OK, wrapping up this liveblog of today’s Budget from Rishi Sunak we have some mixed comments.
First, the Institute for Fiscal Studies flags that household earnings are expected to remain very disappointing for the next five years.
Real household disposable income is expected to grow just 0.8% per year, well below the historical average, the IFS and director Paul Johnson points out.
The IFS also notes that growth had been weak even in the decade before COVID. Average incomes are now expected to be 28% below the pre-2008 trend, equating to around GBP9,000 per head.
His colleague notes that many of the beneficial changes announced by Sunak today and in previous Budgets are just unravelling cuts made under his predecessor’s harmful austerity regime.
‘Deep in the bowels’ of the OBR document are ‘very disappointing’ figures on growth for households’ disposable incomes, with ‘the expectation for household growth for the next five years’ looking ‘pretty stagnant’ at 0.8% per year.#Budget2021 pic.twitter.com/fFOFf304g4
— Institute for Fiscal Studies (@TheIFS) October 27, 2021
Over at Capital Economics, chief economist Neil Shearing reckons today’s speech was perhaps more notable for what the Chancellor didn’t do rather than what he did, saying he was restrained – echoing comments earlier that this will result in a fiscal squeeze next year.
“The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the Chancellor spent some of the windfall a substantial amount was saved – allowing the Chancellor to start building a war chest that could be deployed ahead of the next election.”
The OBR’s forecast on economic scarring is the crucial part of this Budget, Shearing says, with the forecast permanent effect on the UK economy reduced from 3% to 2%, with a larger economy enabling more tax revenues and an improved fiscal position, and allowing the Chancellor to sprinkle some giveaways in his speech.
“The reforms to alcohol duties will grab the headlines but the amounts involved are small,” he adds.
“Instead, most of today’s giveaways came in the accompanying spending review. This covers departmental expenditure through to 2024-25 and was more generous than anticipated. Departmental spending will increase by GBP150bn over the course of this parliament, equivalent to a 3.8% increase in real terms each year. The biggest increases in funding appear to have gone to health and social care and education. But there was also a commitment to restore spending on international development to 0.7% of GDP by 2024-25.
“Despite this, the Chancellor was actually quite restrained given the scale of the improvements to the OBR’s projections. He banked a significant amount of the forecasted improvement in the public finances, leaving him with GBP17.5bn in headroom against his new fiscal rules. What’s more, given that the OBR is still forecasting more scarring than the Bank of England (1%) and us (closer to zero) there is a good chance that the Chancellor’s headroom against his new rules will increase further in future forecasting rounds.”
Shearing’s back-of-the-envelope estimate of the policies announced today suggests Sunak’s headroom may end up being closer to GBP25-30bn by 2024-25 – in other words, he could be more generous but he’s saving up so he can win another election.
“This would give the Chancellor room to either increase spending or (perhaps more likely) cut taxes ahead of the next election. Viewed this way, it’s difficult to escape the feeling that this was a Budget designed to meet political rather than economic objectives. Nonetheless, it happens that a period of relative restraint is probably the right course of action from the perspective of the economy.
“While the outlook is unusually uncertain, with concerns about inflation rising the last thing the Bank of England would have wanted was the government to embark on a large fiscal giveaway.”
2.37pm: Investing in Sips?
A very important update from spread betting firm Sporting Index, who lost money to punters who bet on the relatively obscure market of the number of sips that the Chancellor would take of his drink.
“Rishi Sunak was thirstier than we expected and the four sips of water we predicted ended up turning into 15 glugs during his Budget speech,” says Phill Fairclough.
“The Chancellor also took slightly longer to finish his speech than we envisaged, with that market settling in at 64 minutes.
“Overall, it wasn’t a bad Budget day for us, but well done to the shrewd punters who managed to foresee the above and hit us where it hurts.”
2.30pm Inflation’s impact on savings and pensions
The impact of inflation on personal finances is the focus of Becky O’Connor, head of pensions and savings at broker Interactive Investor, following the OBR’s new forecasts.
