The UK chancellor, Rishi Sunak, unveiled his autumn budget on Wednesday of this week. This is a difficult time for many people at the tail end of the covid-19 pandemic, with supply-chain issues and shortages of a number of key products, from micro-chips through to building materials and some food products. People are understandably nervous about cost of living rises and economic uncertainty as we go into the winter months.
We look at a few key areas addressed in the Budget that are already affecting many of us and will affect many more moving forwards into the winter months.
Employment & Business
The budget overall was seen as being very ‘business focused’, in an attempt to address some of the challenges from the pandemic and to try and prevent the economic recovery from stalling.
Financial institutions will benefit from a reduction in their corporation-tax surcharge from 8% to 3%, though the overall corporation tax rate will still rise by a percentage point. The hospitality sector came under the spotlight with many hotels, restaurants and pubs benefitting from a reduction in business rates and lower alcohol duty for some weaker beer, wines and cider. Is that enough given recruitment issues and worries over covid rates remains to be seen.
The Government announced a rise in the minimum wage. This is to be a rise of 7% taking the minimum wage from £8.91 to £9.50. Most commentators see this as an acknowledgement and attempt to counter the effects of the current inflation rate which is running at over 3% and set to rise further alongside rising energy prices in the next few months.
For those of you interested in the property market and development, there was a promise to spend £1.8 billion to develop brownfield land for housing and a further 48% rise in skills investment, though how the latter is going to manifest itself remains unclear.
The pay freeze, that was imposed on public sector workers a year ago, has been lifted. There was no indication from the chancellor about how much of a pay increase public-sector workers will actually receive in the coming months.
Some commentators expected an announcement over the future legality of zero-hour contracts, as many of the worst hit sectors during the pandemic (hospitality, arts & construction) tend to recruit workers on zero-hour contracts. This caused a lot of issues during the pandemic for employees and their furlough scheme eligibility and is seen as a source of employment instability for many.
One in ten employees, during the pandemic, have been told to re-apply for their jobs on terms and conditions that are worse than their current situation. There was very little addressed at this area in the Budget despite some criticism from senior ministers about the situation over the last 18 months.
Environment
With the UN Climate Change Conference (COP26) looming there were expectations over what the chancellor would announce on this area. The environment and investment into green technology were barely mentioned. The chancellor referred to COP26, and to green technology innovation in passing but there was no detail and nothing to tie into the government’s own net zero strategy, announced a few days ago. Given the challenges facing the UK on this area it was a strange omission.
The announcement of a 50% reduction in air passenger duty for UK domestic flights also raised a lot of eyebrows, in particular given the timing of the announcement with the Government acting as hosts of COP26.
Personal Finance
What many commentators were expecting was from the Budget was an announcement of a raft of measures to help address the cost of energy bills, perhaps in the form of a VAT cut or extension of the winter fuel payment system. However, they were left disappointed. It is worth noting that the price cap for energy rose 12% from October 1st and a further 30% rise is quite possible in April 2022. What happens as the winter progresses over this area will be watched by many with interest.
There has been a lot of discussion over what the government would do about the furore over the changes to Universal Credit. In the Budget is was announced that there will be a reduction in benefits for those in work from 63p to 55p in every pound earned over and above the monthly “work allowance” threshold. As it stands this is currently £293.00, for those who receive housing support, which will rise to £335.00. For claimants in work this is seen as a route to recoup some of the loss to their benefits from the effects of the minimum wage rising 7% to £9.50 an hour for over-23s in April 2022. The work allowance applies to those who have children or limited capability for work. For 60% of universal credit claimants who are not in work the changes in the Budget will not produce a positive impact.
For the year to come, with the pressure from energy bills mounting up, the personal income and income tax allowance bands frozen, and with national insurance payments due to rise 1.25% alongside a steady rise in inflation, it looks to be a tricky for many households.
Taxation
As touched on earlier, the chancellor confirmed a rise in corporation tax from 19% to 25% in 2023.
Tax reliefs for research and development costs (expanded to cover cloud-based infrastructure) were clear enough but there are due to be a number of other short-term temporary changes on such allowances which will make tax planning for companies more difficult.
Fuel duty will continue to be frozen alongside reforms in alcohol duty. Overall all of the measures announced yesterday, alongside those that exist already, will have the effect of raising the tax burden to the giddy heights of 36.2% of GDP in 2026-27. That, if it materialises, will be the highest burden in almost 70 years.
Conclusion
This was undoubtedly a tricky Budget to construct given the huge impact of covid-19 on business and society and the challenges of the post pandemic world on securing resources and maintaining economic recovery that is largely reliant on rather wobbly supply chains.
There are a large number of unknowns and threats that could change economic conditions radically. These include the longevity and depth of the energy crisis, how Brexit continues to impact on import and export levels, inflation, international destabilisation and the increasing challenges of climate change. The government’s hand may be forced, over the winter months, in terms of having to add to or substantially tweak several of the key announcements in the Budget. Watch this space.
