Autumn Budget: Statement & reaction
Big spending Sunak sets tone for post-Covid tax cuts
Rishi Sunak: mission is to cut taxes
Chancellor Rishi Sunak announced a big spending Budget that will raise the tax take to levels not seen for half a century but will set the tone for cuts in taxes in future years.
Spending across departments will rise by £150 billion over this parliament – an average of 3.8% a year in real terms, the fastest rate this century, and funded by a mix of tax rises and better than expected economic growth.
The tax burden will rise to 36.2% of gross domestic product by 2026-27 – the highest level since the socialist government of the early 1950s.
To ease the pain felt by business he announced cuts in aviation taxes and business rates for the hospitality, retail and leisure sector, as well as changes to Universal Credit to help those on low incomes.
Funding for Scotland will increase by £4.6 billion, for Wales by £2.5bn and for Northern Ireland by £1.6bn. Mr Sunak said these are the largest block grants since devolution was agreed in 1998.
There will be an extension of investment allowances, more support for R&D, a radical overhaul of alcohol taxes, and a freeze on duty paid on wines, spirits, beer and fuel.
The price of a pint will fall by 3p
A new Draught Relief will mean a special lower duty rate will apply to draught drinks, a move that will help pubs over supermarkets. The moves will mean a 3p cut in the price of a pint of beer, but some drinks, including red wine, will become more expensive.
A £150m pot dedicated to supporting smaller businesses in Scotland will be made available to the British Business Bank to invest alongside business angels.
In a gesture of support for the Union, £170m will be given to projects that include a refurbishment of Inverness Castle, and restoration of Granton’s listed gasholder in Edinburgh.
Mr Sunak announced a 50% cut in business rates for the hospitality, retail and leisure industries for the next financial year. Rates are already cut to zero in Scotland but only until March.
There is to be a reduction in air passenger duty (APD) for internal flights – a move that has infuriated climate change campaigners ahead of COP26 this weekend.
APD is also due to become a devolved issue and the proposed cut will need to be clarified with the Scottish government.
The Chancellor confirmed the announcement made in January that the Treasury will provide £1.5bn a year to regions through the new UK Shared Prosperity Fund which replaces EU structural funds.
There will be a £20bn annual pot for additional investment in research and development, a 50% increase and a greater proportion of GDP than in Germany, France and the US.
Pubs and high street retailers in England will benefit from business rates being slashed by half this year – worth £1.7billion.
A surprise move was a decision to make universal credit more generous by slashing the taper rate – a measure of how much claimants lose for every hour they work over the allowance – from 63p in the pound to just 55p. This was to reward work over welfare.
Mr Sunak confirmed that the national living wage will rise to £9.50 next year, and that the public sector pay freeze is being axed.
On the economy he said the Office for Budget Responsibility has upgraded growth for this year from the 4% forecast in March to 6.5%.
It is also expecting unemployment to come in lower than earlier predictions, now forecast to peak at 5.2%. It means over two million fewer people out of work than previously feared.
“By the end of this parliament I want taxes to be going down, not up,” Mr Sunak told MPs. “A society that rewards work.
“That is my mission over the remainder of this parliament.”
Scottish Finance Secretary Kate Forbes disputed Mr Sunak’s figures.
“In reality, the Scottish Government will receive less grant funding in every year of the spending review than it has in 2021-22, despite the continuing challenges presented by Covid.”
She also criticised the Chancellor for cutting Air Passenger Duty on domestic flights just days before the global Cop26 climate change summit gets underway in Glasgow.
“No-one would guess from this Budget that Cop26 is taking place next week,” Ms Forbes said.
On the business rates changes, Scottish Property Federation director David Melhuish said: “While the Chancellor’s announcements on business rates will provide some respite to high streets South of the Border, the [Scottish] Finance Secretary has an opportunity to go further in December’s Scottish Budget.
“Business rates in Scotland must be put on a more sustainable level, with annual revaluations that respond to changing economic circumstances and an end to damaging and counterproductive empty property rates for commercial buildings left vacant by the pandemic.
