Dear Colleague,
AUTUMN BUDGET & SPENDING REVIEW 2021: A STRONGER ECONOMY FOR THE BRITISH PEOPLE
One year ago, this country was in the grip of the biggest recession in three hundred years. Thanks to our Plan For Jobs, we are today recovering faster than our major competitors, more people are in work, and growth is up. But uncertainty in the global economy means that recovery is now under threat.
That is why this Budget and Spending Review delivers a stronger economy for the British people – strengthening our public finances and ensuring debt is falling again; helping working families meet the cost of living; supporting businesses with post-Brexit tax reforms, tax cuts and new investment incentives; delivering stronger public services across all departments; and driving economy growth by investing in infrastructure, innovation and skills.
This Budget strengthens our public finances, gets debt falling, and rebuilds our resilience
Thanks to our economic plan, our recovery will be quicker than expected. The OBR now expects the economy to return to pre-pandemic levels by January, earlier than previously expected. And the long-term damage to the economy is expected to be 2 per cent rather than 3 per cent. Accordingly, they are today revising growth up over the next 5 years, and have revised unemployment down to 5.2 per cent – meaning over 2 million fewer people expected to be out of work than previously thought. And wages are rising: compared to February 2020, they have grown in real terms by 3.4 per cent. As the OBR have commented today, the government’s plan has proven ‘remarkably successful’.
But in the face of emerging threats to that recovery, we need to get our public finances back on track. The pandemic left us with the highest borrowing since the Second World War, with debt at almost 100 per cent of GDP. Our public finances are also more sensitive to changes in inflation and interest rates: just a 1 percentage point increase would cost us £23 billion. We are almost twice as sensitive to changes in rates as we were before coronavirus, and six times as sensitive compared to before the financial crisis. As the Prime Minister reminded us, higher borrowing today is just higher interest rates and even higher taxes tomorrow.
That is why we are today introducing a new Charter for Budget Responsibility, with two new fiscal rules to ensure discipline with the public finances, and which are in line with our manifesto:
(1) Underlying public sector debt as a percentage of GDP must be falling
(2) The government should only borrow to invest in capital projects
Our responsible actions to date mean we are forecast to meet these rules by 2024. Thanks to the difficult decisions we have collectively made throughout the pandemic, we are meeting our new fiscal rules while allowing us to protect ourselves against similar risks in the future. And as well as allowing us to take measures to help working families, today’s forecasts imply that we are projected to return to spending 0.7 per cent of our national income on overseas aid in 2024-5, before the end of the Parliament.
This Budget helps working families meet the cost of living and supports vulnerable households
Cutting tax for low-income families by reducing the Universal Credit taper rate. To make sure work pays, and to help the lowest-income families in the country, the taper rate will be cut by 8 pence, taking it down from the current 63p to 55p. We are also increasing the Work Allowance by £500 per year; taken together, this is a tax cut for 2 million low-income families worth £2.2 billion next year, or an extra £1,000 in their pocket. And we will introduce this no later than December 1st. This has been advocated by the Resolution Foundation, TUC, Centre for Policy Studies, Joseph Rowntree Foundation and the Centre for Social Justice. As an example, a single mother of two working full- time on the NLW will be better off by around £1,200 – while a working couple with two children, both paid the NLW, one working full-time and one part-time, will be better off by £1,800 every year.
Increasing the National Living Wage by 6.6 per cent to £9.50. A Conservative government introduced the NLW in 2016. We are implementing the recommendations of the independent Low Pay Commission, raising the pay of 2 million of the lowest paid workers; someone on the NLW will see an annual salary increase of £1,000. We are also increasing public sector pay following a period of more targeted pay.
Freezing fuel duty for the twelfth year in a row. Due to rising global oil prices, the average cost of filling up the typical family car has gone up by £3.40 in the last eight weeks alone. Today we are freezing fuel duty for the twelfth year in a row, a £1.5 billion tax cut, meaning the average driver has saved £1,900 since 2010.
Radically simplifying alcohol duty to make the system fairer. As a result of leaving the EU, we are now able to reduce the number of alcohol bands from fifteen to just six, based around taxing alcoholic content. We are also introducing a new Small Producer Relief so small cidermakers are incentivised to grow larger. We are cutting the price of English sparkling wine and prosecco by as much as 64 pence, and cutting the tax on draught fruit ciders by 20 per cent. And until this new system is in place, we will freeze all alcohol duties for the third year in a row, including for whisky – a tax cut for families worth £500 million every year.
