The Autumn Budget and Spending Review 2021: Paving the Way for Economic Recovery and a “Global Britain”
A reportedly upbeat Rishi Sunak, Chancellor of the Exchequer, introduced a 195-page document bearing the official title of Autumn Budget and Spending Review 2021: A Stronger Economy for the British People (SR21), before Britain’s House of Commons on the afternoon of Wednesday, 27 October 2021. Parliamentary tradition permits the Chancellor an alcoholic drink before his speech, although it is not known if Sunak took advantage of this unique opportunity. What he had to say did not come as a total surprise, having been preceded by the launch of Build Back Better: our plan for growth on 3 March 2021, the announcement of the Health and Social Care levy on 7 September, the publication of the Net Zero Strategy on 19 October, and by as many as twenty press releases. The Treasury’s many Pre-Budget media briefings were criticised by Sir Lindsay Hoyle, Speaker of the House, who reminded the Chancellor that this information should have first been made available to the House of Commons for scrutiny and debate by MPs before its public disclosure. Hoyle even reminded politicians that an earlier Chancellor, Hugh Dalton, had seen it fit to resign in November 1947 after an informal disclosure of his key Budget proposals to a Parliamentary Lobby correspondent for the Star featured in that newspaper the evening before his Budget Speech.
The Budget summarises the health of the nation’s economy, the state of its public finances, and the government’s policy objectives, and then targets government spending to meet these objectives. At the same time, it lays down fiscal rules to keep a check on spending and thus ensure “sustainable debt”. It comes during unprecedented times, just as the nation continues to recover from a Covid-19 pandemic-induced recession, complicated by longer-term “economic scarring”. There are additional pressures to deliver on a Net Zero Strategy, a levelling-up agenda to iron out regional inequalities (in wages, living standards, and productivity), and promises of a “high-wage, high-skilled, high-productivity” economy, as well as to respond to both the challenges and opportunities of an already “done” Brexit. To these already mounting budgetary expenses can be added the costs of rising prices of commodities, components, and raw materials, brought about by disrupted supply chains (HGV driver shortages; not enough shipping containers) and labour market shortages. Rising food, fuel, and energy costs portend undesirable price instability and rising rates of inflation beyond what might be considered acceptable.
The Budget cannot be described as a traditional Conservative “fiscally prudent” budget, marked by tax cuts and restrained government spending. This has fostered disapproval among some right-wing politicians , media personalities, and think- tanks, in addition to the usual unhappiness among those with centrist and left-wing tendencies, albeit for very different reasons.
An initially successful Covid vaccination programme, the pandemic economic support package for households and businesses, and the Plan for Jobs have led to a stronger than expected economic recovery, with economic growth outperforming predictions made by the Office for Budget Responsibility (OBR) in March 2021. The fiscal stimulus to Britain’s economy seems to have had some positive outcomes, and its success has imbued the Chancellor with the confidence to forge ahead with his ambitious budget.
Public spending has gone up, driven by a desire to invest in “strong public services”. All government department budgets in England are to benefit from increased spending, as indeed are the devolved administrations’ block budgets-amounting to an overall growth in real terms of 3.8 per cent a year on average by 2024-25. The public sector pay freeze has been lifted, and public sector workers are set to receive a pay rise. Even as pandemic economic support is withdrawn, low-wage earners benefit from an increase in the National Living Wage and a reduction in the Universal Credit taper rate. There is even a pledge to restore Overseas Development Assistance to 0.7 per cent of Gross National Income “once the fiscal situation allows”, to place the UK as a leader in world development.
The Net Zero Strategy is based on greener transport, warmer and greener buildings, decarbonisation of industry and power (offshore wind, nuclear power, hydrogen), and environmental protection, accompanied by a growth in green finances, such as green bonds.
Levelling-up requires investment in local transport and civic infrastructure, the building of more affordable housing, especially on brownfield sites, and greater access to skills training, all focusing on regional hubs outside London.
A high-wage, high-skilled, high-productivity economy will be delivered through investment in innovation, including Research & Development, infrastructure (transport and digital connectivity), and skills training, with an emphasis on green alternatives where relevant.
The Brexit strategy includes tax reforms, encouraging shipping companies to operate under the British flag, increasing free trade partnerships across the globe, and the establishment of eight “global trading hubs”, in the form of Freeports in eight English regions. According to the OBR, Freeports may, however, only redistribute existing economic activity rather than generate new trade.
Needless to say, increased public spending (public sector net investment) generates more debt, although government debt is not the same as household and business debt, being sustainable for longer periods of time as well as being uniquely addressable by the injection of new money into the economy by the Bank of England. Britain’s debt is currently deemed sustainable because of historically low interest rates, but nonetheless the Chancellor is committed to a “reducing trajectory of debt” in the medium-term, aiming to keep public sector net debt below 3 per cent of GDP, as high debt renders the economy vulnerable to future shocks, through changes in interest rates and inflationary pressures.
To fund increased spending while avoiding escalating debt, the government has to generate extra revenue, mainly through increasing taxes. This is to be achieved by increases in corporation tax, national insurance contributions, tobacco duties, and a combination of so-called “stealth taxes”, such as a freeze in income tax thresholds and temporary suspension of the earnings element of the so-called triple lock in the State Pension. At the same time, some other taxes, such as alcohol and fuel duties, Air Passenger Duty on domestic flights, and business rates are either being frozen or cut back to facilitate economic recovery. Cuts in local authority grants may, however, inevitably lead to unwelcome rises in council tax bills.
In conclusion, the Autumn Budget can be considered a spenders’ budget, and the accompanying extra tax burden is more than some members of the ruling party are likely to feel comfortable with. Whether the numbers mentioned in the Budget actually add up and make a difference will no doubt engage many economic and financial brains in the months to come. Only time will tell whether the priorities of the Autumn Budget and Spending Review 2021 were appropriate and whether the funds allocated were justifiable as well as sufficient for the purpose.
Ashis Banerjee