Chancellor Rishi Sunak has presented his second Spending Review and Budget for this year, where he set forth plans to prepare the UK for a “new economy post-Covid”. There has been a lot of speculation about whether these plans would include significant increases in some of our tax rates to help repay the spending over the pandemic. Read on to find out what was covered in the speech.
The economy and fiscal forecasts
- The economy’s growth expectation has been revised up from 4% to 6.5% this year and it will take until the start of 2022 for the economy to return to its pre-pandemic size.
- However, inflation is looking to rise from 3.1% with the Office for Budget Responsibility (OBR) forecasting that inflation will average 4% next year.
- OBR growth forecast: GDP will grow by 6% next year, 2.1% in 2023, 1.3% in 2024 and 1.6% in 2025.
- Borrowing in the current financial year (2021-22) will be 7.9% of GDP and will fall to 3.3% in 2023, 2.4% in 2024 and 1.7% in 2025. The State should only borrow to invest in future growth and for balancing everyday spending.
- Unemployment is forecast to peak at 5.2%, down from a forecast of about 12% last year.
Fix finances – taxes and duties
- There will be no rises in PAYE or VAT, but the increase of 1.25% in National Insurance and Dividend Tax rates was previously announced to commence from 6 April 2022.
- National Living Wage to increase from £8.91 to £9.50 while Minimum Wage will increase from £8.36 to £9.18 per hour.
- The public sector wage freeze has been lifted with “fair” pay increases to come.
- While business rates will remain, some changes will be:
- New valuations will take place every three years
- Investment relief will be given to those who adopt greener solutions
- From 2023, if a business invests in their premises, there will be a 12-month relief from additional business rates
- There is to be a 50% business rates discount for companies in retail, hospitality and leisure sectors, up to a maximum of £110,000.
- The Annual Investment Allowance (AIA) of £1 million will be extended to March 2023.
- Tax relief for business research and development spending will be limited to domestic activities.
- The chancellor confirmed plans to change the 0.75% ceiling on annual management fees protecting workplace pensions.
- There will be a cut in the taper rate in universal credit from 63p to 55p, while the work allowance will be increased by £500. These changes are to be implemented no later than 1 December.
- The planned increase in duty on spirits, wine, cider and beer will be cancelled.
- A radical change for alcohol duty planned:
- Higher strength alcoholic drinks will attract higher duties while lower strength drinks will attract a lower tax rate
- Duty on sparkling wines will be reduced to that of still wines
- Pubs and bars will benefit from a new “draught relief”, cutting duty on beer and cider sold in pubs
- The cost of a pint will be permanently cut by 3p
- There will be a small brewers’ relief, including for cider makers
- Fuel duty to be frozen.
|A reminder of the announcements from the last budget|
Build the future economy – investment and environment
- Internal domestic flights will have air passenger duty cut from April 2023, though long-haul (flights over 5,500 miles) will see it increase.
- The government will invest £21 billion on roads and £46 billion on railways to improve journey times between cities.
- There will be grant funding for local government of £4.8 billion.
- Government will invest £20 billion in research and development by 2024-25 with a target to reach £22 billion by 2026-27.
- Tax relief on museums and galleries will be extended until March 2024.
- £800 million fund to restore museums and art galleries.
- Tax relief for a range of creative organisations will be doubled until April 2023, while specific relief measures for museums and galleries, due to expire in March, will be extended by another two years.
- Overseas aid will return to 0.7% of GDP by the end of the parliament.
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