The last time Rishi Sunak laid out his spending plans in the Commons, the country was in the grip of the Covid crisis and the nation’s finances were on the downturn.
Now, a buoyed chancellor — with more money at his disposal than previously thought — has just unveiled a Budget he said would prepare the ground for a post-Covid economy and a “new age of optimism”. Whether the public feels quite as enthusiastic in the context of the cost of living crisis is another story.
1. Cut to Universal Credit taper rate
The chancellor’s decision to cut the £20-a-week uplift to Universal Credit — which many struggling families have come to rely on during the pandemic — caused huge concern among even those on his own benches.
While Sunak had been adamant that the cut would not be reversed, there were rumblings that more could be done to allow UC claimants to keep more of what they earn by lowering the taper rate.
In a boost to claimants, the taper rate has been reduced by 8%— meaning that instead of losing 63p of UC for every £1 earned above the work allowance, the amount will be reduced to 55p.
Sunak said the move amounted to a tax cut worth over £2billion next year, and would mean nearly two million families would keep on average an extra £1,000 a year.
Labour’s shadow chancellor Rachel Reeves welcomed the decision but said the system “has got so far out of whack” that working UC claimants still faced a higher marginal tax rate than the prime minister.
And she said those unable to work still faced losing £1,000 a year “through no fault of their own”.
2. Pay rises for workers
Millions of public sector workers are in line for a pay rise after Sunak confirmed he would end the pay freeze that was introduced last year during the pandemic.
From April next year, around five million workers could receive a pay rise, which would be based on recommendations of the independent pay review body.
Sunak said the freeze could be lifted due to the economy being “firmly back on track” following the lifting of restrictions.
However, the government has been unable to guarantee that any potential pay rise would at least be matched by the rate of inflation, meaning workers could actually receive a pay cut in real terms.
Around two million workers will also see their wages rise next year when the National Living Wage is increased from £8.91 an hour to £9.50.
The increase will apply to all those aged over 23 and will take place on April 1.
The 59p hourly boost will mean a full-time worker on the living wage will get a pay rise of more than £1,000 per year, according to the government.
3. Beer-barrel politics
Following the hammering the nation’s pubs received during the pandemic, the chancellor announced a series of reforms to alcohol duties, meaning some drinks will become more expensive, and some will become cheaper.
Sunak said the logic behind the new system was that the stronger the drink, the higher the rate – so stronger red wines, fortified wines and high-strength white ciders will see a small increase in their rates, while lower alcohol drinks such as some roses, fruit ciders and lower strength beers will see a small decrease.
Overall Sunak said he was cutting the number of alcohol duty rates from 15 to six, coming into effect from February 2023.
“That’s the biggest cut to cider duty since 1923,” he said. “The biggest cut to fruit ciders in a generation. The biggest cut to beer duty for 50 years.
“It’s a long-term investment in British pubs of £100 million a year. And a permanent cut in the cost of a pint by 3p.”
Meanwhile, taxes on sparkling wines such as Champagne and prosecco, which he said were “no longer the preserve of wealthy elites”, will be reduced to the same level as still wines, ending what he called an “irrational” 28% duty premium.
Finally, he said the planned increase in duty on spirits such as Scotch Whisky, wine, cider and beer will be cancelled from midnight tonight in a tax cut worth £3 billion.
4.Business rates reform
To ease pressure on businesses, Sunak revealed £7billion in business rate cuts as well as a 50% discount on business rates for a year for a number of retail and hospitality venues.
He said it would be “wrong” to scrap business rates altogether — something Labour has called for — because they contribute £25billion to Treasury coffers.
But he said he needed to make the system “fairer and timelier” with more frequent revaluations every three years, with the next cycle being delivered from 2023.
The chancellor also announced a business rates improvement relief, meaning that from 2023, any business will be able to make property improvements for 12 months and pay no extra business rates.
Reeves said the plans amounted to a “tweak” of the system.
