With a raft of policies intended to rebuild and rebalance the UK economy, there were plenty of positives in the Autumn Budget. However, a lack of clear action on climate change and little detail on how the Chancellor intends to get the public finances back under control left many questions unanswered about the government’s longer-term plans.
ICAEW Chief Executive Michael Izza called Rishi Sunak’s third Budget “optimistic”, given the current climate in which businesses continue to grapple with rising costs, supply chain disruption and labour shortages.
Improved economic forecasts and the low cost of debt gave the Chancellor headroom in the Autumn Budget and Spending Review to make billions of pounds of additional spending pledges over the life of this parliament, and Izza welcomed efforts to tackle regional equalities as the UK emerges from the pandemic.
“We’re pleased to see the Chancellor focus on levelling up and skills, as well creating better opportunities for regional investment,” said Izza. “This needs to be planned and delivered in lockstep with the UK’s transition to net zero, but there was surprisingly little on climate change.”
Izza went on to welcome boosts to support key sectors hardest-hit by COVID and low-income families, such as the cut to the universal credit taper rate. However, he warned that with inflation and living costs rising, the tax burden already at its highest level since the 1950s and national debt forecast to be at the room-spinning level of £2.5tn by the middle of the decade, “the fizz could start to go flat very quickly”.
Plenty of theatre but no detailed tax policy
In his review Frank Haskew, ICAEW’s Head of Tax, hailed an “awesome performance” from Rishi Sunak, “brim full” of initiatives and ideas to rebuild the economy, make it more productive and pro-growth and encourage businesses to invest in the UK.
However, Haskew went on to point out that despite a speech full of promises and pledges, there was little in it about how they might be paid for.
“This Budget was really about the Spending Review and it showed,” said Haskew. “The Chancellor didn’t declare any real tax rises and was probably wary of doing so soon after the health and social care levy. It’s notable that while he announced divergence from the EU with smaller items like the tonnage tax, there was no equivalent announcement on VAT even though this would make more difference to the average person’s finances,” he added.
Haskew also flagged the government’s decision to proceed with the proposed reform of the basis periods rules with effect from April 2024, albeit with some amendments. “In our view, the costs of doing this will outweigh the benefits,” said Haskew. “Although the reform was previously billed as a simplification initiative, it’s now been revealed to be a tax-raising measure, which is estimated to raise over £1.7bn over the next five year review period."
There were several announcements designed to make the UK a more attractive place to do business, including changes to R&D reliefs and enabling companies to move their place of incorporation to the UK.
A statement full of fizz but leaving many questions unanswered
Alison Ring, ICAEW Public Sector & Taxation Director, called the Chancellor’s statement “full of fizz”, with capital investment across the country and additional funding provided for the five key Spending Review priorities of levelling up; net zero; education, jobs and skills; health; and crime and justice, partially offset by falls in COVID-19 funding.
However, despite improved transparency on the government’s balance sheet, Ring felt that the Budget “left many questions” about how the Chancellor plans to get the public finances back under control over the longer term.
Autumn Budget 2021
Read all of ICAEW's insights and analysis of the Chancellor's announcements on 27 October, as well as useful background information.
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