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Reopening the property market during lockdown
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COP26 – What you need to know

Rishi goes for broke: Budget balances post-Covid spending with a nod to fiscal conservatism

Words by:
Partner and Head of Investor Services
November 1, 2021

Rishi Sunak arguably had a difficult balance to strike with this week’s Budget: to position himself as a Chancellor not afraid to splash the cash to support individuals and businesses in a post-pandemic UK whilst also demonstrating his traditional, fiscally responsible credentials. If Rishi has his sights set on the top job in the future, the former was necessary to shore up support beyond Westminster, and the latter within his own party.

This was a very different Budget from this time last year. With the UK still in the depths of the Covid crisis, the Chancellor’s approach last November was inevitably short-termist – a patchwork of support drawn up and implemented on the hoof. This week’s Budget is more considered, with one eye firmly on the future.

The first multi-year Spending Review since 2015 would not, in the Chancellor’s words “draw a line under Covid”. Indeed, the spectre of the economic hardships faced by families and businesses loomed large over the Chancellor’s announcements. Nevertheless, this was the Chancellor’s first real opportunity to step out from beyond the pandemic’s fiscal and practical constraints. This Budget saw the first real movement towards a longer-term, more business-as-usual approach than has been previously possible. This sense of forward momentum the Chancellor’s speech was designed to create was clearly intentional. He will be hoping that this optimism will be welcomed by businesses and local authorities, and that the additional visibility over the financial and economic trajectory of the UK will allow for greater (and potentially more ambitious) planning over the medium term.

Keen to showcase the government’s flagship spending programmes, the Chancellor majored on the Levelling Up agenda. “Levelling Up” is mentioned in the Budget Red Book no fewer than 91 times – once more than the “economy”. Like chips on a pub menu, Rishi maintained the government’s commitment to Levelling Up With Everything. Improving roads and rail networks, expanding digital connectivity, new skills and employment schemes, housebuilding programmes and R&D strategies all fall under its lengthy banner. The Chancellor emphasised that spending would be directed to all parts of the UK, name checking a number of Tory MPs in Red Wall seats which the Conservatives are keen to hold on to at the next general election.

Seeking to appeal to those on lower incomes, Rishi closed his speech by announcing a cut in the Universal Credit Taper Rate from 63% to 55%. The new rate will mean that workers in receipt of UC will keep more of their benefits the more hours they work. Clearly wary of the potential impact of the rising costs of living and rising inflation on the government’s popularity, the Chancellor told MPs that he had written to the Governor of the Bank of England, reaffirming the Bank’s remit to ensure low and stable inflation. This nudge may influence the Bank’s thinking as it considers an interest rate rise for the new year.

Businesses also benefited from the Chancellor’s laundry list of announcements. The £1 million investment allowance will be extended to March 2023, and a 50% business rate discount for hospitality, retail, and leisure companies will be introduced from April, to aid the post-pandemic recovery of sectors which have been among the hardest hit. Investment relief for businesses looking to scale up or decarbonise was also a key feature, and a precursor to a swathe of further green pledges we can expect at COP26 in early November.

In perhaps the clearest appeal to the Conservative backbenches, Rishi vowed that his “goal” was to reduce taxes, saying “by the end of this Parliament, I want taxes to be going down not up.” For the time being, he has at least managed to avoid further tax rises; Corporation Tax and Capital Gains Tax will be unchanged for 2022, and no further increases in dividends tax rates or National Insurance contributions were announced beyond those already brought forward earlier this year.

But given the murmurings which have already started among Tory MPs that the tax burden is too high, freezes will not be enough for the Chancellor to play to the gallery longer term. His backbenchers will want to see meaningful tax cuts in the coming years but, with record spending commitments and precious little fiscal headroom, Rishi has a very difficult balancing act to pull off.

For the time being at least, “Brand Rishi” remains strong; the Chancellor still tops polls of the most popular Tory politician in the UK. But reconciling his fiscally conservative instincts for low taxes and budgetary restraint with the government’s post-Covid agenda to spend, spend, spend will be no easy task. Only four Chancellors since the Second World War have made it into No 10. Based on today’s Budget, with the Chancellor seemingly trying to offer something for everyone, it seems he is determined to become the fifth.

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