“Labour would scrap business rates and replace it with something much better by ensuring online giants pay their fair share,” she said.
5. Return to aid commitment
In a move that will be welcomed by the One Nation caucus, the chancellor said UK aid spending is expected to return to 0.7 per cent of national income by 2024/25.
The government cut spending on foreign aid to 0.5% of national income during the pandemic, angering many Tory MPs who felt the UK was abandoning its commitment to some of the world’s most vulnerable, including those in Afghanistan.
Bernard Aryeetey, global international affairs director of WaterAid, welcome the return to 0.7% but said 10 million people will miss out every year until the budget is restored.
“The chancellor’s delay on restoration means three more years of dirty water, further infant mortality and the wider spread of disease for millions in vulnerable communities.”
6. Spending spree
Sunak said better-than-expected finances had allowed him to increase total departmental spending over this parliament by a total of £150billion, leading to a real terms rise in overall spending for every government department.
He said: “That’s the largest increase this century, with spending growing by 3.8% a year in real terms. As a result of this Spending Review, and contrary to speculation, there will be a real terms rise in overall spending for every single department.”
Sunak said he had more money at his fingertips because the Office for Budget Responsibility had projected a quicker recovery, forecasting the economy to return to its pre-Covid level at the turn of the year – earlier than they thought in March.
Last July, unemployment was expected to peak at 12%, but the OBR today revised that figure to 5.2%, meaning 2 million fewer people are out of work.
7. Fiscal responsibility
Amid concern from some in his party that he is a high-spend chancellor, Sunak revealed a new Charter for Budget Responsibility setting out two fiscal rules to “keep this government on the path of discipline and responsibility”.
They are that underlying public sector net debt, excluding the impact of the Bank of England must as a percentage of GDP, be falling, and that everyday spending must be paid for through taxation.
The Commons will be asked to vote on Sunak’s charter.
Attempting to quell concerns about the high tax burden, Sunak said he “didn’t like it but I cannot apologise for it”.
“My goal is to reduce taxes,” he went on.
“By the end of this parliament, I want taxes to be going down not up. I want this to be a society that rewards energy, ingenuity and inventiveness. A society that rewards work.”
8. Cut to Air Passenger Duty
Sunak promised a new, lower rate of air passenger duty on domestic flights within the UK in a move he said that will benefit around 9million passengers.
He said: “Right now, people pay more for return flights within and between the four nations of the United Kingdom than they do when flying home from abroad.
“We used to have a return-leg exemption for domestic flights but were required to remove it in 2001. But today I can announce that flights between airports in England, Scotland, Wales and Northern Ireland will from April 2023 be subject to a new lower rate of Air Passenger Duty.”
He said most carbon emissions came from international rather than domestic aviation and that from April 2023, a new ultra long haul band in air passenger duty covering flights of over 5,500 miles would be introduced, with an economy rate of £91.
But SNP Westminster leader Ian Blackford branded the cut to domestic air passenger duty “disgrace” and questioned the message it would send as the UK prepares to host the COP26 climate summit this weekend.
9. Schools spending to return to 2010 levels
Sunak said schools will get an extra £4.7billion by 2024/25, with just under £2 billion of new funding to help schools and colleges catch up from the pandemic.
There will also be £300 million for a Start for Life offer for families, parenting programmes, services to help with perinatal mental health and family hubs.
Childcare providers will be provided with an extra £170 million by 2024-25.
“Combined with the ambitious plans we announced at Spending Review 2019, this will restore per pupil funding to 2010 levels in real terms – equivalent to a cash increase for every pupil of more than £1,500,” he said.
“And for children with special educational needs and disabilities we’re more than tripling the amount we invest to create 30,000 new school places.”
Paul Johnson, director of the Institute for Fiscal Studies, told BBC News that the spending increases were “hardly a bonanza” and that there was “not an enormous amount to boast about” in returning spending to 2010 levels.