UK Autumn Budget 2021: the key talking points
Chancellor Rishi Sunak says his latest budget will deliver a strong economy for the UK. Here are a few select takeaways from today’s announcement.
Autumn budget 2021
Inflation to reach 4% in 2022
Firstly, inflation projections. The Office of Budget Responsibility (OBR) says inflation will run to 4% across 2022.
This sort of runs counter to the Bank of England’s thoughts that the high numbers we’re seeing are all transitionary. CPI inflation did drop a smidge in September, but, as the OBR forecasts, it will continue to run hot for the foreseeable future.
In a post-budget statement, the OBR even suggested inflation could rise as high as 5% across the next year.
Regarding inflation, Chancellor Sunak said that these pressures are global in nature. The UK may not be equipped to deal with them on their own, but the Chancellor said the government would move to protect UK households.
Hot inflation might be enough to push the BoE’s Monetary Policy Council into hiking rates. Governor Bailey has previously said the central bank will have to act to contain it if it continues to spiral, so a hike could be on the cards if the hawks in the MPC can overcome the doves.
UK economy will grow 6.5% this year
Next on the menu is the UK’s growth prospects.
OBR predictions put full-year GDP growth at 6.5% for 2021. According to the Chancellor, the UK won’t be back to its pre-pandemic economic self by 2022.
Looking to the future, the OBR predicts the following:
- 6% GDP growth in 2022
- 2.1% GDP growth in 2023
- 1.3% GDP growth in 2024
- 1.5% GDP growth in 2025
Onwards and upwards then? The UK is still reeling from the effects of the COVID-19-induced recession of 2020. The economy contracted at its highest level for three centuries last year, dropping 9.9% in total.
The Office of Budget Responsibility has actually increased its GDP outlook. 4.4% growth was the figure touted in March of this year.
Brexit could still lead to a slump in economic output. According to the OBR, the UK will drop trade with the EU by 15% in the coming years, causing productivity to fall by 4%.
Overall, the UK’s growth prospects are better than expected – at least according to these projections. The chancellor may have more wriggle room to spend as necessary going forward. We may not have to get out our flares, kipper ties, and disco records just yet as a return to the dire economic straits of the 70s seems gone for now.
That said, Sunak has been clear he doesn’t like heavy government spending, pointing out borrowing had reached 50% of GDP last year.
Largest spending increase this century on the way?
He may not like it, but he’s got to go along with it.
According to his latest budget, government spending will increase 3.8% across the year. Departmental spending will rise by £150bn.
“If anybody still doubts it, today’s budget confirms it. The Conservatives are the real party of public services,” the Chancellor said. Well, quite – but you did also drastically slash pretty much all departments to the bone over 11 years of Conservative rule.
It’s a bit like breaking every bone in someone’s body, offering them a foot cast, and saying “see, we told you we are looking out for you” to the unfortunate victim.
The Institute for Fiscal Studies estimates average real-term annual growth in departmental resource budgets was higher in previous years. It was above 4% under Tony Blair’s New Labour in 2000 and 2002 and 4.1% under the Conservatives in 2019.
Given that some were fearing more departmental budget cuts, up to £2bn a year in some cases, these terms are certainly more generous than most.
Business rates get tweaked, bank rates cut
Confirming expectations, Chancellor Sunak announced a reduction in the bank levy. It will drop from 8% down to 3%.
Business rates will also be adjusted in a bid to boost the UK’s flatlining high streets. Next year’s planned business rate hike is now off the table, saving an alleged £4.6bn over the next half-decade.
There is also an added £750m in incentives for new businesses to buy property across their initial 12 months of existence.
Additionally, companies in the hospitality, retail, and leisure sectors will see their business rates slashed by 50% (up to a maximum of £110,000).
Staying with the high street, changes to draught beer and cider duties, as well as a reduction in the sparkling wine duty, have been introduced. It’s good news for pub and restaurant chains, some of which have popped on the news. Wetherspoons, for example, was up 5% after the announcement.
Levelling up means big spending
A combined £67bn will be allocated to developing road and rail networks across the UK going forward. Although the numbers are promising, this is Britain we’re talking about. The Crossrail and HS2 debacles should be enough to make anyone wary of such grandiose promises.
The chancellor also announced that the government’s target for hitting research and development spending will reach £22bn by 2026-27. That’s two years ahead of schedule, so maybe some things can actually be done on time here.
The government will invest £20bn in R&D by 2024-25. According to Sunak, this is a “record investment to secure the UK’s future as a global science superpower”.
Extra funds have also been allocated to the Conservative’s slightly patronisingly titled Levelling Up fund too. This programme hopes to improve public amenities in some of the UK’s more underprivileged towns and cities.
£1.7bn will be added to help build or renovate museums, galleries, libraries, and other public spaces, to essentially pave over the cracks caused by Tory cuts in the first place.
Transport networks will also see sustained investment in a bid to create what Sunak calls London-style public transport networks.
What to make of this year’s Autumn Budget?
Well, the growth outlooks are brighter than expected. Public spending is also a lot higher than perhaps even Chancellor Sunak is personally comfortable with. A lot of the measures seem fine on the surface, but the country has been burned before.