With the majority of announcements made in the budget being leaked or shared in advance, there was little that came as a surprise. What the Chancellor did not say was more in focus than what he did. A primary focus currently which is putting pressure on businesses and families is the dramatic and unexpected rise in energy costs. The chancellor offered no direct support for soaring household energy bills after previously ruling out a cut in VAT for gas and electricity. This is despite the fact that this was signalled as a future plan during the Brexit process. There was also no targeted increase to the warm homes discount for poorer households.
Despite the extensive Net-Zero Strategy published last week, there were no substantial green measures in the budget, with no mention of any carbon taxes or spending plans beyond details previously announced then.
In addition to the green issues, Business leaders had hoped for more extensive reforms to business rates, particularly to support high street shops competing with online retailers. The Treasury only said it would “explore the arguments for and against” an online sales tax to facilitate the regeneration of in-person shopping.
The Chancellor began his speech saying inflationary pressures are affecting the UK economy, with the Office for Budget Responsibility (OBR) forecasting that inflation will be above 4% next year. He emphasised that the pressures are global in nature and are “impossible for us to address alone”. That said, Richi Sunak stated that predictions show that the economy will grow, and borrowing will reduce in the coming years.
The Treasury asserted the Government’s intention to support households with tax reductions by the end of the Parliament. Unemployment is forecast to peak at 5.2% in the fourth quarter of 2021 and to support families, there will be universal credit relief, an increase in fuel duty will be cancelled and the national living wage will increase from £8.91 to £9.50 an hour from April 2022.
There will be a radical overhaul of pubs and alcohol duty which the Chancellor hopes will encourage people to drink in pubs more than homes and will see some of the most commonly consumed drinks reduce in cost. The chancellor said the reforms are taking advantage of leaving the EU to simplify the system. The World Health Organisation (WHO) maintains that drinking in a licenced establishment is safer for health than drinking at home.
With regard to infrastructure, there will be increased investment to support London-style transport across the regions of England and investment of £21bn on roads and £46bn on railways to improve journey times between cities. Internal domestic flights will have air passenger duty cut in half, “bringing people together across the UK”.
The government will invest £20bn in research and development and a limit to R&D tax relief to domestic investment “to secure the UK’s future as a global science superpower” although some funding will be delayed due to availability of funds. There will be additional funding for education, employment, and skills.
With Business Tax, Sunak said changes to business rates will be reformed to support companies, including a 50% business rates discount for companies in retail, hospitality, and leisure sectors and a new 12-month relief for firms to invest in their premises. The bank surcharge will also be cut from 8% to 3%.
The pledges made in today’s Budget pledges are welcomed to support the recovery of the economy, and to help businesses and families who have been worst hit by the pandemic but, in the run up to the UK hosting the COP 26 summit, the lack of commitment from the Treasury to measures announced in the Net-Zero Strategy is disappointing and counters the Government’s declaration of its desire to lead the world on addressing the climate crisis.