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Upbeat Sunak Delivers 'Budget For Post-Covid Economy' – Forbes


Chancellor Rishi Sunak’s review of the public finances was widely trailed ahead of his Budget speech today. Here are the main announcements.

Inflation

In its economic forecast, the OBR (Office for Budget Responsibility) forecast inflation would hit 4.4% by the second quarter of next year, due mainly to continued pressure on supply chains and energy prices, before returning to its target 2% by the end of 2024.

Inflation – as measured by the Consumer Prices Index – is already running high at 3.1% for September having slipped back from 3.2% in August. Today’s forecast of further rises to plus-4% will fuel speculation that the Bank of England will increase interest rates – perhaps as soon as the end of the year.

A rise in the base rate from its current 0.1% will impact millions of homeowners across the UK, either with immediate effect for those on tracker deals, or in the short-term for those paying their lender’s standard variable rate (SVR), which will almost certainly be adjusted upwards.

The growing market expectation of an interest rate rise is already translating into higher costs for new mortgage deals according to brokers, especially among fixed rates that had been at historic lows for much of the year.

Pay

The National Living Wage will increase from 1 April 2022 as follows:

  • From £8.91 to £9.50 per hour for workers aged 23 and over 
  • From £8.36 to £9.18 per hour for workers aged 21-22
  • From £6.56 to £6.83 per hour for workers aged 18-20
  • From £4.62 to £4.81 per hour for workers aged under 18
  • From £4.30 to £4.81 per hour for apprentices.

On the topic of public sector pay, the government said the current wage increase pay freeze is to end, with public sector workers “seeing pay rises over the next three years as the recovery in the economy and labour market allows a return to a normal pay setting process.”

The government says it will be seeking recommendations from Pay Review Bodies where applicable: “To ensure fairness and the sustainability of the public finances, public sector pay growth over the next three years should retain broad parity with the private sector and continue to be affordable.”

Universal Credit

The Chancellor remained steadfast in his decision to remove the £20 a week uplift to Universal Credit payments which had been implemented during the pandemic to support the country’s lowest earners.

However, he announced a reduction to the Universal Credit (UC) ‘taper rate’ from 63% to 55%. The taper rate is the calculation of how much claimants lose in benefits as they earn more money. For every £1 earned, UC payments are reduced by the taper amount – currently 63 pence.

The reduction – which will take effect no later than 1 December 2021 – means claimants will be able to keep an additional 8p for every £1 of net income they earn. The Chancellor said the change would see 2 million lower-income families in Great Britain £1,000-a-year or more better off.

NHS spending

The Chancellor has committed around £6bn of new spending to tackle NHS backlogs and fund diagnostic services and elective surgeries. The money is also earmarked for IT improvements.

Education and training

The government has announced it will spend £1.6bn on vocational ‘T-Level’ qualifications for 16 to 19-year-olds, £550m on adult numeracy and £830m on modernising colleges.

The T-Levels money will be spent on extra classroom hours for up to 100,000 students on T-Level courses. There are currently around 2,000 students taking T-Levels.

Air Passenger Duty

The government is aiming to boost air travel within the UK through a 50% cut in domestic Air Passenger Duty (APD), from £13 to £6.50. The rate will apply to all flights between airports in England, Scotland, Wales and Northern Ireland (excluding private jets). 

The government says around nine million passengers will pay less APD as a result when the reductions take effect in 2023-24.

The government is also introducing a new band of APD for ultra-long-haul distance travellers. The international distance bands will be set at 0-2,000 miles, 2,000-5,500 miles and 5,500 miles plus. The rates will be £13, £87 and £91 respectively for economy passengers.

Housing

Mr Sunak announced £1.8bn in funding to regenerate derelict and unused ‘brownfield’ sites for housing development, with a target of 160,000 houses.

Fuel duty

It is thought the Chancellor axed plans for a 2.8p fuel duty rise before today’s budget. As a result, fuel duty will remain frozen at 57.95p per litre as it has done since 2011/12.

Hikes in transport fuel prices saw petrol reach a record high cost of 142.94p per litre on Sunday 24 October. The previous record high price of £142.48p per litre was reached on 16 April 2012. In 2019/20 fuel duty raised £28 billion, the equivalent of £1,000 per household and 3.3% of national income.

RAC’s fuel watch shows that today (27 October), the average petrol price stands at 142.81p per litre while the average price of diesel is £146.46 per litre.

Vehicle Excise Duty

Vehicle Excise Duty, commonly referred to as road tax, will once again rise in line with inflation, for cars, vans and motorcycles from 1 April 2022.

