same moment when national insurance contributions and the living wage rise significantly, many small firms will be considering their futures – we’ve already lost close to half a million over the last year. National insurance contributions serve as a jobs tax, one which threatens to seriously hamper our economic recovery over the coming months if the planned increase to them is left unaddressed.”  

Tony Danker, Director-General at the Confederation of British Industry (CBI), said: “The Chancellor has shown a genuine willingness to listen to business with measures that will get firms innovating and help the economy to grow. It [the Budget] takes several positive steps forward, but isn’t bold enough to deliver the high investment, high productivity economy the Government seeks.”

The Association of Independent Professionals and the Self-Employed (IPSE) said that the Chancellor’s “largely optimistic messaging does not chime with the reality for many self-employed people”. Derek Cribb, CEO at IPSE, said: “We are grateful there were no new tax rises, but disappointed the Chancellor didn’t take the opportunity to further simplify and reduce working taxes. Instead, we had a promise that tax would come down by the end of the Parliament but no indication of exactly how. Overall, this Budget does nothing to reassure the UK’s 4.3 million self-employed businesses, who are reeling from a series of setbacks, from gaps in support to disastrous IR35 reforms.”

The think tank, the Institute for Fiscal Studies (IFS) said that millions of people will be worse off.  IFS Director, Paul Johnson, said many will feel “real pain” and added: “The worry for the government is that, for all the chancellor’s upbeat delivery, the voters may not get much feelgood factor. High inflation, rising taxes, and poor growth, still undermined more by Brexit than by the pandemic, will see real living standards barely rising and, for many, falling over the next year.”