Autumn Budget and Spending Review 2021 – A guide for business
This week (27 October), Chancellor Rishi Sunak set out the government’s plans for supporting people, businesses and the wider economy in the Autumn Budget and Spending Review. Here, we look at the major policy developments and how they will impact businesses of all shapes and sizes.
Presenting his third Budget since taking over the top job at HM Treasury in February 2020, Rishi Sunak opened his speech by providing a positive update on the current state of the UK economy.
He said that UK GDP is expected to grow by 6.5% in 2021, revised upwards from 4% in the previous forecast, and meaning that national output could return to pre-pandemic levels by the turn of the year.
The economy is then expected to grow by 6% in 2022, 2.1% in 2023, 1.3% in 2024 and 1.6% in 2025.
These figures mean that UK unemployment could peak at just 5.2% - a marked improvement from the 12% figure that was mooted at the height of the coronavirus crisis last year.
The biggest challenge to the recovery moving forward is inflation, which is currently running at 3.1% and expected to rise to 4% over the next 12 months.
Mr Sunak said: “The majority of this rise in inflation can be explained by two global forces.
“First, as economies around the world reopen, demand for goods has increased more quickly than supply chains can meet. And second, global demand for energy has surged at a time when supplies have already been disrupted, putting strain on prices.
“The pressures caused by supply chains and energy prices will take months to ease.”
In his first remarks directed at business, the Chancellor praised the UK research and development community for its global leadership, saying that although Britain comprises less than 1% of the world’s population, it produces 14% of the most impactful research.
As such, the government’s target to increase R&D investment to £22bn is being retained, taking total public investment in innovation to 1.1% of GDP, while Innovate UK’s annual budget has been increased to £1bn.
This funding boost will increase core science funding to £5.9bn per year by 2024-25 – a cash increase of 37%.
An overhaul of the current R&D tax credits system was also announced to incentivise more British businesses to invest in their UK operations.
Following the publication of the government’s Net Zero Strategy, the Chancellor confirmed that £30bn will be invested to create the green industries of the future.
The new UK Infrastructure Bank (UKIB) has also made its first ever investment in a green enterprise – £107m to support the development of the offshore wind sector in Teesside.
Other funding boosts included the introduction of a new £1.4bn Global Britain Investment Fund and an increase in funding for the British Business Bank’s regional financing programmes to £1.6bn.
In the previous Budget back in March, the Chancellor made major changes to the UK tax regime in order to get government borrowing under control.
These included freezing the personal allowance threshold for employees, increasing national insurance contributions (NICs) and raising the headline corporation tax rate to 25% by 2023.
All changes were maintained in this Budget, the only exception being the bank corporation tax surcharge, which will be reduced from 8% to 3%.
On business rates, Mr Sunak said the UK was not in a position to abolish a tax that brings in £25bn per annum, as some groups have asked for, but instead can reform the current system so that the burden on certain types of businesses would be reduced.
To help high-street retailers, a new revaluation cycle will be introduced so that business rate reviews happen every three years, alongside a new investment relief scheme to support those that are adopting green technologies.
The business rates multiplier review scheduled for 2022 has also been cancelled – a tax cut worth £4.6bn over the next five years – while COVID-impacted retail, hospitality and leisure businesses will benefit from a one year 50% business rates discount – a cut worth £1.7bn.
Pay and cost of living
The Chancellor closed his Budget statement by announcing that the National Living Wage (for those workers aged 23 and above) would be increased by 6.6% to £9.50 an hour.
The pay rise is worth over £1,000 per year for a minimum wage worker and will benefit 2m people.
Lastly, to deal with rising costs of living across the country, Mr Sunak said that the Universal Credit Taper (which reduces benefits as people work more hours) would be cut by 8%.
Coupled with a £500 increase in working allowances, this tax cut is worth around £2bn next year.
Catherine Lewis La Torre, Chief Executive of British Business Bank, said: “The package the Chancellor has announced enables us to build on our range of programmes to support sustainable economic growth by increasing the supply, diversity and demand for finance for UK smaller businesses.”
Shevaun Haviland, Director General of the British Chambers of Commerce, said: “There is much to welcome in this Budget for business communities across the UK. The Chancellor has listened to Chambers’ long-standing calls for changes to the business rates system and this will be good news for many firms. This will provide much needed relief for businesses across the country, giving many firms renewed confidence to invest and grow.”
Tony Danker, CBI Director-General, added: “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 takes several positive steps forward, but isn’t bold enough to deliver the high investment, high productivity economy the Government seeks.”
- The UK National Living Wage will rise from £8.91 to £9.50 next April – a 6.6% increase.
- The UK economy is expected to return to its pre-pandemic size by the turn of the year, with growth for 2021 revised upwards to 6.5%.
- COVID-impacted retail, hospitality and leisure benefits will benefit from a one year 50% business rates discount, as part of changes to the current rates system worth around £7bn.
- For finance information, including managing your business's tax, head over to the Finding Money section on the UMi Platform.