Chancellor of the Exchequer, Rishi Sunak, presented his Autumn Budget and Spending Review to the UK parliament on 27 October 2021. This is Mr Sunak’s third budget announcement, following his appointment as Chancellor of the Exchequer in February 2020. (Prior to his election as a Member of Parliament in 2015, Mr Sunak worked for Goldman Sachs, for hedge funds, and co-founded an international investment firm.).
Mr Sunak has been ‘leaking’ snippets of the government’s plans prior to this speech, including an increase to the National Living Wage, an end to the public sector pay freeze, and new levies for health and social care.
The Chancellor’s budget speech to parliament ran for over an hour and highlighted a theme of “borrowing down, debt down” throughout, while outlining his intention to increase year-on-year spending for every government department by 3.8%.
Thanks to the pandemic, UK taxes are rising to their highest level as a percentage of GDP since the post-war 1950s. Mr Sunak said, “I don’t like it, but I cannot apologise for it. It’s the result of an unprecedented crisis.” However, his intention to provide 3.8% year on year spending would see spending reach its highest level for 50 years.
Mr Sunak also announced that he intends to publish a new charter for governmental budget responsibility, the basis of which will be two main fiscal rules intended to “keep this government on the path of discipline and responsibility”, and both rules must be met by the third year of every forecast period.
- Underlying public sector net debt (excluding the Bank of England) as a percentage of GDP must continue to fall.
- To only borrow to invest “in our future growth and prosperity. Everyday spending must be paid for through taxation.”
The budget speech covered many points for the UK population, including national health spending and fuel and alcohol levies. A complete list of the points can be found on the UK Government website, but let’s take a look at the key points of the speech, as relating to business.
Business rates cut
Mr Sunak intends reform to business rates – providing a 12-month rate holiday on property improvements and the promise of more frequent revaluations (every three years from 2023).
He also announced that green investment relief will be introduced to encourage businesses to adopt green technologies, like relief for firms adopting solar panels.
Retail, hospitality and leisure sectors (hardest hit by COVID-19 lockdowns) will be given a 50% discount on business rates. Pubs, theatres, music venues, cinemas, restaurants, hotels, and gyms are eligible.
Bank surcharge reduced / Investment allowance extended
The surcharge on bank profits will be reduced from 8% to 3% – though other tax changes announced mean that corporation tax for banks will increase from 27% to 28%.
The £1m annual investment allowance, however, will be extended to March 2023.
Working to attract international companies
The Chancellor announced £1.4 billion (US$1.9 billion) in grants to encourage international companies to invest in Britain.
The ‘Global Britain Investment Fund’ includes £345 million allocated to investment in life sciences manufacturing, £817 million for UK vehicle electrification programmes, and up to £230 million for the offshore wind sector.
In addition, there will be £1.6 billion for the British Business Bank’s regional funds (which provide debt and equity finance to SMEs) and £150 million for the Regional Angels programme, which works to reduce imbalances for accessing early-stage equity finance.
The first Freeport tax sites will be in the counties of Humber, Teesside and Thames, and will be able to begin initial operations from November 2021.
The Chancellor has introduced a ‘talent network team’, which will identify skills gaps and offer relocation support to skilled overseas workers. This programme will launch in Bangalore (India), San Francisco and Boston in 2022, followed by six other countries in 2023.
There will also be a consultation process to make it easier for companies to relocate to the UK.
R&D and Infrastructure
Mr Sunak announced the allocation for the first round of bids for the ‘Levelling Up’ Fund, which provides £1.7 billion to investing in the regional infrastructures of 100 local areas. The fund includes allocations of £170 million for Scotland, £120 million for Wales and £50 million for Northern Ireland. This follows the new UK Infrastructure Bank’s announcement of its first investment of £107 million in offshore wind for Teeside.
The Chancellor pledged a cash increase of 50% to annual R&D spending by the end of the current parliament (2024), intended to reach the government’s target of £22 billion by 2026/27.
In addition, there will be a change to R&D tax relief rules to include cloud computing and data costs, and intending to encourage companies to use their R&D funding within the UK.
Defined Contributions for pension schemes
Mr Sunak confirmed the government would “consult on further changes to the regulatory charge cap for pension schemes, unlocking institutional investment while protecting savers.”
The government aims to encourage more defined contribution (DC) schemes to invest in illiquid assets (like infrastructure and renewable energy) as part of its ‘Levelling Up’ agenda. It has undertaken various reviews into the charge cap and illiquid investments in recent years, and the Chancellor announced it will launch another consultation into the DC charge cap with the aim of directing cash into ‘Levelling Up’.
Documents published alongside the budget state that the government will consider options to amend the scope of the cap to better accommodate well-designed performance fees “before the end of the year” – aimed at ensuring savers can benefit from higher-return investments while encouraging institutional investment in the UK’s innovative businesses.
UK economic growth is forecast to rise to 6.3% next year, higher than previous predictions, but is then expected slow to 1.3% in 2023. While noting that “…this year has seen the biggest set of tax-raising measures since 1993,” the Director of the UK’s Institute of Fiscal Studies, Paul Johnson, noted in the IFS’s budget analysis: “The worry for the government is that, for all the chancellor’s upbeat delivery, the voters may not get much feelgood factor. High inflation, rising taxes, and poor growth, still undermined more by Brexit than by the pandemic, will see real living standards barely rising and, for many, falling over the next year.”
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