For drivers of cars registered from April 2017 onwards, first-year road tax payments are related to their car’s official CO2 emissions status. Subsequent payments are not. Depending on their car’s CO2 emissions, in the first year they will typically pay for a:

  • relatively fuel-efficient petrol or diesel car: between £0 and £165
  • less fuel-efficient car: up to a maximum of £2,070.

Electric vehicles

To support the uptake of electric vehicles, the government has pledged an additional £620 million for public charging in residential areas and targeted plug-in vehicle grants, building on the £1.9 billion announced at the 2020 Spending Review.

It also says it will channel additional funding into ending the sale of new petrol and diesel cars and vans in 2030, and all new diesel vehicles by 2040.

Alcohol

The duty rates on beer, cider, wine and spirits will be frozen for another year.

The Chancellor announced an overhaul to the historically complex alcohol duties system that will take effect in 2023. The changes will not only simplify it, but according to the Chancellor, end an era of cheap high strength drinks, which can harm public health.

The 15 main duty rates that currently exist, will be slashed to six, with stronger drinks at a higher rate. That means alcohol such as red wine, fortified wine and high strength ciders will see a small rate increase, while fruit ciders, liquors and lower strength wines such as rosé will see a rate reduction.

Rates on sparkling wines will also be dependent on strength, bringing an end to the 28% duty premium on champage, prosecco, cava and similar drinks. This in turn will mean English and Welsh variations will see lower rates than imported, as they typically are less strong.

The chancellor also unveiled a small ‘craft’ producer relief, as an extension of the current small brewers relief, which will include small cider makers and producers of drinks with less than 8.5% alcohol.

In a move that will particularly help business for pubs, the Chancellor announced the introduction of a draught relief that will see lower rates for beer and cider. This will equate to a 3p drop in the price of a pint when introduced in 2023.

Tobacco

Duty rates on all tobacco products will increase by RPI + 2%. The rate on hand-rolling tobacco will increase by RPI + 6% and the minimum excise tax will increase by RPI + 3% this year. These changes will take effect from 6pm on 27 October 2021.

Tobacco duties generated £9.7 billion in 2019/20. That equated to 0.4% of national income.

National Insurance Contributions

In September, Prime Minister Boris Johnson announced employees and the self-employed will have to pay an extra 1.25p in the pound in National Insurance Contributions from April next year to fund investment in the NHS and social care. This was confirmed in the Budget.

It means someone earning:

  • £20,000 per year will pay an additional £130 
  • £30,000 per year will pay an extra £255
  • £50,000 will pay an extra £505.

Anyone earning less than £9,564 a year is exempt from National Insurance and won’t be affected by the increase.

The additional tax will pay towards the nation’s health and social care costs. The increase will end in April 2023, but will be replaced by a new Health and Social Care Levy. 

Transport

The Budget contained details of investments in road, rail, digital and local infrastructure projects. English city regions will share £5.7 billion to upgrade local transport networks to match what is provided in London. The schemes include:

  • £830 million to West Yorkshire for schemes such as the A61 improvements for buses, cyclists
    and pedestrians between Leeds and Wakefield
  • £1 billion to Greater Manchester for schemes such as the next generation Metrolink tram-train vehicles
  • £1 billion to the West Midlands for schemes such as completing the Wednesbury to Brierley Hill metro extension and Sprint Phase 2
  • £710 million to Liverpool City Region for schemes such as battery power for new Merseyrail trains to expand the reach of the existing network
  • £570 million to South Yorkshire for schemes such as starting the renewal of the Supertram
  • £310 million to the Tees Valley for schemes such as upgrading Middlesbrough and Darlington stations and improving local rail links
  • £540 million to the West of England for schemes such as a fully prioritised bus route between Bristol and Bath.

There will also be significant investment to upgrade strategic and local roads in England by investing £24 billion between 2020-21 and 2024-25 in strategic roads, delivering upgrades such as the A66 Trans-Pennine route.

Money will also be allocated to repair “millions” of potholes.

Energy bills

Despite rumours, there was no announcement of a cut in the 5% VAT charged on domestic energy bills.

After a chaotic few weeks in which rising wholesale energy prices forced over a dozen of small suppliers out of business, it was hoped in some quarters that the Chancellor might waive the tax on household energy bills to help bill payers cope with rising prices.

However, the move was apparently ruled out as a ‘poorly targeted’ way of helping people. The government is promoting the Warm Home Discount, Winter Fuel Allowance and Cold Weather Payment.




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