Chancellor Rishi Sunak has delivered another historic budget and three-year spending review, setting out plans that raise the tax burden to the highest level for 70 years.
The spending review sets the budgets for government departments and programmes. The three-year was expected a year ago but was curtailed to 12-months due to the uncertainties and pressures generated by Covid.
The chancellor was conflicted between what he portrayed as short-term necessity to raise taxes and increase taxes and state spending, and a basic belief that both should, normally, be reduced.
The announcements were preceded by an unprecedented reprimand from the Speaker and Deputy Speaker, who objected to the press being fed much of the important content well ahead of the announcements to MPs on October 27th. The chancellor was asked to ensure that it didn’t happen again. Sunak responded that he held both the Speaker and Deputy Speaker in high regard; and he assured them he had listened very carefully to what they had said.
This briefing does not attempt to be a comprehensive reprise of the budget and spending review but rather to be selective, taking those elements of most interest to the advanced engineering sector. It includes announcements made before October 27th but which are regarded as part of the budget. In places it includes commentary and interpretation, placed in italics within square brackets.
Context - Office for Budget Responsibility
The context for the autumn budget and spending review is set out by the Office of Budget Responsibility. In summary, it says: “A rebounding economy has provided the Chancellor with a Budget windfall that he has added to with tax rises that lift the tax burden to its highest since the early 1950s… The government has announced a significant discretionary increase in both the tax burden and the size of the post-pandemic state.”
The OBR adds that, of the roughly £30 billion on average added to departmental budgets in each year of the spending review, around half goes directly from the new levy to health and social care “with the other half undoing the £18 billion of unspecified cuts to pre-pandemic spending totals made in the last two fiscal events”.
Its highlights and predictions include:
- the successful vaccine rollout, that “has allowed the economy to reopen largely on schedule”;
- “stronger-than-expected economic recovery”; and
- lower-than-expected unemployment – peaking at 5%, not 12% as forecast in July 2020;
- the unemployment rate is predicted to remain unchanged for the next four year, at just above 4%;
- The Autumn 2021 announcements amount to a further net tax rise amounting to £16.7 billion a year by 2026-27; and
- together with the £31.5 billion in tax increases announced in the March 2021, these measures raise the tax burden from 33.5% of GDP before the pandemic to 36.2% of GDP by 2026-27 [an increase of 8%], its highest since the early 1950s;
- supply constraints and bottlenecks, made worse by migration and trading regime changes following Brexit;
- soaring energy prices;
- medium term, “we now expect post-pandemic scarring of potential output to be 2%”, not 3% as previously predicted; but “uncertainty around this judgement remains large, however, with limited evidence as yet regarding how smoothly furloughed workers will be reabsorbed into employment… and how fully shortfalls in capital investment, innovation, and the acquisition of skills will be made up”.
Please find the full budget with comments attached.