Autumn Budget 2021: Building the Post-Pandemic UK Economy

On 27 October 2021, Chancellor Rishi Sunak announced the Autumn Budget and Spending Review 2021. The Budget and Spending Review sets out the government’s spending plan for economic recovery and allocates departmental budgets up to 2024-25. On top of changes already announced prior to the Budget, Wednesday’s announcement included extra investment in public services, changes in tax systems, pay increases and spending towards the levelling up agenda.

The announcement is set in the context of a faster-than-anticipated initial economic recovery from the COVID-19 pandemic, with the Office for Budget Responsibility (OBR) expecting GDP growth of 6.5% in 2021, up from its estimate of 4% in March 2021. This will enable the economy to regain its pre-pandemic size around the turn of the year, approximately six months earlier than previously expected.

Unemployment forecasts have also been downgraded, though inflation is expected to rise further, peaking at 4.4% in the second quarter of 2022. This is expected to squeeze household finances, with real household disposable income expected to remain below pre-pandemic levels until 2023, according to the OBR.

Despite this, the Budget represents a shift in focus away from emergency support mechanisms for households and businesses towards building a stronger post-pandemic economy.  Below, we have highlighted the main takeaways from the 2021 Budget, along with which UK industries are likely to be most affected by the announcements.

Housing, infrastructure and construction

The government has placed significant emphasis on construction industries in its economic recovery from the COVID-19 pandemic, with plans to ‘Build Back Better’. The Autumn Budget and Spending Review has earmarked nearly £24 billion for housing, as well as funding for public infrastructure.

Key announcements:

• Funding of £1.8 billion to unlock 160,000 homes. This comprises £300 million to unlock smaller brownfield sites and £1.5 billion to regenerate underused land and deliver transport links and community facilities.
• Over £5 billion funding to remove unsafe cladding from the highest risk buildings. This will be partly funded by a new Residential Property Developers Tax, which will place a tax of 4% on profit exceeding £25 million from April 2022.
• Areas that do not receive City Region Settlements will benefit from £2.7 billion for local roads maintenance over the next three years. The government has also committed £2.6 billion between 2020-21 and 2024-25 to deliver a long-term pipeline of 50 local road upgrades.

Industries most affected: Residential Building Construction, Building Project Development, Road and Motorway Construction.

Retail, leisure and hospitality

The Autumn Budget 2021 lists a number of measures aimed at helping the continued recovery of the retail, leisure and hospitality sectors, which have been some of the most adversely affected by the COVID-19 outbreak, as continued government restrictions decimated demand and caused huge losses in 2020-21.

The easing of restrictions from April 2021, followed by full removal of restrictions in July 2021, have released significant pent-up consumer demand, to the benefit of these consumer-facing industries. Nevertheless, businesses in these sectors have had to endure high costs and recovery has been challenged by staff shortages and supply chain disruptions in recent months, with the economy facing strong inflationary pressures. Therefore, the flurry of support announced in the Budget is welcome news.

Key announcements:

• Eligible businesses in the retail, leisure and hospitality sectors in England will benefit from a 50% business rates discount in 2022-23, up to a maximum of £110,000. This measure will be worth nearly £1.7 billion and over 90% of businesses in these sectors will be eligible, helping up to 400,000 properties.
• A freeze on the business rates multiplier in 2022-23, which would be a tax cut worth £4.6 billion over the next five years, and lower bills by 3% than without the freeze.
• A simplification of the duty system, with the number of main duty rates on alcohol reduced from 15 to just six, and taxing all products in proportion to their alcohol content.
• A 5% cut in duty rates on draught beer and cider sold in pubs, resulting in the cost of a pint dropping by 3p.
• The Museums and Galleries Exhibition Tax Relief will be extended for a further two years through 2023-24.

Industries most affected: Full-Service Restaurants, Pubs and Bars, Clothing Retailing, Libraries, Museums and Cultural Activities.

Transport

The Autumn Budget and Spending Review 2021 includes significant funding to improve transport links across the United Kingdom. This feeds into the government’s levelling up agenda, which is also supported by increased funding for the Scottish Government, Welsh Government and Northern Ireland Executive.

In addition to funding towards improving the efficiency of domestic transport systems, the Budget includes measures to support greater air connectivity within the UK and reforms to support the British shipping industry.

Key announcements:

• £5.7 billion of investment over five years for eight English city regions to transform local transport networks through London-style integrated settlements.
• Extension of financial support for English airports for a further six months through to the end of the 2021-22 financial year.
• From 1 April 2023, Air Passenger Duty on flights covering the UK will be set at £6.50, a 50% reduction on the current level for short-haul flights. A new ultra-long-haul band, covering destinations with capitals located more than 5,500 miles from London, will also be introduced from 2023-24.
• A planned increase in fuel duty was cancelled amid a significant rise in fuel prices.

Industries most affected: Scheduled Passenger Air Transport, Petrol Stations, Urban Passenger Rail Operations.

Education and skills

The education sector was heavily affected by the government’s health restrictions, which disrupted students’ learning. The quality and quantity of their learning experience has declined during the pandemic as a result of at-home learning. In this Budget, the government has beefed up funding for schools in an attempt to fill gaps in learning.

Moreover, labour shortages across numerous sectors have shone a light on the need of equipping people with the necessary skills to enter the workforce and improve their prospects. The government has announced a number of measures to upskill the workforce. Addressing geographic disparities in education and skills levels is likely to boost long term well-being, wages and prospects.

Key announcements:

• Additional funding of £4.7 billion by 2024-25 for schools in England, returning school funding to 2010 levels and equivalent to a cash increase of over £1,500 per pupil by 2024-25. This brings total investment specifically to support education recovery to £4.9 billion since the 2020-21 academic year.
• An estimated £2.6 million has been made available for new school places for children with special educational needs and disabilities.
• Total spending on skills and training will increase by £3.8 billion by 2024-25 and apprenticeships funding rising to £2.7 billion by 2024-25.
• The launch of a UK-wide programme called Multiply to improve adults’ numeracy skills, supporting their employment prospects.

Industries most affected: Primary Education, General Secondary Education, Technical and Vocational Education.

Other key announcements:

• From 1 April 2022, the National Living Wage will increase to £9.50 an hour, up 6.6% from the current rate of £8.91. Young people and apprentices will also benefit from rises in the National Minimum Wage.
• A £5.9 billion capital investment for the NHS to tackle backlogs and modernise digital technology.
• The government has committed to investing £20 billion in research and development (R&D) by 2024-25, with the government’s aiming to spend £22 billion on R&D by 2026-27. Additionally, to ensure that R&D tax reliefs continue to support R&D methods, it is expanding the qualifying expenditure to include data and cloud computing costs.
• The bank surcharge will be set at 3% from April 2023, ensuring banks pay a higher rate of overall corporation tax than other companies, at 28% compared with 25%.
• The Annual Investment Allowance limit of £1 million will be extended through 2022-23, encouraging businesses to bring forward investment and simplifying the tax relief for such investment.
• Support for the criminal justice system by providing an additional £644 million a year by 2024-25 across courts, prisons and probation services. The government is also investing over £1 billion over the Spending Review period to increase capacity and efficiency across the court estate and recover from the effects of the pandemic, including tackling the backlogs created.

Industries most affected: Hotels, Takeaway and Fast-Food Restaurants, Hospitals, Universities, Banks, Legal Activities.