O’Connor says the new forecast average inflation of 4% next year “will spook everyone already worried about rising living costs. It will be especially scary for pensioners trying to cover essentials from their limited income and anyone trying to make their pension pot last in retirement.
“Price rises also negatively affect workers investing for retirement and trying to achieve returns that beat inflation to ensure they eventually have enough in their pension pot.
“Inflation at a level of 4% becomes hard to beat even when investing in the stock market, so long term investors will have to box clever to beat it. Some may feel they are being pushed out of their risk comfort zone in order to do so.
“The additional prospect of an imminent rise in interest rates, hinted at by the Chancellor as he referenced the Bank of England‘s duty to control inflation, will be scant comfort, as savings rates remain so far behind inflation that any rise would make little difference to the appeal of keeping money in cash savings.
“Best buy easy access accounts currently pay around 0.65%. It would take 14 quarter point base rate rises for this to beat 4% inflation.”
2.20pm: The full Budget and Spending Review document
By the way, here’s the Treasury’s full document, Autumn Budget and Spending Review 2021.
There was precious little for the environment in Sunak’s speech, including the seemingly antagonistic policies of cutting domestic air passenger duty and freezing duty on petrol, but this report reveals some titbits.
This includes a modest GBP9mln in the spending review for the new Levelling Up Parks Fund, creating 100 new parks across the UK.
A bit more substantial – but not touching the sides in terms of what’s needed for the UK’s supposed net zero ambitions, let alone stopping climate change, but the government is expanding the Nature for Climate Fund to ensure total spending of more than GBP750 million by 2024-25.
This will help meet the commitment for at least 7,500 hectares of trees every year in England by 2025 and restoring 35,000 hectares of peatland.
The Budget and spending review provide GBP3.9bn to make buildings and homes warmer and more environmentally friendly, one of the many pre-released announcements.
The Treasury is also setting a new target to raise at least GBP500mln in private finance to support nature’s recovery every year by 2027 in England, rising to more than GBP1bn by 2030, which will apparently be supported by a range of measures, including GBP30mln public investment in a ‘Big Nature Impact Fund’.
Chancellor confirms he’s freezing fuel duty.
That followed the cutting of air passenger duty.
These are two of the UK’s biggest green taxes and they’re being cut; just before COP.
Unless there’s something to offset this the Budget will feel oddly inconsistent with net zero.
— Ed Conway (@EdConwaySky) October 27, 2021
2.14pm: Personal taxes and pensions
No news isn’t always good news, says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, noting that although higher taxes didn’t get a mention in the Budget speech, unfortunately everyone is still likely to pay more tax next year.
“Part of this sleight of hand is about timing. The major tax hike had already been announced, with National Insurance and dividend tax both rising 1.25 percentage points in April 2022. The more you earn, the bigger an impact this will have, but NI will add GBP180 a year to the tax bill for a typical basic rate taxpayer earning GBP24,100.
“But a major part of it is the power of fiscal drag, because the damage was done when the Chancellor announced the freezing of tax allowances in the spring. The personal allowance will stick at GBP12,570 in April, and every year until 2025/26, while the higher rate threshold will be frozen at GBP50,270. More pay rises, including the rise in the minimum wage, will push more people over these thresholds, and leave them paying more tax.
“He also froze the capital gains tax annual exempt amount at GBP12,300, the pension lifetime allowance at GBP1,073,100, the inheritance tax nil rate band at GBP325,000 and the residential nil rate band at GBP175,000. Rises in the value of investments and properties will push more people over these thresholds too.
“And then there’s a vast array of thresholds he didn’t mention, but which remain rooted to the spot, including everything from the measly annual gifting allowance within the inheritance tax rules, to the high-income child benefit tax charge and the savings allowance.
“From a political perspective, it’s the ideal kind of tax rise. It will fill the coffers for the next five years without the government ever having to announce a tax hike. From a taxpayer’s perspective there’s nothing ideal about any kind of tax rise, especially at a time when our budgets are being squeezed from all sides.”
