The chancellor, Rishi Sunak, delivered the 2021 Autumn Budget on 27 October.
As usual, his speech, and the published report, outlined the government’s taxation and spending plans and priorities for both the short and long term.
Here’s everything you need to know about the Autumn Budget and how it will affect you.
The economy is recovering quicker than expected
The chancellor began by outlining Office for Budget Responsibility (OBR) future growth projections.
It’s estimated that the UK economy will return to pre-Covid levels at the start of 2022.
The OBR estimated the UK economy to grow by 6.5% in 2021 as it bounced back from the impact of the pandemic.
They then forecast 6% growth in 2022, followed by 2.1%, 1.3% and 1.6% over the next three years.
You should note, however, that a subsequent OBR statement on 11 November reduced their growth estimate to 5.1%.
The tax burden will reach a record high
Beyond their optimistic view of economic growth, the OBR had less positive news when it came to taxation. They confirmed that the tax burden was set to rise from 33.5% of GDP in 2019/20 to 36.2% of GDP by 2026/27.
This is the highest level since the immediate post-war period.
This should be the spur for you to review your financial arrangements to minimise the amount of tax you pay to HMRC each year. One way to do this is to ensure you’re taking advantage of tax incentives and allowances available.
There were some eye-catching tax announcements in this budget statement
To help reduce government debt – that by March 2021 had increased to 106% of GDP – the chancellor made a couple of high-profile announcements:
- A new 4% levy on property developers with profits of more than £25 billion, in order to help fund a £5 billion fund to remove unsafe cladding
- An increase in duty for long-haul flights of more than 5,500 miles.
Against those increases, he also announced some tax cuts that will be broadly welcomed:
- From April 2023, the bank surcharge levied on bank profits will reduce from 8% to 3%. The aim of this is to help maintain the position of London as a global financial centre after Brexit
- To help consumers, a planned rise in fuel duty has been cancelled.
The chancellor also confirmed that the deadline for individuals to report and pay Capital Gains Tax on the sale of UK property has been increased from 30 to 60 days. This will help if you’re planning to sell property in the UK before moving or returning to Australia.
A projected increase in the rate of inflation
The chancellor announced a projected inflation rate 4% over the next year. This is primarily due to increased post-pandemic demand, and pressure on supply chains.
Compared with the low levels of inflation the UK has enjoyed in the past 20 years, this is quite a substantial jump that will likely mean a reduction in the value of your cash savings in real terms. This is because interest rates on savings are currently generally lower than the rate of inflation.
As investment growth can provide an effective hedge against inflation, you may well want to consider reviewing your investment strategy.
The chancellor set aside substantial funds to boost house building
There were two measures announced that could be very positive news if you’re involved in house building:
- An £11.5 billion fund to build up to 180,000 new affordable homes
- A “brownfield fund” of nearly £2 billion to help free up land for new house building.
A welcome series of cuts to business rates
If you’re a business owner, it’s possible that you’ll benefit from a total of £7 billion cuts to business rates. This will particularly help the retail, hospitality, and leisure sectors with a 50% business rates cut for one year, enabling businesses to claim a discount on their bill of up to £110,000.
Other targeted spending announcements
As now seems to be the norm with Budget statements, the chancellor took the opportunity to reveal spending commitments designed to appeal to certain key groups of voters – geographical and demographic.
For example:
- A guarantee to spend £5.7 billion for London-style transport systems across city regions designed to appeal to those outside the capital who feel that it gets more than its fair share of government spending
- Appealing to the same audience, the chancellor confirmed a £1.7 billion “Levelling Up” fund targeted at specific, named regions
- Increased spending on cycling infrastructure of more than £5 billion.
A new Green Savings Bond
The launch of a new National Savings & Investments (NS&I) Green Savings Bond may be of interest if you’re looking for a “green” investment option for savings.
The new bond will offer a fixed term of three years with an interest rate of 0.65% and customers can invest up to £100,000 each.
As with all NS&I products, the Green Savings Bonds come with a HM Treasury-backed 100% guarantee.
Some key measures already announced so far in 2021
You should also be aware of a series of key announcements in the months before this Budget that will have an impact on personal finances and your day-to-day financial management.
For example, in September, the prime minister, Boris Johnson, announced various measures designed to meet the shortfall in social care funding. These included:
- Working people above the State Pension Age to pay National Insurance contributions of 1.25% in the form of a new Health and Social Care Levy
- A 1.25 percentage point rise in National Insurance for both employers and employees from April 2022
- Dividend Tax also increasing by 1.25 percentage points.
In the March 2021 Budget, the chancellor announced an increase in the rate of Corporation Tax to 25% from April 2023.
At the same time, he also froze the Lifetime Allowance, Personal Allowance, and various other tax thresholds until at least 2026.
All these measures are likely to have an impact on your future personal finances. So, it’s important to take these into account as part of your planning process.
Get in touch
Get in touch if you have any questions about how the UK Autumn Budget will affect you and your finances.
