Autumn Budget 2021 Response
On Wednesday 27 October 2021, the Chancellor of the Exchequer presented his Autumn Budget and three-year spending review to Parliament. Notably, this was his first Autumn Budget since the UK went into lockdown in March 2020.
Mr Sunak shared better than expected economic and GDP growth forecasts but said the Budget “does not draw a line under COVID" and warns of challenging months ahead. Inflation was highlighted as a key concern and the Government’s tax and spending measures aim to control this, by supporting working families and building the foundations for a stronger economy post-COVID by “levelling up”.
State of the Economy
- Inflation is currently sitting at 3.1% and OBR expect this to average 4% over the next year
- The OBR forecast the UK economy to return to pre-covid levels at the turn of the year
- GDP is set to grow by 6.5% this year (revised from the 4% forecast at the Budget in March 2021). This means that recovery from the depths of the pandemic is faster than expected
- The unemployment peak has been reduced to 2.5% (over 2 million less people out of work than previously feared)
- The Government will introduce a new charter for public spending responsibility
- There will be a rise in the National Living Wage from £8.91 per hour to £9.50, to come into effect from 1 April next year. This is a 6.6% increase in the minimum wage for all those aged 23 and over - more than twice the current 3.1% rise in the cost of living
- End to public sector pay freeze – public sector workers to see pay rises
- £4.8 billion worth of funding will be available for local governments
- Funding for devolved administrations (Scotland, Wales and NI) is set to increase. All will benefit from UK shared prosperity fund.
- £22 billion investment in RND including Help to Grow scheme launched for SMEs
Tax and Duties
- Corporate taxation: the new super deduction announced in the Spring Budget and annual investment allowance will not end in December and will be extended to March 2023. Will retain surcharge of 3%
- Business rates: More frequent valuations every three years, to be delivered from 2023. Introducing new investment relief to encourage businesses to invest in green. Business rates improvement relief – every business will be able to make property improvements and will not pay extra rates
- Universal Credit taper rate will be reduced by 8% (from 63% to 55%), those on the lowest income will be able to keep more of their income. Will be introduced no later than 1 December 2021
- We are to see a tax change to encourage shipping companies to the UK
Wondering whether the budget will impact your business? Let’s take a look at the specific updates for our specialist sectors...
Hospitality, Retail & Leisure
- A 50% business rates discount will be available for the retail, hospitality and leisure sectors (up to £110,000 pa) for the next year. Alongside small business relief, these businesses will see a discount of up to 50% (£7 billion worth of business rates cuts)
- A shake up of alcohol duties will see cheaper sparkling wine, beer and cider. Designed around a common-sense principle – the stronger the drink, the higher the rate, the weaker the drink the lower the rate
- Sparkling wines will pay the same duty as those of still wines. English and Welsh wines will now pay less
- Draught Relief – a rate cut of 5% will be put on draught beer and cider for containers over 40 litres. This is noted as the biggest cut in decades and comes into effect in Feb 2023
- Small Producer Relief will be introduced for small brewers and small cider producers, making drinks of less than 8.5% alcohol percentage
- The planned duty increase on spirits, wine, cider and beer will be scrapped as of 28 October
- The Air Passenger Duty for flights within the UK will be cut from April 2023 to support struggling regional airports
Petrol Filling Stations
- The planned rise in fuel duty will be cancelled. This will be a saving of almost £8 billion
- NHS England will get £5.9 billion to tackle the backlog of people waiting for tests and scans. That covers £2.3 billion for diagnostic tests including clinics in shopping centres for scans; £1.5 billion on beds equipment and new "surgical hubs"; and £2.1bn to improve IT
- The health department will get £5 billion over the next three years for research and development. This includes £95 million which will go towards researching methods for treating cancer, obesity, and mental health. The money will also be spent on developing genome technology which could detect more than 200 conditions in newborn babies
- The Government will give £5 million for research grants to develop new surgery and treatment options for amputees and blast victims
Childcare, Education, and Families
- £170 million funding going to childcare providers. Training and development funding will be increased. £200 million of funding to include holiday activity and food programme
- £2.6 billion will be spent on creating 30,000 new school places for children with special educational needs and disabilities. The money will also go towards improving school buildings' accessibility and funding new, special provision in free schools England. The Budget will also include £1.6 billion over three years to roll out new T-levels for 16 to 19-year-olds plus £550 million for adult skills in England. Currently there are about 2,000 students on T-level courses, but the government hopes to ramp up those numbers
- Total of £5 billion funding for education recovery
- The Government has announced £500 million to support parents and children in England. This includes £200m to support families with complex issues; £82 million to fund centres in 75 different areas to provide advice for parents; £100 million for mental health support for expectant parents; and £50 million for breastfeeding support
- Scheme called Multiply will help to improve numeracy skills for those in need
Other funding updates...
Arts and Sports
- There will be £850 million to restore museums and art galleries including the V&A in London and Tate Liverpool; £125 million for a scientific research centre in Oxfordshire and £75 million for regional museums. Tax relief for culture to be extended to April 2023
- UK sports will get a funding boost with £700 million for community football pitches, tennis courts and youth facilities
Infrastructure and Business
- England's city regions will receive £6.9 billion to spend on train, tram, bus and cycle projects
- Grants worth £1.4 billion will be given to "internationally mobile" companies to invest in UK infrastructure. This includes £345 million aimed at increasing resilience for future pandemics and £800 million for the production of electric vehicles in north-east England and the Midlands
- £150 million for the British Business Bank to encourage development of Dragons' Den-style regional investors outside of London and southeast
- The Treasury is allocating £1.8 billion for building around 160,000 new homes on derelict or unused land - also known as brownfield sites - in England. An extra £9 million will also go towards allowing councils to turn neglected urban spaces into "pocket parks" roughly the size of a tennis court. This will unlock 1 million new homes
Here is what our sector specialists have to say...