As for pensions, Coles’ colleague Helen Morrissey says: “Today has been one of the quieter Budgets from a pension perspective. However, this is only because we’ve had so many announcements already this year. The pension triple lock was abandoned, albeit for a year, while earned income pensioners earn will be subject to a 1.25% Health and Social Care levy. Let’s not forget the freezing of the lifetime allowance for five years which may seem more benign than a cut but over time will bring more and more people into its net.
“Given this backdrop it’s understandable no further pension changes were announced today – pensioners already have much to think about.”
2.06pm: Playing it safe…means intense fiscal squeeze next year
Reactions are coming in now.
The Chancellor has played it safe, says Samuel Tombs at Pantheon Macroeconomics, by spending only some of the windfall from the OBR’s upgraded economic forecasts, with a view to cutting taxes whilst still meeting his new fiscal target before the next election, most likely in May 2024.
A resulting boost to tax recepits from the OBR’s smaller estimate of long-term scarring to GDP from the pandemic will be partly offset by an upward revision to the OBR’s forecast for debt interest payments, feeding through to lower borrowing projections.
“The Chancellor’s discretionary policy changes–most notably a near-term freeze on alcohol and fuel duty, and a reduction in the taper rate for Universal Credit to 55%, from 63%–boosted borrowing in these years by only GBP21bn, GBP19bn and GBP8bn, respectively.
“Accordingly, the OBR revised down its forecast for overall borrowing in 2022-23 to GBP83.0bn, from GBP106.9bn in the March Budget, and to a similar degree in future years.”
This means that Sunak has met his new fiscal targets of a current budget surplus and a falling debt-to-GDP ratio in three years’ time, with a healthy amount of headroom.
With the OBR forecasting a current budget surplus of GBP25bn in 2024-25, equal to 0.9% of GDP, and the ratio of underlying debt to GDP seen falling to 85.1% in 2024-25, from 85.7% in 2023-24, Tombs sees a near-term squeeze on the UK economy.
“The fiscal squeeze set to hit the economy next year, therefore, still looks set to be intense. The 4.4pp decline in the cyclically-adjusted budget deficit in 2022-23 will be bigger than seen in any other year since the Second World War, excluding the current fiscal year.”
1.47pm Pubs up
Pub company shares have jumped after the Chancellor’s announcements.
1.36pm: Universal Credit
Sunak ends his Budget speech with the rabbit-from-the-hat that has scampered around the Westminster rumour mill this morning.
To offset the GBP20-a-week cut in Universal Credit, the taper for those that receive the benefit while working has been cut from 63% to 55%, which is actually more than the reported move to 60%.
This will be worth GBP2bn, the Chancellor adds.
1.33pm: Beer, cider and wine
The sensitive subject of booze is up now, with publicans and their loyal customers are watching intently after a warning last night that the price will need to rise 25-30p due to rising prices.
The Chancellors says he’s announcing a radical rejig of alcohol duty, that was first introduced in 1643 and is now “outdated, complex and full of historical anomalies”.
Five new steps to simplify the system:
One, slashing the number of main duties from 15 to six, with new system of “the strong the drink the higher the rate”. Slight increases therefore for high-strength white cider, stronger red wine, fortified wines. Lower alcohol drinks are overtaxed: lower strong beers and wines, liquors, rose, fruit ciders – they will now pay less.
Two, a proposal to help craft producers, including small-brewers relief to include small cider makers (good for my home county of Somerset) for those drinks under 8.5%.
Third, consumption of prosecco and English sparkling wine has doubled, so wherever they are produced will pay same duty as still wine. This means English and Welsh wines will now pay less. Fruit cider sales pay two or three as much, so they
Fourth, pubs. Even before the pandemic pubs were struggling, Sunak notes. So, a fairer system is needed to support pubs. He announces a new ‘Draught Relief’, applying a new lower rate of duty for draft beer and cider. It will apply to drinks served from containers over 40 litres. It will particularly
Will cut duty by 5% – the biggest cut to beer duty for 50 years. A permanent cut to the cost of a pint of 3p. (Hmm – which will not make much of an impact if rising costs are driving up prices, as reported overnight).
