The Budget is the most important speech that a Chancellor makes in any year. Although this year has been exceptional because there has been two; one in March and the other yesterday. You can imagine the butterflies in Mr Sunak’s stomach despite the fact he is an experienced politician. So to be slapped down by the Deputy Speaker before he has risen to speak, because of the pre-budget announcements made in the media, didn’t make for a smooth start!
However Mr Sunak started on the front foot by saying that the independent Office for Budget Responsibility (OBR) has raised its growth forecasts for the UK to 6.5%. Adding that the economy will have recovered all of its Covid losses by the end of this year.
The fly in the ointment is rising inflation; expected to top out at between 4% and 5%. Any rise in real standards of living therefore is unlikely to be achieved in the short-term.
Encouragingly, foreign aid spending cut due to the economic impact of Covid is projected to return to 0.7% of GDP by 2024-25.
Tax reliefs and pensions
- Announcements from earlier in the year still hold i.e. freezing of allowances and a 1.25% National Insurance increase to fund social care.
- State Pensions would not factor in the increase in national average earnings. Hence the triple lock becomes a double lock for now, and a rise of 3.1% for state pensioners therefore in April 2022.
- Low earners who are members of their workplace scheme where their own pension contributions are deducted before the tax calculations are applied will currently not be receiving any tax relief. In contrast, their counterparts who pay contributions after tax is applied receive 20% tax relief claimed by the scheme, even if they earn below the threshold to pay tax. This will disparity will be rectified by making payments directly to those impacted. The change will come into effect in 2024, with payments starting as early as the next tax year.
To support the least well-off and to mitigate the removal of the £20 Universal Credit uplift, the Universal Credit taper was reduced by 8% from 63p to 55p, keeping more money in people’s pockets.
If this is a budget that you have decided you want to celebrate, then we suggest you do so with either a beer (3p less tax for a pint in a pub) or sparking wine (87p less tax per bottle). However, as the change will not come into effect until February 2023, you will either have to wait or just be comforted that the planned increase in duty on spirits, wine, cider and beer due to take effect from midnight this Wednesday has been cancelled!
- Freezing of the business rates multiplier for a further year.
- 50% business rates reduction for retail, hospitality, and leisure sectors.
- Extension of the £1 million Annual Investment Allowance until March 2023.
- Reduced Air Passenger Duty on domestic flights. An interesting one given the proximity to COP26
If you have any questions about how the budget might impact you or your business, do not hesitate to contact us.