The Budget 2021

On the 27th of October 2021 the Chancellor of the Exchequer, Rishi Sunak, announced the Budget.

What is the Budget, and How Does it Work?

The Budget is announced by the Chancellor of Exchequer, currently Rishi Sunak, usually in the autumn. But I say usually because 2020’s budget was delayed to March 2021 due to the pandemic, and 2019’s budget was cancelled because of the timing of the 2019 general election.

The Budget gives an opportunity for the government to review the current economic situation and set out their plans for spending and taxation. The announcement of the budget will be followed by 4 days of debate on the budget resolutions – the tax plans set out in the budget – with each day debating a different area of policy (e.g. health, education, defence etc).

Proposals within the budget take legal and permanent effect in the form of a Finance Bill, which is presented to parliament each year. And once the budget resolutions have been agreed, the Finance Bill will make its way through the House of Commons like any other bill. However, when the bill goes to the House of Lords the lords will have a very limited role since the House of Commons have the sole right to initiate and amend bills related to levying taxes or authorising expenditure. Therefore, they will not consider the bill clause by clause or amend it, but a second reading debate on the bill will be held.

The Current State of the Economy and Public Finances

One area of the budget is an assessment of the economy and public finance, which this year significantly reflected the impact of Covid-19 emergency spending. Overall, the UK economy is forecast to return to pre-Covid levels by 2022. In September, the inflation rate was 3.1% and this is expected to rise to an average of 4% in 2022, according to the Office for Budget Responsibility.

And government borrowing is predicted to fall as a percentage of  GDP from 7.9% this financial year to 3.3% next financial year and then to 1.5% over the following 4 financial years. Borrowing in the 2020-2021 financial year was at the highest level recorded in peacetime, standing at an estimated £319 billion, or 15.2% of GDP. For this financial year, the Office for Budget Responsibility has forecasted £183 billion in borrowing and then a decrease in 2022-23 to £83 billion.

Wages and Employment

The government has decided to increase the National Living Wage by 6.6% from £8.91 to £9.50. And it is revealed that wages have grown in real terms since February 2020 by 3.4%. But also, unemployment is now expected to peak at 5.2% in 2022, which is lower than the previously predicted 11.9%.

Additionally, Universal Credit claimants will see a reduction of the taper rate from 63p to 55p. The taper rate is the amount of their benefit taken away for every £1 they earn above the claimant’s work allowance. And the current work allowance is £293 if housing costs are included in a claimant’s Universal Credit, or housing costs from the local authority due to being in temporary accommodation. And it is £515 if a claimant does not receive housing support. Sunak said this means that nearly 2 million families will keep an extra £1,000 a year on average. However, it must be pointed out that this is less than the £1,040 a year that was provided by the £20 uplift in Universal Credit over the Covid-19 period, which was stopped at the end of September. Also, as it was best put by Morgan Wild, head of policy at Citizens Advice, “it doesn’t cushion the blow of the £20-a-week cut for those still looking for work or the 1.7 million unable to work because of disability, health issues or caring responsibilities.”

Taxation

In an attempt to try and help businesses recover after the pandemic the government have introduced a 50% business rates discount for the retail, hospitality and leisure sectors in England for 2022-23, which is up to a maximum of £110,000. Also, the tax relief for museums and galleries which began in the pandemic will be extended for two years, to March 2024.

A previously planned rise in the fuel duty – a tax put on diesel, petrol and other fuels – has been cancelled. This is mainly due to fuel prices currently being some of the highest seen in 8 years. And you may think that this tax isn’t very important, but in 2019-20 it raised around £28 billion, which makes it a significant source of revenue for the government.

The government has also set out plans to begin consultation on a proposed online sales tax. Which considering the massive explosion of online shopping over the pandemic could if implemented be a large source of income for the government. And hopefully if implemented the collected revenue would be used beneficially to the public.

Government Spending

Another part of the budget is how the government is spending public money. The government initiative of the Levelling Up Fund means that £1.7 billion will be invested in local areas across the UK, which considering the impact of the pandemic and the prior state of many high streets is much needed.

In order to help clear the backlog accumulated by services during the pandemic, the government has included an extra £2.2 billion for the courts, prisons and probation services. And £6 billion for the NHS to clear their waiting list which Sajid Javid, the current Secretary of State for Health and Social Care, suggested could pass 6 million people by the new year. This being the number of people waiting for non-urgent treatment on the NHS. He also warned of a worst case scenario of a waiting list 13 million people long if no urgent action was taken. This scarily long waiting list may be the result of a multitude of reasons: people who originally stayed away from the NHS during the height of the pandemic are now coming forward for treatment, a decade of underfunding meaning the NHS is unprepared and is now being pushed under immense pressure and beyond capacity and the annual winter spike in NHS usage is testing the NHS even more intensely.

Considering the significant disruption of the pandemic on education settings and students it is only right that the government fund the reversal of the disruption. Especially in response to the pandemic, there will be almost £2 billion of new funding to support the recovery. And by 2024-25 schools will receive an extra £4.7 billion. It is also planned for schools funding to return to 2010 levels in real terms, this means an increase of more than £1,500 per pupil. Benefiting adults, there will be a UK-wide numeracy programme set up to help improve basic numeracy skills in adults.

There has been £24 billion promised for housing, which includes £11.5 billion designated for up to 180,000 affordable homes. £640 million a year is being pledged for tackling homelessness and rough sleeping. And finally a fund of £5 billion is being created to remove unsafe cladding, which has trapped many families in unsafe buildings. Which will be created with the help of a 4% levy placed on property developers who have profits exceeding £25 million.

My Conclusion

While the government’s promises are necessary and the promised funding appears hopeful we also need to consider it subjectively and not just how it appears objectively. Subjective consideration of the budget requires the application of prior knowledge.

Since 2010 with the election of successive Conservative Governments there has been the implementation of an austerity economic plan, meaning limited public spending and major financial cuts to public services. This consequently severely impacted the quality of these services and therefore created public annoyance. And now the reality of the financial cuts have set in, any government investment makes the government appear good, which while the investment is good it is also ignorant of the prior cuts. And most of these investments nowhere near compensate for the losses caused by the original financial cuts.

In terms of this budget, while I feel Rishi Sunak has made a good policy concerning the future reduction of government borrowing, possibly due to the high borrowing rates forced upon the current government in order to afford the many expenses created by the pandemic. But I feel their plan for the UK’s financial recovery from the pandemic is grounded in the wrong ideas. I believe the financial recovery should be intertwined with the public health covid battle and recovery, since no economic recovery will occur until the public health battle is won. Otherwise, there is the risk of continually going in and out, in and out of lockdowns, which means no viable, sustainable recovery for businesses until the lockdowns stop and the public health battle is won.

Finally, I’d like to highlight the funding and investment surrounding education, which I feel the audience of this blog is most likely to experience first hand. This being that current funding isn’t even at 2010 levels, and it takes sizeable investment to match it. And the realisation must be that the government has pushed the education system’s first priority to be balancing the books and therefore neglecting the education of children, what it was created to do. I didn’t discuss it earlier, but their main environmental investment in the form of the “Net Zero strategy” which is investing £30 billion “to create the new, green industries of the future.” Will it provide the urgent action needed to combat climate change? Probably not. Will it help to create changes to a more climate-friendly culture and business practices? Possibly.

So to conclude, like every year before, government austerity and neglect has been highlighted. Yet every year conservative governments promise to improve services and life for the people of the country. And evidently this simply doesn’t happen. So on paper the much-needed investments are made, but in reality, are they?