UK Autumn Budget 2021: What Rishi Sunak’s Plans Mean For You

• On Wednesday October 27, the Chancellor of the Exchequer Rishi Sunak, will lay out the government’s tax and spending plans in the Autumn Budget as the UK economic recovery slows and inflation surges.
• There may be tax changes in employment tax, VAT on household energy bill, inheritance tax, and capital gains tax
• Sustainability and the transition to a Zero Carbon economy may be an area of focus in the run up to the COP26 Summit in Glasgow in November.

On Wednesday October 27,  the Chancellor of the Exchequer Rishi Sunak, will present the UK Autumn Budget for the year 2021. Although the Prime Minister Boris Johnson, announced the most important tax news for 2021 on September 7 when he launched the Health and Social Care Levy, the Chancellor is expected lay out the government’s latest tax and spending plans.

It is rumoured that instead of making headline announcements, Sunak will make a ‘technical’ Budget speech which the Chancellor has said will aim to “continue to invest in public services and drive growth” while keeping public finances on the balance. Therefore, the devil will be in the details.

This will be the second budget of the year after one in announced in March. It also comes at the end of the spending review.

In this article, we provide a summary of what you should look out for in the UK Autumn Budget.

What To Look Out For In The UK Autumn Budget

Economic Recovery

The Office of Budget Responsibility (OBR) is expected to update on the economic recovery plans. Following the positive news on government borrowing in July this year coupled with better tax receipts, Rishi Sunak may have some good news for the legislators and the taxpayers. The OBR is expected to release forecasts that show a sustained recovery at the rapid pace witnessed over the summer, a faster recovery than the 4% predicted for 2021 in the Spring budget.

Moreover, the success of the furlough scheme is expected to lower the unemployment forecast. This would also follow an improved outlook for the labour market at the Bank of England.

Borrowing has remained higher than predicted by the OBR in March. Receipts have exceeded the OBR forecasts by £20 billion so far for 2021. Corporation tax receipts are coming in stronger, raising questions on the response to the super-reduction. According to KMPG, only 1% to 2% of business currently have the intention of taking advantage of it. Expectations are for borrowing to remain elevated at around £180 billion this year.

It is expected that the overall budget will be robustly fiscally neutral. Note that the Health and Social Care Levy is expected to raise the tax take as a share of the GDP to its highest since 1950. This sets the bar for more tax and spend high. Higher inflation adds to the government debt servicing costs which may shift the focus to balancing the books even as citizens looks for ways to fight back against inflation.

The Wednesday October 27 Budget will allow the Chancellor to reassess the role of the state in post-Covid economic recovery, including setting new fiscal rules to bring the national debt down and bring government borrowing under control.

Personal Taxes

The Chancellor has already announced that largest rise in personal taxes in two decades: increasing the National Insurance by 1% for employers, employees and the self-employed, and dividend tax. There are hints that the Chancellor will not make any more increases in personal taxes, but Rishi Sunak will need more revenue to meet spending pressure. There is a possibility of tax rises in future, but they are unlikely to be increased during the coming Budget day.

The economy is still recovering from the effects of the Covid-19 pandemic and the coming days might be more challenging for most UK households. Inflation is on the rise, the furlough is coming to an end, and energy costs are surging.

There are reports that the Chancellor will raise the minimum wage to £9.50 per hour in following cuts in income taxes in March in an attempt to cushion households from such challenges following.

Spending pledges

Ahead of the Budget the chancellor has announced a number of spending pledges including £5 billion to help the National Health Service catch up with the back log of people waiting for operations and other treatment.

He also announced an increase in the minimum wage from 1 April 2022, with the rate for those aged 22 to 23 rising from £9.18 to £9.50.

Other spending pledges include: £1.4 billion to entice inward investment into the UK; £700 million for immigration controls such as the maritime patrol; £435 million for the hard-pressed Crown Prosecution Service; £560 million for an adult numeracy initiative and an extension to June 2022 for the COVID recovery loan scheme .

Online-Sales Tax (OST)

The Autumn budget may give Chancellor Sunak an opportunity to help certain sectors to recover post-pandemic perhaps financing the give-away with raises in capital gains tax and inheritances tax or pension relief.

There has been a decline in High Street businesses even before the pandemic as shoppers shifted to on-line shopping. Before the March 2021 Budget, there were rumours that the Chancellor was considering imposing a 2% on-line sales tax (OST). These plans were further postponed until the Autumn 2021 Budget.

Therefore, online sales tax (OST) remains the Chancellor’s focus. Although OST is not expected to be announced on Wednesday 27, there may be more advanced consultations for a more informed announcement during the 2022 Spring Budget.

It is expected that used together with the Business Rates, OST will help level the playing field between on-line and bricks-and-mortar businesses. However, retail organisations have warned that OSTs would ultimately increase consumer prices, an inflationary pressure that may not be welcomed at the moment.

Therefore, at a time when there are significant pressures on household finances, the Chancellor may again decide the time is not right to push reforms through in this area, especially if he expects they will be passed to the consumer.

Greening The Economy

With Glasgow set to host the COP26 Summit (Climate Change Summit) in November, the Chancellor may be under pressure to show that he plays his part in making sure that the UK tackles climate change. Thus, the Chancellor may give an outline on how the government intends to encourage households to do this.

Recently, the government published its ‘Net Zero Strategy: Build Back Greener’ outlining ambitious plans to make the UK carbon neutral by the year 2050. These include phasing out the sale of new diesel and petrol cars by 2030 and powering the UK with ‘clean’ electricity by the year 2035.

The economic impacts of these plans were analysed by HM Treasury in its  ‘Net Zero Review’ report indicating that losing £37 billion yearly from fuel taxes coupled with significant increase in public spending required to completely decarbonize the country means new taxes may be needed to deliver the decarbonization sustainably. However, HM does not give an indication of what these new taxes may entail.

In spite of the focus on the Government’s green goals, it is expected that the Chancellor could look to cut the 5% VAT on household energy bills. This will give some reprieve to UK households in the face of the rising cost of living in the UK.

Tax Cuts

It is also expected that the Chancellor will cut the Bank Levy from 8% down to 3%. The Chancellor had committed to reviewing the Bank Levy after announcing an increase to the main corporation tax rate in the 2021 Spring Budget in order to make sure that the City remains competitive globally.

Taxes At All-Time Highs

Note that two large tax rises were announced by the Chancellor this year (National Insurance by 1%  and dividend tax ) and that the tax burden has reached 35% of the GDP, its highest since 1963. It is, therefore, unlikely that any huge tax rising measures will be announced in the UK Autumn Budget on Wednesday 27.

The Chancellor may try to help some sectors out of the pandemic and level up the High Street together with something on climate change in the run-up to the COP26 Summit.

Over and above this, the areas that may probably see some changes are the pensions relief and Capital gains tax.