“Employment is up, investment is growing, public services are improving, the public finances are stabilising, and wages are rising.” This is the backdrop against which Rishi Sunak presented the 2021 Autumn Budget.
Promising “a stronger economy for the British people”, the chancellor outlined his taxation and spending proposals. Here are 10 of the key points and what they mean for you.
1. Dividend Tax and National Insurance are rising from April
Firstly, some policy changes that the government announced several weeks ago.
From April 2022, National Insurance rates for both employees and the self-employed will rise by 1.25 percentage points. Millions of employees and many employers will see their National Insurance contributions (NICs) increase.
This rise will then be rebranded as a “Health and Social Care Levy” from April 2023, when National Insurance rates will revert to their current levels.
From April 2023, the government will also ask anyone who is working beyond the State Pension Age to pay 1.25% National Insurance, in the form of the Health and Social Care Levy, on their earned income.
In addition, Dividend Tax rates will also rise 1.25 percentage points from April 2022. Anyone earning more than £2,000 in dividends will pay a higher rate of tax.
Find out what these tax rises mean for you.
2. The economy is recovering quicker than expected
The chancellor began his Autumn Budget by outlining Office for Budget Responsibility (OBR) data that expects the economy to return to pre-Covid levels at the start of 2022.
The OBR has revised their growth estimate for the UK economy from 4% to 6.5% in 2021, then forecasts 6% growth in 2022. They also revised down the effect of Covid “scarring” on the economy from 3% to 2%.
Sunak also said that he expects inflation to average 4% over the next year. He highlighted two reasons for this:
- As economies around the world reopen, demand for goods has increased more quickly than supply chains can meet
- The pressures caused by supply chains and energy prices will take months to ease.
“I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own,” he added.
3. Spending on foreign aid is expected to return to pre-pandemic levels
Earlier this year, the government took the controversial step of reducing the percentage of GDP that the UK provides in foreign aid from 0.7% to 0.5%. The BBC reports that this is likely to see the amount the UK spends on foreign aid reduce to a nine-year low in 2021.
However, the improving fiscal position means that the chancellor forecasts a return to spending 0.7% of GDP on foreign aid before the end of this parliament.
4. A reduction on domestic air passenger duty
While cutting the cost of air travel in the week of the COP26 climate change summit might have seemed an unusual choice, the chancellor announced a reduction in air passenger duty for domestic flights.
9 million passengers will see their duty cut by half, boosting regional airports. There will also be an increase in duty for long-haul flights of more than 5,500 miles.
5. ISA subscription limits to remain the same in 2022/23
Deep in the Autumn Budget document was a commitment to retain the current ISA subscription levels. So, in 2022/23:
- The adult ISA subscription limit will remain at £20,000
- The Junior ISA and Child Trust Fund subscription limit will remain at £9,000.
This is great news for savers who can continue to receive returns free from Income Tax and Capital Gains Tax.
6. A new Green Savings Bond
The chancellor announced the creation of a new National Savings & Investment (NS&I) Green Savings Bond. This will provide UK savers with the opportunity to contribute towards the government’s environmental agenda and take part in the collective effort to tackle climate change.
NS&I made these bonds available on 22 October and they will be on sale for a minimum of three months. The bond is a three-year fixed-term savings product that will pay an interest rate of 0.65%. You can invest between £100 and £100,000.
As with all NS&I products, the Green Savings Bonds come with a HM Treasury-backed 100% guarantee.
7. Major spending plans
In a politically unexpected move towards a bigger state, Sunak unveiled a raft of spending commitments in areas from education to health.
- £21 billion on roads
- £46 billion on railways
- £5.7 billion for London-style transport systems across city regions
- £5 billion for cycling infrastructure
- £500 million in funding to help people back into work in “the most wide-ranging skills agenda this country has seen in decades”
- 20,000 new police officers
- An extra £2.2 billion for courts and rehab facilities, and £3.8 billion for prison-building
- £300 million towards A Start for Life, supporting new parents
- £150 million for Early Years training and holiday programmes
- At least 100 towns and cities will benefit from the “levelling up” fund. The first round of successful bids to the fund, worth £1.7 billion include projects in Stoke-on-Trent, Bury and Burnley.
Sunak also announced £205 million to transform grass-roots sport by funding up to 8,000 community sports pitches. He also committed £11 million towards the FA bid to host the 2030 football World Cup.
8. Changes to alcohol duty and business rates
Now the UK has left the European Union, the chancellor set out plans to reform alcohol duty. Arguing that the tax is “a mess”, the main duty rates will reduce from 15 to 6 based on the general principle that “the stronger the drink, the higher the rate”.
- Small Brewers Relief will be extended to cider makers and other producers making drinks less than 8.5% ABV
- The duty premium on sparkling wines will end. Drinkers will pay the same duty on prosecco and English and Welsh sparkling wine as on still wine
- A new “draught relief” will see a lower duty rate on draft beer and cider. This cuts duty by 5% and represents the biggest cut to cider duty since 1923 and the biggest cut to beer duty for 50 years.
Sunak also announced a total of £7 billion of cuts to business rates. The retail, hospitality, and leisure sectors will benefit from a 50% business rates cut for one year, enabling businesses to claim a discount of up to £110,000 on their bill.
9. Increases to Universal Credit and the National Living Wage
In 2022, the National Living Wage (the minimum wage) for over-23s will increase from £8.91 to £9.50 an hour. This represents an increase of £1,000 a year for a full-time worker and more than 2 million people will benefit.
“To make sure work pays”, the chancellor announced a change to the Universal Credit taper from 63p to 55p and promised to introduce this before December 1. He will also increase work allowances by £500 a year to help working families with the cost of living.
10. Signposting tax cuts to come
Overall, the OBR has confirmed that the tax burden is set to rise from 33.5% of GDP recorded before the pandemic in 2019/20 to 36.2% of GDP by 2026/27.
This is the highest level since late in Clement Attlee’s post-war Labour government in the early 1950s, when the economy was struggling after the economic shock of the second world war.
Many commentators believe that this Budget was paving the way for tax cuts later in this parliament as we approach the next General Election.
Indeed, Sunak concluded his speech by confirming that “my goal is to reduce taxes” calling it “my mission for the remainder of this parliament”.
So, while you might pay more National Insurance, Dividend Tax, or Corporation Tax in the short term, could lower taxes be on the way in a few years?
Get in touch
If you have any questions about how the Autumn Budget will affect you, or you’d like to discuss mitigating the 2022 tax rises, please get in touch. Email firstname.lastname@example.org or call us on 01189 876655.