Budget 2021: Universal Credit boost but inflation 'likely to rise' and pints to get cheaper
All eyes were on Rushi Sunak on Wednesday when he delivered his bumper budget despite accepting inflation was going to continue to rise, ITV News Deputy Political Editor Anushka Asthana reports
Inflation in the UK is "likely to rise" even further than the nine-year high it is currently at, Rishi Sunak has admitted in his Budget, while offering a boost to the lowest earners in receipt of Universal Credit.
Setting out his fiscal plans, the chancellor also said he would simplify the UK's system for taxing alcohol, which will make draught beer and prosecco cheaper by 2023.
In the meantime however, Mr Sunak admitted taxes on Britons will be at the "highest level as a percentage of GDP since the early 1950s", with National Insurance and dividend tax set to rise next year.
He did say however that his ambition by the end of this parliament is for taxes to be reduced.
ITV News Political Editor Robert Peston asked the Chancellor why he chose to spend rather than cut taxes
Inflation is expected to peak at almost 5%, according to the Office for Budget Responsibility (OBR), with an average of 4% over the next twelve months - up from the 3.1% it's currently at.
It means the impact of national minimum wage increases announced earlier this week will be reduced.
But there'll be a boost to those on Universal Credit, with low earners able to keep more of the benefit as they earn more - it comes after the government cut the £20 per week temporary uplift which was added to help people deal with the impacts of the Covid-19 pandemic.
The Universal Credit "taper rate", the amount of benefit taken away for every £1 earned above the claimant's work allowance, will be cut by eight percentage points from no later than December 1, bringing it down from 63% to 55%.
But the coming year will still "be a difficult one for living standards", says the Institute for Fiscal Studies, with take home pay "set to fall by around 1%" for middle earners.
Mr Sunak blamed rising inflation on the global reopening of economies following the coronavirus pandemic, claiming it was not something that the UK could tackle on its own.
And the OBR forecasts lower growth in 2022 than previously expected - down from 7.3% to 6% - partly because of the stronger performance in 2021, while in 2023 it is expected to be 2.1%, in 2024 1.3% and 1.6% in 2025.
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On the upside, the chancellor said his plan for jobs is working, with the OBR's unemployment forecast down to 5.2% from 12%.
He said he was promising a "new age of optimism" with his "generous" Budget, with public spending increasing by 3.8% a year in real terms - the "largest increase this century", according to the chancellor.
And to help businesses hardest hit by the pandemic, Mr Sunak said for one year he would introduce a 50% business rates discount for firms in the retail, hospitality, and leisure sectors.
"Any eligible business can claim a discount on their bills of 50%, up to a maximum of £110,000. That’s a business tax cut worth almost £1.7 billion."
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Changes to the price of alcohol?
The chancellor also announced changes to the way the UK taxes alcohol sales, saying the new system will see higher VAT on stronger drinks.
It means taxes on draught beer, cider and sparkling wine will be cut, but the price of drinks such as port is likely to rise.
A "draught relief" will apply a lower rate of duty on draught beer and cider, cutting the tax by 5% on drinks served from draught containers over 40 litres and bringing the price of a pint down by 3p.
The planned increase in duty on spirits such as Scotch whisky, wine, cider and beer will be cancelled from midnight - this alone will represent a tax cut worth £3 billion, he said.
Mr Sunak said he was only able to make the chances because of Brexit, but the Tony Blair Institute said the UK's decision to leave the EU has "cut annual tax revenues by around £30bn".
"Without the Brexit shock most of the past year’s £40bn tax raid would have been unnecessary."
And to combat surging fuel prices the chancellor announced he would cancel a planned rise in fuel duty.
Spending pledges in the Budget for England will be extended to the devolved nations through the Barnett formula.
Other points from the Budget:
- National Living Wage The national living wage, the minimum adults over 22 can legally be paid, will increase by £0.59 to £9.50 from April 1 next year.
It's an inflation busting increase of 6.6%, which is more than double the 3.1% rise in the cost of living
On average, people on minimum wage can expect to see an extra £1,074 a year before tax. The living or minimum wage for 21 and 22 year olds will in fact go up faster than the adult living wage, by 9.8% to £9.18. And the rate for apprentices will rise 11.9% to £4.81.
- Public sector pay The freeze on public sector pay will end on April 1 next year, paving the way for around 5.7 million people to get a pay rise .
But it is not clear whether workers in professions including teachers, nurses and police officers will be any better off, given inflation is currently higher than 3%.
The decision on how much extra public sector workers will get is not due to be made until next year, once the pay review bodies have made their recommendations.
The Institute for Fiscal Studies said the "decision not to extend the freeze is therefore a sensible one".
"But a pay rise from April 2022 won't provide any immediate help or solace to public sector workers struggling with rising costs of living over the coming winter months."
- Transport
The transport sector will see a £6.9 billion investment in trains, trams, buses and cycle projects.
That includes £1.07 billion for Greater Manchester, £1.05 billion for the West Midlands and £830 million for West Yorkshire.
Despite the headline figure of £6.9 billion, there's only £1.5 billion of new money, which comes on top of previous public transport pledges, such as funding for buses announced by the PM last year.
- Health
NHS England to get £5.9 billion to cut record length waiting list - but health secretary says there can be no guarantee that it will clear the queue of 5.7 million patients.
Health bodies also warn it will not fix staff shortages, with around 90,000 vacancies in the NHS in England.
The Department for Health and Social Care will also get an additional £5 billion over three years to fund research and development.
- Education £2.6 billion for 30,000 new school places for children with special educational needs and disabilities and to improve school accessibility.
£1.6 billion over three years to rollout T-levels, technical qualifications for 16 to 19 year olds. £550 million to boost adult skills with training and £830 million to improve colleges in England. - Housing £1.8 billion will go towards building 160,000 houses on brownfield sites. £9 million to help councils build 'pocket parks' - small seated areas in neglected urban areas.
- Business
£1.4 billion in grants will go to internationally mobile companies to invest in Britain's infrastructure .
The pledge includes £345 million to help prepare the UK against future pandemics and £800 million to boost electric vehicle production in the north east and Midlands.
- Crime and illegal immigration £700 million will go towards protecting the UK's borders - £74 million of that will buy a new fleet of patrol boats to stop illegal immigrants making dangerous Channel crossings. A £435 million fund is being provided to prevent crime and support its victims.
- Support for families and children
An investment of £500 million will help the government support families and children in England.
Similar to Sure Start centres, the government plans to use £82 million to create community hubs which will be a one stop shop for struggling families to access a wide range of support.
The half a billion also investment includes £200 million for families with more complex issues and £100 million for mental health support
Labour has questioned the creation of community hubs, given the Tories have closed more than 1,000 Sure Start centres in more than a decade in Downing Street.