Sunak buoyed by an improving economic outlook
Rishi Sunak delivered his Budget 2021 statement to a packed House of Commons claiming his stewardship of UK finances had delivered a stronger than anticipated economic recovery.
This, he argued, allowed the Government to invest billions in public services and avoid significant tax rises.
A confident and assured Chancellor framed his Budget 2021 statement as an opportunity to draw a line under 18 months of extraordinary Treasury intervention to prop up the British economy and lay the groundwork for the post-Covid economic recovery.
He was no doubt buoyed by the Office for Budget Responsibility’s forecasts that the UK economy will grow by 6.5% next year, significantly higher than the 4% predicted by the OBR in its March forecast.
With a faster-growing economy and better-than-predicted employment figures, the Chancellor had the luxury of some extra fiscal headroom to spend on key government priorities, with an extra £6 billion unveiled for the NHS in England, an additional £6.9 billion in support of the Government’s levelling-up agenda as well as an increase to the National Living Wage from April next year from £8.91 per hour to £9.50.
Much of this spending had already been heavily trailed in a string of pre-Budget spending announcements, much to the chagrin of Sir Lindsay Hoyle, the Speaker of the House of Commons.
However, as with previous Budget statements, the Chancellor had a few more rabbits up his sleeve.
The winners and losers
With Government department thought to have been asked to find at least 5% savings and efficiencies from day-to-day budgets, there were audible gasps from the Labour benches when the Chancellor confirmed that total departmental spending would increase by £150 billion over the course of this Parliament – the largest spending increase this century, with every department experiencing a real term rise in budgets.
As a result, the international aid budget will return to 0.7% of GDP by 2024/25, after the Government was widely criticised for reducing it to 0.5% during the pandemic.
Michael Gove, the new Levelling Up Secretary, will no doubt be sporting a broad smile with the announcement of a new £1.8 billion brownfield fund to turbocharge the Government’s house building ambitions.
Whilst the return of per-pupil funding to 2010 levels was a clear rebuke of the last Conservative Government’s austerity agenda and a vote of confidence in Nadhim Zahawi, who recently replaced the beleaguered Gavin Williamson as Education Secretary.
A missed opportunity to bolster the Government’s environmental credentials ahead of COP
With the COP26 summit in Glasgow only a matter of days away, today’s Budget will have done little to burnish the Government’s environmental credentials.
Cutting Air Passenger Duty on domestic flights seemed a curious priority ahead of a major international climate summit and will no doubt invite criticism from climate activists. Just this week, the Climate Change Committee called on the Government to do more to reduce demand for flying as part of its net-zero agenda.
Support for those struggling with the cost of living – though will it be enough?
Today’s statement was delivered against a spiralling cost of living crisis.
Under mounting pressure from both the Labour opposition and his own backbenchers to tackle the crisis head-on, Sunak left his biggest rabbit of all until the very end of his statement.
The Labour backbenches looked utterly dumbfounded as Sunak announced a cut to the Universal Credit taper, from 63 pence to 55 pence, which the Chancellor sold as a “hidden tax on work.” Coupled with the increase to the Work Allowance by £500, the Chancellor framed the announcement as an average tax cut worth £1,000 a year to nearly two million families, precipitating animated waving of order papers by gleaming Tory backbenchers.
Whilst his announcement will no doubt be welcomed, it will do little to alleviate immediate pressures on many household budgets and falls considerably short of calls for bolder intervention, such as a VAT cut on household energy bills.
Budget 2021: A budget with half an eye on the next election – and Sunak’s own leadership ambitions?
With a general election possibly on the horizon as early as 2023, the unveiling of a new fiscal charter committing the Government to run a surplus budget by the end of this Parliament will reinforce the emerging election battlelines between Labour and the Conservatives.
With the economy forecast to rebound more strongly than predicted, Sunak will no doubt hope that he can build a significant pre-election war chest which can be deployed in the form of fresh tax cuts – targeted in particular at voters in key Red Wall marginal constituencies.
If he can do so, not only will the Chancellor help reclaim the Conservatives’ mantle as the low tax party, but he will also have burnished his own reputation with the Tory rank and file, who seem increasingly enamoured with his potential future leadership rival, Foreign Secretary Liz Truss.
Tomos Davies, director
Find Out More
November 20, 2023
November 15, 2023