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Autumn Budget 2021 – Good for some, but not for all

Posted on 3rd November 2021 by Phil Ainley MCIM, CMktr, Dip DigM - Marketing Manager

Budget2021 family finances

“Employment is up. Investment is growing. Public services are improving. The public finances are stabilizing, and wages are rising. Today’s budget delivers a stringer economy for the British people. Stronger growth, with the UK recovering faster than our major competitors. Stronger public finances, with our debt under control. Stronger employment, with fewer people out of work and more people in work. Growth up, jobs up and debt down. Let there be no doubt, our plan is working.” Chancellor Rishi Sunak, 27 October 2021.

A bold opening gambit, but one which has been highlighted as a political message more than an economic one by some in the media.

Despite the Chancellor’s mainly positive message in his third Budget, delivered against a backdrop of uncertainty and risk, many industry experts say that the Budget does very little to help the self-employed.

 

Everyone understands the difficult position that the Coronavirus pandemic has put the UK economy and the Chancellor in. Combine that with the issues Brexit has caused in terms of complicated import/export processes and supply chain shortages, and the impact of IR35 on the private sector since April 2021, and you have a ‘triple crown’ of major issues to deal with.

Anyone expecting any changes to IR35 in this Budget will have been hoping on a ‘wing and a prayer’, as those changes were never on the table. However, there could potentially have been more in the Budget to protect the self-employed and people earning wages at the lower end of the scale.

 

What was in the Budget to help businesses?

“Levelling up” was the golden thread that weaved its way throughout the Chancellor’s Budget speech. Mr. Sunak announced that the planned increase to business rates in England and Wales in 2022 will be scrapped. He also vowed to evaluate rates more often.

More importantly in the short-term, the Chancellor announced a 50% discount in business rates for the retail, hospitality and leisure sectors in England in 2022-23, up to a maximum of £110,000. This significant saving will no doubt be welcomed by these three sectors, who have been decimated by the pandemic over the past 18 months. But there was very little announced to directly support those who work for themselves who do not have business premises, or who work from home.

 

What taxes and wages changes were announced in the Budget?

According to the figures, 2021 has seen the highest rises in taxation since 1993. Thankfully there were no more rises in taxation announced in the Chancellor’s Budget, but let’s not forget those pre-Budget announcements that National Insurance contributions (NICs) and dividends tax will increase by 1.25 per cent from April 2022. With these two announcements alone, on top of private sector IR35 introduced in April 2021 and Corporation Tax changes due in 2023, many self-employed professionals can be forgiven for feeling that the damage had already been done.

If the UK economy is to get back on track then surely the self-employed sector must be allowed to/encouraged to thrive. Indeed, the Chancellor said in his speech that “growth must come from the invention and drive of our entrepreneurs.”

The Chancellor announced a cut to bank surcharges, that was introduced in 2015, from 8% to 3%. This won’t mean the banks will pass on that saving, nor any increase in interest rates to their customers. The current surcharge of 8% on bank profits plus 19% Corporation Tax will increase as Corporation Tax is going up to 25%. Plus the 3% surcharge, meaning bank taxes will rise by 1% in total.

 

Did the Budget address the rising cost of living?

According to the Resolution Foundation, households will likely pay £3,000 more in tax each year as a result of measures introduced since the current Prime Minister came into power.

Despite the National Living Wage rising to £9.50 per hour next year, real wages are set to fall again in 2022, while the medium-term outlook for steady real wage growth at the end of the forecast period is down to 1.5%, a drop from 2.5% real wage growth in 2010.

 


Real Wages definition – Real wages show the value of wages adjusted for inflation. Real wages are a guide to how living standards have changed.

As an example, if nominal (actual) wages increase by 5%, but inflation is 5%, then your purchasing power would remain the same, meaning you would receive 0% real wage increase.

If wages rise by 2%, but inflation is 3%, meaning prices of good have risen faster than wages, then you would experience a real wage reduction of 1%


 

A combination of policies announced by the Chancellor regarding Universal Credit, reduced Alcohol and Fuel Duties, higher Council Tax, Income Tax and National Insurance will allegedly provide a 2.8% income rise for the poorest 20% of household by 2025, yet it will negatively impact 2% of middle-income households and 3.1% of the wealthiest 20% of households(3).

Freelancer worried about finances from the Autumn 2021 Budget

What about the issues that were missing from the Autumn Budget 2021?

There were a few glaring omissions from the Budget highlighted in the press and by economic and political experts.

The was no direct support offered for the soaring household energy bills after the Chancellor ruled out a Vat cut on gas and electricity.

Green measures, such as carbon taxes and spending plans to hit the net zero carbon emissions target weren’t mentioned.

There were no announcements regarding HS2 or on any other high-speed rail issues.

As mentioned earlier in this article, there was no mention of any reform or relief for freelance contractors and businesses regarding private sector IR35.

Finally, in terms of taxes, the Chancellor did say that he preferred taxes to go down rather than up, and that he would look to cut taxes prior to the next General Election, though he did not spell out where he felt the appropriate tax cuts would be made.