Boosting pubs by cutting beer duty. We are also introducing a new Draught Relief which will apply a new, lower rate of duty on draught beer and cider – cutting duty by 5 per cent, the biggest cut to cider duty since 1923 and the biggest cut to beer duty for 50 years. This will boost British pubs by nearly £100 million a year – and means a permanent cut in the cost of a pint by 3 pence.
Creating a new lower rate of Air Passenger Duty for domestic flights within the UK. Currently, flights within and between the four nations of the UK pay the same duties as international flights. From April 2023, flights between airports in England, Scotland, Wales and Northern Ireland will be subject to a new lower rate of APD than international flights, cutting duty by half for 9 million passengers. We will also introduce a new ultra long-haul band for the 5 per cent of passengers travelling the furthest.
These build on steps we have already taken to help people with the cost of living. We have already put in place a £500 million Household Support Fund to help vulnerable families across the country this winter.
This Budget supports businesses with post-Brexit tax reforms, tax cuts and incentives to invest
Cutting business rates by at least 50 per cent next year for 90 per cent of retail, hospitality and leisure businesses – and freezing all rates. Any eligible business – such as pubs, gyms, cinemas, restaurants and hotels – can claim a 50 per cent discount on their bills, up to a maximum of £110,000 per business. Taken together with Small Business Rates Relief, that’s a business tax cut worth £7 billion for over 700,000 eligible businesses – the biggest business rates tax cut in 30 years, and which comes on top of the £16 billion of support we have put in place throughout the pandemic. And we are cancelling next year’s planned increase in business rates multiplier – a tax cut itself worth £4.6 billion.
Creates new business rates reliefs to incentivise improvements and green investment. As called for by business organisations, these reliefs represent a new £750 million tax cut on investment. And to further support investment we are extending the £1 million Annual Investment Allowance for a further year.
Reforming the tonnage tax. Previously as a member of the EU, ships could qualify for special treatment in the British tax system while sailing under the flag of another country. Now we have left the EU, our tonnage tax will – for the first time ever – reward companies for adopting the flag of the United Kingdom.
Doubling tax reliefs for the creative industries sector. On top of the £850 million we are providing for the creative industries sector over the next five years, we are also extending tax relief for museums and galleries by another two years to the end of March 2024 and doubling the tax reliefs for orchestras, theatres and museums from midnight tonight until April 2024 – a tax cut for culture worth almost £250 million.
Widening our generous business rates relief for regional airports across England. In January, we introduced the Airport & Ground Operations Support Scheme (AGOSS) to support English airports with fixed costs such as their business rates. We are today extending this support by a further six months, equivalent to a full business rates holiday for almost all regional airports.
Increasing the corporation tax rate on banks. Financial services are one of our most important industries, employing over 1 million people, two thirds outside London. We are retaining a surcharge of 3 per cent, meaning that the overall corporation tax rate on banks will, in 2023, increase from 27 per cent to 28 per cent – higher than the standard 25 per cent paid by others. We are also raising the annual allowance to £100 million to support competition, consumers and challenger banks.
This Budget delivers stronger public services across all departments
We are increasing total departmental spending over this Parliament by £150 billion. That’s the largest real terms increase this century, with spending growing by 3.8 per cent a year in real terms. Every single department will see a real terms rise in overall spending as a result of this Spending Review and across the Parliament. And public sector net investment as a share of GDP will be at the highest sustained level for nearly half a century.
Health.
Resource spending on health services will increase from £133 billion at the start of the Parliament to over £177 billion by the end – an increase of over £44 billion. We will deliver 40 new hospitals, 70 hospital upgrades, 100 community diagnostic centres, 50,000 more nurses, 50 million primary care appointments, record investment in R&D, obesity programmes, end mental health dormitories and invest significant capital in operating theatres to help catch up on elective backlogs.
Schools. On top of the £14 billion we announced at in 2019, we are committing another £4.7 billion per year by 2024 to lift real terms per pupil spending to historic 2010 levels – a cash uplift of over £1,500 per pupil. We are also tripling annual spending on Special Educational Needs places, and providing another £1.8 billion for schools catch-up, taking the total to almost £5 billion.