“Following the Chancellor’s move to use the rates system to boost the transition to net-zero, it will be important that this move is reciprocated in Scotland to help our built environment to decarbonise.”
Struan Stevenson, CEO of the pro-union Scottish Business UK group, said: “Scottish businesses are seeing the continued economic benefit of our place in the United Kingdom, with record levels of funding through the Barnett Formula serving up an extra £4.6 billion a year for Scottish ministers to invest in business support and public services.
“Add in significant added investment through the Levelling Up Fund and the Shared Prosperity Fund, plus further measures like lower Air Passenger Duty for flights between Scotland and other UK regions, and the Chancellor’s statement today should provide a much-needed shot in the arm for our post-pandemic economy.”
However, there had already been a package of tax rises, including a hike in national insurance contributions, which will negate a number of the benefits announced today.
While some businesses – particularly in the leisure sector – will benefit there was some frustration that there was little help for most companies. There had been hopes of some support for firms struggling with rising energy bills.
Andrew McRae, FSB’s Scotland policy chairman, said: “There were slim pickings for hard-pressed debt-laden Scottish small businesses in today’s Budget.
“The Chancellor could have reduced payroll taxes or taken the edge off non-domestic energy bills. However, Scotland’s local and independent firms struggling under the weight of covid debt and spiralling utility costs won’t have heard much from the Chancellor that will help them balance the books.
Andrew McRae: ‘slim pickings for most businesses’
“Plans to reform alcohol taxes and freeze fuel duty will be welcomed by some in business. And moves to deliver a poundage freeze and provide hospitality firms in England with enhanced rates relief next year gives Holyrood some policy options.
“However, many firms in Scotland, after enduring repeated public health shutdowns, will wonder how this Budget addresses the problems they’re facing today.
Paul Johnson, director of the Institute for Fiscal Studies, also expressed some caution. He said: “The Government is now planning to spend more on public services, and to have a more generous system of universal credit, than it was intending pre-pandemic.
“The increases in universal credit for those in paid work are occurring alongside increases in the national living wage. This means that the Budget and Spending Review are much more similar to Gordon Brown’s than to George Osborne’s.
Paul Johnson: ‘huge uncertainty over the outlook’ (pic: Terry Murden)
“To help fund the spending increases, the Chancellor confirmed big tax rises: this year has seen the biggest set of tax-raising measures since 1993. It now looks like a large part of those tax rises is to be spent rather than being entirely used to reduce borrowing as originally announced.
“If implemented, this might be sufficient to push borrowing below that expected prior to the pandemic and to see debt falling as a share of national income. Of course there is huge uncertainty over the outlook for the economy and it remains to be seen whether the tax rises will actually be implemented as announced.
“The coming year will also be a difficult one for living standards. For example, for middle earners rising inflation and tax rises mean their real take home pay is set to fall by around 1%.”
Scottish Conservative Leader Douglas Ross inevitably threw his support behind the Budget. He said: “This UK Budget is outstanding news for jobs and public services in Scotland.
“The strength and security of the United Kingdom has helped us through the pandemic, and the announcement of the biggest block grant since devolution will ensure Scottish public services are protected going forward.”
SNP Westminster Leader Ian Blackford claimed the Budget will leave Scotland worse off.
“The Tory government has short-changed Scotland by billions of pounds,” he said. “It has broken its pledge to invest in Scottish carbon capture projects, failed to match the Scottish Government’s £500million just transition fund, failed to fully replace EU funding for Scottish local authorities, and failed to compensate Scotland for the damage of Brexit.
“It beggars belief that the Tories expect us to be grateful even though they are making families poorer and robbing Scotland of investment.”
Rachel Reeves Labour’s Shadow Chancellor, added: “Families struggling with the cost of living crisis, businesses hit by a supply chain crisis, those who rely on our schools and our hospitals and our police – they won’t recognise the world that the Chancellor is describing. They will think that he is living in a parallel universe.”