 

How does the Autumn Budget 2021 affect you and the money in your pocket?

According to the Institute for Fiscal Studies (IFS), millions of us are set to be worse off in 2022.

Low-income families will potentially feel it the most as the cost of living is set to increase faster than benefit payments. This was compounded by the Office for Budget Responsibility (OBR) stating on Wednesday 27 October, that the cost of living could rise at its fastest rate for 30 years.

The Chancellor said that the OBR’s forecasted rise in inflation to 4% in 2022 was due to the increased demand for energy and supply chain issues as businesses recover from the Coronavirus pandemic, but the OBR contradicted that slightly by stating that supply chain issues had been exacerbated by Brexit, an opinion which many would agree with.

The OBR added that once rising prices and taxes are considered, average household incomes will fall and probably won’t recover until 2023(6).

As an example, new IFS analysis is suggesting that a middle-earner on £25,000 per annum, will see their pre-tax pay just outpace the price rises we are all experiencing. Yet once extra income taxes are due, their take-home pay will fall by approximately 1% (£180 per annum) after accounting for the rise in inflation(6).

What is clear is that the road to recovery is going to be quite a bumpy ride and promises some uncomfortable periods over the next twelve to twenty-four months for many of us.

 


Snapshot of the key points of the Autumn Budget 2021

UK economy

  • Inflation at 3.1% in September. Expected to rise above 4% according to the Office for Budget Responsibility (OBR)(4). This could mean the Bank of England (BoE) will have to raise interest rates in an attempt to keep inflation under control.
  • Annual growth forecast to grow by 6.5% this year and 6% in 2022.
  • UK economy forecast to return to pre-Covid levels level by 2022.
  • Unemployment expected to hit 5.2% in 2022, lower than the previously predicted and feared 11.9%
  • Borrowing as a percentage of GDP to fall from 7.9% this year to 3.3% in 2022. Then falling to 1.5% over the following four years.

 

Taxation and wages

  • Universal Credit taper but to 55% from 63% allowing claimants to keep more of the payment while also bringing 400,000 families into the benefit system in 2022. Approximately 75% of the 4.4 million households on Universal Credit will be worse off after the £20 weekly uplift is taken away(3).
  • Business rates to be reformed.
  • 50% discount on business rates for retail, hospitality and leisure sectors, up to £100,000 max.
  • Fuel duty rise to be cancelled due to high fuel prices.
  • National Living Wage to rise by 6.6% to £9.50 per hour.
  • Highest tax rises in a single year since 1993(5).

 

Alcohol

  • Planned rise in alcohol duty cancelled.
  • Alcohol duties simplified. The stronger the alcohol content, the higher the duty.
  • Lower duty on draught beer and cider from 40+ litre containers will cut the rate by 5%.

 

Air Travel

  • New lower rate of Air Passenger Duty for flights between UK airports from April 2023.
  • Financial support for English airport extended for further 6 months
  • New ultra-long haul Air Passenger Duty for flights over 5,5000 miles from April 2023.

 

Housing

  • £214bn earmarked for housing. £11.5bn for up to 180,000 affordable houses with brownfield sites targeted for development.
  • 4% levy on property developers with £25m+ profits to help create a £5bn fund to remove unsafe cladding. According to the Politics Show on 28 October 2021, this will likely fall short of the estimated £15bn to £50bn that is estimated to be needed to remove and replace all unsafe cladding.
  • £640 million a year allocated to address rough sleeping and homelessness.

 

Infrastructure and investment

  • Increased investment to support London-style transport across the English regions.
  • £21bn to be invested in the nation’s roads and £46bn in the railways to improve journey times between cities.
  • Government target for research and development (R&D) to hit £22bn by 2026-27 (two years later than planned). £20bn to be invested in R&D by 2024-25.

 

 

Where can I find business help and advice?

The Markel Law Hub is an online resource containing a range of document templates and articles to help you manage your business successfully.

The Law Hub currently helps over 50,000 users and contains:

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If feel that you would benefit from access to the Law Hub, you can purchase an annual subscription at www.markellaw.co.uk/lawhub/.

 


Sources:

1) https://www.contractorweekly.com/tax-a-ir35-news/budget-2021/

2) https://www.bbc.co.uk/news/business-59074026

3) https://resolutionfoundation.org/publications/the-boris-budget/

4) https://obr.uk/download/economic-and-fiscal-outlook-october-2021/

5) BBC Politics Show, 28 October 2021.

6) https://www.bbc.co.uk/news/business-59076532

https://resolutionfoundation.org/app/uploads/2021/10/The-Boris-Budget.pdf

https://www.bbc.co.uk/news/uk-politics-59063816

www.obr.uk/

https://www.thetimes.co.uk/article/rishi-sunaks-budget-speech-unspun-t819xvv8f

The Guardian newspaper, 28 October 2021, P4&5.

https://www.bbc.co.uk/news/business-59062392

https://www.economicshelp.org/blog/2637/economics/real-wages-in-uk/


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How does the 2021 Budget affect freelancers, contractors and small businesses? 

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