Children and early years.
The evidence shows that the first 1,001 days of a child’s life are the most influential on their health, wellbeing, and opportunities throughout the rest of their lives. That is why we are providing: £300 million for a new Start for Life offer, programmes for new parents, a new network of Family Hubs, an extra £170 million for childcare providers, £150 million to support training and development for the early years workforce, and an extra £200 million for the Supporting Families programme.
Crime and justice. We are funding 20,000 new police officers; providing an extra £2.2 billion in courts, prisons and probation services, including £500 million to clear court backlogs; funding programmes to tackle neighbourhood crime, reoffending, county lines, and violence against women and girls; and committing £3.8 billion over the next three years to the largest prison- building programme in a generation.
Local government. Councils will receive a new annual grant of £1.6 billion on top of funding to implement social care reforms. This will allow them to keep council tax increases at the lowest levels in years.
Housing. We are today providing a multi-year settlement for housing worth nearly £24 billion – including £11.5 billion to build 180,000 new affordable homes, the largest cash investment in a decade. We are also investing an extra £1.8 billion in housing supply to bring 1,500 hectares of brownfield land into use, meeting our commitment to unlock 1 million new homes. We are also confirming £5 billion to remove unsafe cladding from the highest risk buildings, partly funded by the Residential Property Developers Tax, to be levied on developers with profits over £25 million, at a rate of 4 per cent.
Homelessness and rough sleeping. Even though we have reduced rough sleeping by a third, we must go further. Today’s additional funding of £640 million a year represents an 85 per cent increase compared to 2019, enough to make sure fewer people are sleeping rough than at any time in the last decade.
105 areas of the UK are benefitting from the first round of the £4.8 billion Levelling Up Fund. We are allocating a total of £1.7 billion across the United Kingdom, from projects such as regenerating town centres in Stoke and Bury to new transport infrastructure in Pontypridd and Paisley – and investing £172 million in Scotland, £121 million in Wales, and £49 million in Northern Ireland. We are also funding the restoration of railways in Stocksbridge and Darlington through the Beeching fund, and saving a pub in Suffolk and football ground in Portsmouth through the Community Ownership Fund. We are also investing more in local services which people rely on: £560 million for youth services over the next five years to fund 300 youth clubs in England, over £200 million to build or transform up to 8,000 community football pitches, and funding for over 100 new pocket parks.
This Budget drives economic growth by investing in infrastructure, innovation and skills
Investing £100 billion in our infrastructure – record sums for our roads, railways and broadband.
To connect towns and cities together, we’re investing £16 billion on roads and £35 billion on railways – including local schemes such as £2.1 billion for over 50 local roads upgrades, £5 billion to fill 1 million more potholes a year, and funding for buses, cycling and walking worth more than £5 billion.
Helping people get around more easily within cities. Through our City Region Sustainable Transport Settlements, we are providing £5.7 billion in Greater Manchester, Liverpool City Region, Tees Valley, South Yorkshire, West Yorkshire, the West Midlands and the West of England to boost local transport connectivity.
Boosting innovation by investing in our world-leading research and development sector. We will maintain our target to increase annual public R&D investment to £22 billion (reaching it in 2026- 27) and we will spend £20 billion every year by 2024-25 – a cash increase of 50 per cent – taking total public investment in R&D including our tax reliefs to 1.1 per cent of GDP, up from 0.7 per cent in 2018, and well in excess of the OECD average of 0.7 per cent.
Fixing our research and development tax reliefs so they are fit for purpose. Figures show that in 2018 UK spend on tax reliefs was the second highest in the OECD, yet the amount UK businesses invest in R&D is less than half of the OECD average. That is why we are expanding the scope of the reliefs to include cloud computing and data costs, and will redesign the tax relief to incentivise businesses to do more research and development here in the UK rather than British taxpayers subsidising activity abroad.
Funding our path to a greener economy through our Net Zero Strategy. Our ambitious Net Zero Strategy is an innovation strategy: it commits the government to new nuclear, hydrogen, heat pumps, offshore wind, carbon capture and storage, electric cars, cleaner planes, zero-emissions vehicles and other innovative industries to create jobs and cut carbon – and is funded with £30 billion. This week, the UK Infrastructure Bank announced its first investment: £107 million for an offshore wind project in Teesside.