Five, to help the hospitality industry, he said the planned increase in duty on spirits, wine, beer and cider will be cancelled, from tonight. A tax cut worth GBP3bn he says.
1.27pm: Business rates
Business rates is now the topic “with key reform”.
Because of inflation, he says a new one year 50% business rates discount for retail, hospitality, and leisure sectors like hotels, theatres, music venues and gyms is also announced.
“Any eligible business can claim a discount on their bills of 50% on their bills up to a maximum up to GBP110,000.”
He says that’s a tax cut worth almost GBP1.7bn. Alongside Small Business Rates Relief this means over 90% of all these businesses will see a discount of at least 50%, Sunak says.
There will also be more frequent revaluations from 2023 and a new investment relief to encourage businesses to adopt green tech like solar panels.
“A hotel adding extra rooms, a manufacturer expanding their factory, an office adding new air conditioning, CCTV, bike shelters, will all pay no extra rates.”
12.21pm Air passenger duty
The Chancellor is moving onto the air travel industry, now.
Sunak cuts air passenger duty tax on UK domestic flights, on the eve of Cop26 climate change summit from April 2023. “This will help cut the cost of living, it will bring people together and…is a boost to regional airports,” he says, also extending support for airports for six months.
From April 2023, he hikes taxes on ultra long haul flights, which he notes are worse for carbon emissions. Less than 5% of passengers will pay more, he says.
1.12pm R&D tax credits
From April 2023 GBP22bn of R&D tax credit regime will begin, focused on companies operating in the UK.
Currently he says companies claim UK tax relief of GBP48bn but only GBP26bn is from companies carrying out R&D in the UK, which he says is “unfair on British taxpayers”.
Along with other policies, he says this is “enough action to prove the hypothesis we are making this country and scient and technology superpower.”
Sunak is now talking about productivity and lifelong learning for adults, with a GBP560mln adult numeracy programme, which I think is another policy that had already been announced.
12.59pm: On a roll now
Announcements are flying from the Chancellor now.
Healthcare spending will by the end of the parliament increase GBP44bn to GBP177bn, an extra GBP2bn to help pupils recover from Covid.
There’s GBP4.8bn for local government over the next three years.
Then he rattles off various places to get money from the GBP1.7bn so called levelling-up fund, Leicester, Stoke, Sunderland and others.
12.52pm: New OBR forecasts
New forecasts from the Office for Budget Responsibility have been published, with the headline Sunak noting being that that the UK economy is recovering faster expected in March.
The economy is now expected to return to pre-Covid levels in the new year but then for growth to be slower than expected.
For 2021, GDP is expected to grow 6.5%, compared to the 4.0% forecast in March, but for 2022, the OBR forecasts 6% growth, down from 7.3% previously forecast.
For 2023 growth is now forecast at 2.1%, up from 1.7%; for 2024 growth is expected to be 1.3%, down from 1.6%; while all the way out in 2025 the forecast is trimmed top 1.6% from 1.7%.
The OBR tweets that a full report will be available after the speech.
12.49pm: New fiscal rule
After noting that the OBR is forecasting less “permanent scarring” of the economy from Covid of 2% and that national debt is forecast to be 85.2% of GDP this year then rising to a peak of 85.7% in 2023-24, the Chancellor sets out new fiscal rules he is introducing, which he says will strengthen public finances.
In a nod to Dua Lipa, one: The first two rules state that underlying public sector net debt should be falling as a percentage of GDP, and that in normal times the state should only borrow to invest.
He says in this Budget there will be a ‘real-terms rise’ in spending for every government department, with total departmental spending rising GBP150bn.
After his initial introduction, Sunk begins with an explanation about inflation, which reached 3.1% in September.
