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Autumn Budget and Comprehensive Spending Review

Autumn Budget and Comprehensive Spending Review

By Robert Russell-Pavier, Verity Barton, Tom Cooper, Chris Speight, Lucy Hewitson, Saskia Vredenburch, and Adrian Carrasquillo.

In delivering his third Budget, Chancellor Rishi Sunak is looking beyond the spectre of Covid-19 and to the Government’s domestic policy priorities to drive economic recovery and lay the foundations for the next election.

It was another Budget big on spend, but keen to keep the books balanced, Sunak announced a new Charter for Budget Responsibility, plotting a course to mend public finances while sending a message, not just to the Labour frontbench, but his own colleagues who are less worried about debt and borrowing than the Conservative Party traditionally is.

Today saw Sunak seeking to maintain the Conservative label of low tax, good economic management, and sustainable public finances, all while providing a buffer for those at the coal face who can least afford the costs of inflation.

Key measures announced today are a clear attempt to respond to the cost of living crisis:

  • Ending the freeze on public sector pay,
  • Increasing the Living Wage,
  • Reducing the taper in Universal Credit and increasing work allowances,
  • Freezing the Fuel Duty, and
  • Reducing the price of a pint of draught beer.

Beyond direct support for workers, tax relief was also extended to the sectors hardest hit by the restrictions of the last 18 months – retail, leisure, hospitality, aviation and tourism, and the cultural and creative sectors.

The clear message today was jobs are up and growth is up, and the UK will be a high skilled, high wage economy. Paying people more doesn’t always mean higher productivity, something the Treasury has consistently prioritised. Yet, the Chancellor will point to high levels of R&D funding, increased skills funding, and enabling plant, machinery and energy efficiency improvements to be offset against tax.

Beyond the headlines, we look at what today’s Budget and Spending Review means for key policy areas.

Budget OCT 2021- DIVIDERS1

  • With the publication of the Government’s Heat and Buildings Strategy and its Net Zero Strategy last week, the lack of new announcements comes as no surprise. Government will hope these, alongside its co-Presidency of COP26 next week, have done enough to burnish its climate credentials.
  • The Budget and Comprehensive Spending Review did confirm nearly £30bn in Net Zero and green spending up to 2025, including support for hard to decarbonise industrial sectors and renewable energy uptake. This contributed to BEIS and DEFRA seeing significant increases in Departmental budgets over the next four years.

Budget OCT 2021- DIVIDERS2

  • Delivering an infrastructure revolution is key to the Government’s Levelling Up agenda and electoral success in a few years’ time – building and upgrading roads that that connect our towns and cities and improving the rail and bus networks that people use daily has a direct impact on voters’ lives.
  • In an attempt to ease supply chain challenges that are being felt across the country, Government is making it easier to get HGV licenses and incentivising being a lorry driver by freezing excise duty and improving roadside facilities for HGV drivers.

Budget OCT 2021- DIVIDERS3

  • Turning ‘Generation Rent’ into ‘Generation Buy’ was a key pillar of the Government’s manifesto. The Budget builds on earlier commitments to get more people into their first home. Supported by a 95% mortgage guarantee, Government is investing a further £1.8bn to meet the Government’s commitment to £10bn investment in housing supply and to unlock over 1 million new homes.
  • While Planning Reform has taken a back seat for the moment, the Government is investing £65m to improve the planning regime, through a new digital system which will ensure more certainty and better outcomes for the environment, growth and quality of design.
  • The Government has been facing increasing pressure from leaseholders and MPs who are worried about the costs of removing cladding. The Spending Review confirms £5bn for remediation of the highest risk buildings with unsafe cladding. This will be funded by a Developer Levy of 4% on profits exceeding £25m. Whether this will be enough, remains unclear.

Budget OCT 2021- DIVIDERS4

  • Sunak was clear today: Levelling Up is a key priority for the Government. It is at the heart of Budgetary measures designed to ensure people are rewarded for work and effort and their futured determined not by their place of birth, but their actions and ingenuity.
  • The first tranche of the £4.8bn Levelling Up Fund was announced by the Chancellor in the Commons today, with a roll call of successful towns. For many – both in and outside Government – the reality is Levelling Up is seen as investment in infrastructure and communities. That was clearly on display today with commitments to investment in green space and community sporting facilities, and support for high streets and small businesses.

Budget OCT 2021- DIVIDERS5

  • Much of the additional funding for the NHS was revealed in pre-Budget announcements (much to the annoyance of the Speaker) and the NHS’ capital budget is set to be at its largest since 2010.
  • While there has been significant additional funding announced, scepticism remains about whether this investment in new hospitals, additional treatment and health facilities will cancel out the delays caused by staff shortages.
  • Following criticism that the recently announced National Insurance Levy will do little to help social care in the immediacy, local authorities will be provided with grant funding to plug the gap. With the challenge of delivering social care increasing, it remains unclear what change can be realised without significant investment from the Government.

Budget OCT 2021- DIVIDERS6

  • As the Government looks further strengthen the City’s position as a competitive global financial centre following our departure from the EU, the Chancellor has sought to reduce the tax burden faced by British banks.
  • Corporation Tax is set to increase in 2023, but the banks – who already pay an additional 8% levy on the tax – will have this blow softened, with the surcharge on their profits cut to 3%.

Budget OCT 2021- DIVIDERS7

  • It was an unspoken acknowledgement, but the increase in departmental budgets for some departments is perhaps a concession that previous cuts were too severe. The Ministry of Justice was one of the big winners with £1.5bn to improve court and probation services.
  • Highlighting the ‘Union Dividend’, Scotland, Wales and Northern Ireland will receive additional funding totalling £8.7bn, above and beyond the Barnet-based methodology.
  • Following years of local authorities calling for more funding, they will receive £4.8bn over the next decade. Despite this, the Office of Budget Responsibility has predicted that Council Tax hikes are set to continue as councils increase the adult social care precept.

Ever the consummate Parliamentary performer, this was another confident and assured appearance at the Despatch Box from Sunak. There were some paradoxes. Brexit dividends with no mention of Brexit. No real reference to Covid but an encouragement to get booster jabs and a Chancellor surrounded by mask wearers on Government benches. Responding to cost of living pressures while talking of maintaining public finances. But it was a politically smart Budget that bridged philosophical challenges while giving red top tabloids dynamite front covers; one can picture the Sun raising a pint to the flying of the Red Ensign on merchant ships.

It was a Budget speech which covered all it needed to and was well-received by Tory backbenchers. Sunak sought to humanise the Conservative approach to the role of the state, the individual and the community. He did so in a way that will cut across the party divide and seeks to inspire optimism about the benefits which come from a society which rewards work, effort, ingenuity and entrepreneurship.

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