Encouraging enterprise and ideas by backing business. On top of measures such as Help to Grow and the Future Fund, we are today consulting on changing the regulatory charge cap for pensions schemes, unlocking institutional investment while protecting savers. We are increasing regional financing to help businesses innovate and grow, and providing £1.6 billion for the British Business Bank to expand the UK-wide Regional Angels Programme and establish new Regional Funds. Our new £1.4 billion Global Britain Investment Fund will invest with companies in projects around the UK, in sectors like life sciences.
Making our visa system for international talent the most competitive in the world. We are confirming the eligibility criteria for our new Scale-Up Visa, to help make it easier and quicker for fast-growing businesses to bring in highly-skilled individuals. And we are announcing a new Global Talent Network operating in places like Silicon Valley and Bangalore, to work with UK businesses and research institutes to actively find, attract and relocate the best global talent and entrepreneurs in key science and tech sectors.
Boosting skills to turbocharge productivity across our country. If we want to build a stronger economy spread opportunity, and raise wages, we need to do more to boost people’s skills. That is why we are today increasing overall skills spending by £3.8 billion over the Parliament – a real terms increase of 26 per cent. This includes more hours of learning for 16-19, taking us closer to levels seen by high performers like Sweden, expanding T-Levels, 24,000 traineeships, building Institutes of Technology, funding the Lifetime Skills Guarantee, upgrading our Further Education college estate, quadrupling the number of places on our skills bootcamps, and spending record sums on apprenticeships by the end of the Parliament.
Tackling poor numeracy through ‘Multiply’. Over 8 million adults in England have numeracy skills lower than those of a 9-year-old, which costs individuals up to £1,600 a year in lost earnings and means they are twice as likely to be unemployed. That is why we are announcing a new, UK-wide numeracy programme: ‘Multiply’, investing £560 million over the SR to improve the basic maths skills of over half a million adults.
This Budget delivers for the whole United Kingdom
We are announcing the first allocations of many of our UK-wide growth funds. Through the first round of the Levelling Up Fund, we are: funding 8 bids in Scotland in areas worth £172 million, 10 projects in Wales in areas from Wrexham to Pembrokeshire worth £121 million, and 11 projects in Northern Ireland in areas from Belfast to Derry worth £49 million. Through the Community Ownership Fund, we are funding 9 projects in the devolved administrations worth £1.8 million, including saving a town hall in New Galloway, rescuing a pub in Arfon, and creating a digital hub in County Antrim.
We are announcing specific policies to benefit the Union. Changes to Air Passenger Duty will make travel within the UK cheaper. We are launching new regional British Business Bank finance funds to support firms in Scotland (£150 million), Wales (£130 million) and Northern Ireland (£70 million). We are confirming funding for the UK Shared Prosperity Fund, which will help spread opportunity in places in need and for disadvantaged groups across the UK. Funding will ramp up to £1.5 billion per year by 2024-25, and will at a minimum match the size of previous EU Funds in each nation; its first priority will be the adult numeracy programme, Multiply. We are also providing £22.5 million for the Union Connectivity Review to develop options for cross-border transport links.
Many of the policies announced today are UK-wide, demonstrating the strength of the Union. We are funding parks and sports facilities across the UK, and our cuts to the Universal Credit taper rate, increases to the National Living Wage, freezes to fuel and alcohol duty (including Scotch whisky) are all UK-wide.
Scotland, Wales and Northern Ireland are also benefitting from bespoke projects. We are providing £1 million to deliver an ‘Extreme E’ race in the Hebrides, and funding to support the Burrell Collection and world-class exhibitions in Glasgow. We are accelerating funding for the Cardiff City Region Deal by bringing forward £105 million (in addition to our continued £2.9 billion investment in 20 City and Growth Deals across the UK) and announcing a new Veterans Commissioner for Wales; and confirming funding for security and tackling paramilitary activity in Northern Ireland.
This year’s Budget also provides the largest Barnett funding settlement to the devolved administrations since devolution in 1998. This Budget increase Scottish Government funding by an average of £4.6 billion per year, Welsh Government funding by £2.5 billion per year, and £1.6 billion per year for the Northern Ireland Executive.