David Eaves, Director – Childcare & Education:
“As expected, many of the major announcements in the Budget had already been previewed, with the rise in National Living Wage garnering the most attention. The 6.6% rise to be implemented in April 2022 will clearly be welcomed by the lowest paid individuals but will continue to place pressure on childcare providers trying to mitigate both this increase in costs and rising inflation through fee increases, at a time when cost of living remains high.
“The impact of increasing staffing costs will only be compounded by the return of business rates to pre-pandemic levels. While the retail, hospitality and leisure sectors are set to benefit from continued business rate relief through 2022-23, this will disappointingly not be extended to the childcare sector. The chancellor did, however, announce a freeze in the business rates multiplier for 2022-23 meaning that rates will not increase, and further announced new support for business owners making improvements to their properties in that they will not pay any additional rates for 12 months. While this benefit is unlikely to be sizeable, it should be noted for providers that may be evaluating whether to add additional capacity to their premises in the near term.
“In terms of investment into the sector, all additional funding is welcome, however it remains to be seen how the £170m committed to increasing the hourly rate paid to nursery providers by 2024-25 will be delivered and, in any event, this falls some way short of the £662m annual funding deficit estimated by Ceeda in 2019. We would anticipate continued campaigning by sector groups on this front. The much lauded £500m investment into young children and families is clearly needed and will likely offer significant support to expectant mothers and infants, particularly those in the most disadvantaged circumstances, however it is difficult to see how any of this resource will benefit early years providers who are already suffering from inadequate funding.
“Availability of qualified staff continues to be a sector wide issue and the Chancellor reaffirmed the previously announced £150m allocated to training early years staff. Additional funding for apprenticeships, capital investments in colleges, and 16-19 education will hopefully encourage more young people into the sector and ease the staffing challenges for providers over time.
“From a property perspective, the announcement of an additional £1.8bn for housing supply may create new opportunities both for early years providers seeking to expand their portfolios in new community hubs, and developers/investors seeking secure childcare assets. Additionally, the £2.6bn earmarked for creating 30,000 new specialist school places will provide new opportunities in this historically undervalued and important sector.”
Stephen Owens, Managing Director – Pubs & Restaurants:
“The Autumn Budget has provided some much-needed extra support for the hospitality sector – the hardest hit sector of the pandemic – by simplifying alcohol duty and introducing ‘draught relief’ for alcohol sold in pubs. This recognises that licensed premises provide a safe and regulated environment for the consumption of alcohol.
“Extending rates relief for a further 12 months with a 50% discount and holding the multiplier at the current level, together with more regular revaluations is to be welcomed but this failed to address some of the fundamental shortcomings of the rating system. This is disappointing to those who are calling for a complete overhaul.
“Cost pressures will continue to mount, confirmed by the increase in the National Living Wage to £9.50 an hour alongside higher utility and other costs. There was perhaps a missed opportunity to offset this with a continuation in the reduction of VAT at 12.5%, which wasn’t mentioned at all.
“Overall, whilst the sector may have wished for more, the fact that the Chancellor recognised the plight of the hospitality sector should be positively recognised.”
Jon Patrick, Director – Head of Leisure & Development:
“I echo the sentiment of my colleague, Stephen Owens with regards to business rates. The extension to rates relief will positively impact businesses across the leisure sector and help to mitigate some of the disruption caused by COVID. However, there is a need for a real business rating overhaul, especially for leisure premises that are of significant size. We’ve seen numerous businesses failures as well as downward pressure on rents by up to 25-30% from pre-pandemic levels across the leisure industry and rateable values should reflect this.”
Carine Bonnejean, Managing Director – Hotels:
“Whilst its positive to see business rates halved for retail, hospitality and leisure businesses, which will directly impact hotel businesses across the UK, more could have been done to balance rising cost pressures. The Chancellor made no reference to keeping VAT at 12.5%, which suggests it will go back to 20% next year and this is a huge concern for operators.
“Additionally, the increase to the National Living Wage may help to fill the staffing shortages across the hotel industry but ultimately, this has potential to significantly impact on the bottom line and threaten recovery for many businesses.”
Stephen Jacobs, Director – Bank Support & Business Recovery:
“The announcement by the chancellor that the economy has grown quicker than expected is positive. However, future growth and the ongoing recovery is threatened by the expectation that inflation will hit 4% and will remain at that level for circa 12 months, impacting both businesses and consumers.
“Budget measures such as a freeze on fuel duty, extending business rate relief for a further 12 months with a 50% discount for leisure, hospitality and retail businesses, and alcohol duty measures, together with help for the lowest paid workers, through Universal Credit revisions, will mitigate some inflationary pressures.
“In addition to the Government’s introduction of a new scale up visa to attract highly skilled people from abroad and the launch of a ‘Global Talent Network’ to ‘identify, attract and relocate the best global talent in key science and tech sectors’, they could have gone further to address the record vacancy rates and staff shortages experienced in the leisure and hospitality sector. The lack of migrant workers, due in part, to the effects of Brexit and the pandemic, also threatens the recovery.”
Darren Bond, Global Managing Director:
“It was promising to hear yesterday’s positive economic growth forecasts, as this suggests we are moving further towards the recovery phase of the Covid-19 pandemic. However, the issue of inflation remains prevalent and of particular concern to the many businesses that we support across our specialist sectors.
“The Chancellor announced several measures which aim to offer operators some respite from rising cost pressures, majority of which will serve to comfort the hard-hit hospitality and leisure sectors, although many supplementary issues were left unaddressed, such as the much-anticipated Capital Gains Tax changes and the need for an overhaul of the business rates system.”