He says it’s occurring because of rising energy prices and problems with supply chains, with the Office for Budget Responsibility forecasting it will average 4% over the next year.
“It would be irresponsible for anyone to pretend that we can solve this overnight,” he says, but promises the government “will act” where it can.
He says measures to help alleviate the effects include new funding for lorry park facilities. Freezing excise duty for heavy goods vehicles for a further year, plus new support fund for households.
12.33: Too much leaking
Before she lets him speak, the Speaker gives a ticking off to the Chancellor that there has been too much leaking and pre-announcing.
Eleanor Laing says ministers must show “courtesy to this house” and announce things in the Commons rather than in the media first.
12.25pm: Prime Ministers Questions
Boris Johnson is currently facing Sir Keir Starmer and questions from around the house in PMQs.
The Chancellor of the Exchequer is due to be at the dispatch box very shortly.
11.25am: Need a drink
In the City, some punters will be less focused on what the Chancellor says but more about how often he sips on his can of Sprite and how long his speech lasts.
Sunak will take four sips of water during his Autumn Budget speech tomorrow, according to Sporting Index, with its odds pointing to the speech lasting exactly one hour.
Bets from the firm also point to the Chancellor mentioning tax 43 times, ‘Madame Speaker’ 32 times and using the word ‘billions’ 34 times.
Sporting Index predicts the Speaker will cry out “order, order” on three occasions, as the political experts believe a more sombre mood will feature in the chamber.
Neville Burdock, head of trading at Sporting Index, said: “It’s thirsty work making a Budget speech to the House of Commons, and we expect Rishi Sunak will require four sips of water during his address, which we predict will last one hour.
“There’s likely to be plenty to go through in the Chancellor’s speech, and we predict there will be a total of 43 mentions of tax and 34 references to the word ‘billions’ tomorrow.”
Budget day is the one day of the year you can drink at the Commons dispatch box. Choices include:
???? Brown and his successors: water
???? Clarke: whisky
???? Lawson: spritzer
???? Howe: G&T
???? Healey, Disraeli: brandy & water
???? Dalton: rum and milk
???? Gladstone: sherry & beaten egg pic.twitter.com/QKEUjHpBk1
— James Heale (@JAHeale) October 27, 2021
A photo released by the Treasury earlier
10am Further rumours
Further rumours and speculation continue to emerge on the morning ahead of Chancellor of the Exchequer’s autumn Budget and spending review.
It’s possibly been the most leaked Budget ever, with close to GBP26bn of commitments announced or leaked by the Treasury and other departments, according to calculations.
Announcements already include GBP6bn for NHS capital funding, a hike to the minimum wage, a six-month extension to the COVID recovery loan scheme, a new GBP1.4bn fund to attract overseas investment into UK life sciences and electric vehicle companies, GBP560mln for adult numeracy skills, GBP5bn for health research and innovation, and plenty more.
For households, after ending the furlough and the universal credit schemes, Sunak is being pressed to increase benefits, with some suggestions of a cut to the 5% rate of VAT on household energy bills.
Leading up to the event, the latest reports it was being suggested that his big surprise announcement may be a U-turn on cuts to the universal credit rate, or measures to lessen the effect.
9.35am: Rishi’s PR machine warms up
The Chancellor’s team have released a few photos as Rishi Sunak warms up for his big dispatch box speech.
6.45am: Windfall for the Chancellor
Ahead of the Budget on Wednesday, while financial headlines have been dominated by Covid-inspired supply chains issues and shortages, soaring gas prices, a lack of HGV drivers and possible tax rises and interest rate hikes, the Chancellor was given some recent good news with the latest set of government borrowing numbers.
Public finance figures for August show that year-to-date borrowing is GBP31.9bn below where the OBR expected it to be at the last Budget.
But the Westminster rumours are that the Chancellor will still keep a very tight grip on the public finances – not least because he is a politician and will want to keep back some cash for nearer the next election.