The UK economy is entering a “new age of optimism”, Rishi Sunak will declare today at the Budget as he is provided extra wiggle room on spending by a far brighter economic outlook.
The Chancellor is set to unveil extra NHS and social care spending, new fiscal rules, pay rises for millions of workers and investment in the climate and levelling up agendas.
There will also be winners and losers in Whitehall as Mr Sunak sets departmental budgets for the next three years in the Spending Review.
He will be given billions of pounds of extra fiscal firepower by the Office for Budget Responsibility (OBR) presenting more upbeat forecasts for the economy and the longer-term scarring done by Covid.
The Chancellor is expected to largely keep his powder dry, hoping to use the headroom for tax cuts ahead of an election.
However, Mr Sunak is under pressure to unveil measures to address the cost of living crunch and the climate crisis in the run-up to COP26.
We will bring you the latest updates from Westminster as Mr Sunak announces them. Here’s what to expect from the Autumn Budget 2021:
- The OBR is set to deliver good news on the economic and borrowing outlook after a stronger-than-expected recovery from the Covid blow.
- The budget watchdog is expected to shave tens of billions of pounds off its 2021-22 borrowing forecast after predicting a £234bn deficit in March.
- It is also set to reduce its estimates for the economy’s longer-term scarring and upgrade its growth predictions. That should give the Chancellor more wiggle room on spending in the future.
- The Chancellor will signal a return to stricter spending constraints with new fiscal rules. He is expected to announce rules that ensure debt is falling by 2024/25 and balance day-to-day spending within three years.
Pay and cost of living
- The National Living Wage, also known as the minimum wage, will increase to £9.50 an hour, up from £8.91 – an increase of £1,000 a year for a full-time worker. About 2.5m people will benefit.
- At the same time the Chancellor will announce pay rises for about 5m public sector workers, following the freeze in pay (excluding NHS and lower paid public servants) announced during the pandemic.
- The Chancellor could address the cost of living crunch facing households this winter as energy bills rocket. He is expected to freeze fuel duty again after petrol prices hit a record high this week, a blow to Britain’s green credentials ahead of the COP26 summit in Glasgow.
- The Chancellor will unveil the first multi-year Spending Review since 2015, setting spending limits for departments for the next three years.
- Mr Sunak has already confirmed that core departmental spending will rise by almost 4pc per year in real terms this Parliament after the recent lift to health and social care funding. It is equivalent to a £140bn annual boost by 2024-25.
- Spending pledges already confirmed by the Chancellor include almost £6bn to help with NHS backlogs and modernising health services, £7bn to boost regional transport links and £1.4bn to lure in foreign investment.
- However, some departments will feel a spending squeeze as extra Covid spending eats into resources. The Chancellor has told ministers to find “at least 5pc savings and efficiencies from their day-to-day budgets” that will be “reinvested in our priorities”.
- As announced last month, national insurance will rise by 1.25 percentage points from April to pay for extra health and social care spending, raising about £12bn a year. Dividend tax rates will also rise 1.25 percentage points from April to 8.75pc for basic-rate income tax payers and 33.75pc for higher-rate payers.
- Graduates may be forced to pay more from Mr Sunak lowering the salary threshold at which they start repaying their student loans.
- A new tax on housebuilders making more than £25m a year will contribute to the costs of removing dangerous “Grenfell-style” cladding from blocks of flats.
- He could also announce environmental taxes to help fight climate change, including the new green gas levy. The Government plans to move green energy surcharges, which are currently applied to household electricity bills, on to gas bills as part of its “net zero” drive.
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