Britain’s Chancellor of the Exchequer Rishi Sunak delivered his third budget Wednesday, billed as his first post-COVID budget.
The background to the budget is a cost-of-living crisis being sharply felt by many Brits but also more upbeat forecasts about the state of the British economy.
One on hand, the Office for Budget Responsibility (OBR), the government’s independent fiscal watchdog, said inflation is expected to hit 4% next year.
On the other hand, the OBR upgraded the UK’s growth forecasts. This year, growth is estimated to be 6.5% rather than 4%, and the next three years 2.1%, 1.3% and 1.6%.
The OBR also downgraded the expected scarring of the British economy due to the coronavirus pandemic, putting peak unemployment at 5.2%, which translates to around two million fewer people unemployed than previously estimated.
Sunak announced a series of tax cuts, having spent his time as chancellor thus far increasing them due to the pandemic.
On alcohol, he cut taxes on draught beer and cider and on sparkling wine so that they will now pay the same level as still wines of equivalent strength.
A planned increase in the fuel duty was also cancelled. UK petrol prices recently hit a record high.
Business rates in the retail, hospitality and leisure sectors were cut by 50% for a year. The surcharge on bank profits was also cut from 8% to 3%.
Finally, the air passenger duty on domestic flights between the four constituent nations of the UK – England, Scotland, Wales and Northern Ireland – were cut.
Sunak also announced a £150 billion increase in government spending until 2024, including “a real terms rise in overall spending for every single department.”
At the same time, and with one eye on a potential increase in interest rates due to rising inflation, he put some funds aside to “protect ourselves against economic risks.”
“That is the responsible decision at a time of increasing global economic uncertainty, when our public finances are twice as sensitive to changes in interest rates as they were before the pandemic and six times as sensitive as they were before the financial crisis,” Sunak said.
“Just a one percentage point increase in inflation and interest rates would cost us around £23 billion,” he added.
Sunak previously made the decision to cut Universal Credit, a welfare payment to lower-income people, by £6 billion in what was a hugely controversial move.
He used his budget today to soften that blow by around £2 billion by making changes to how quickly the welfare payment is withdrawn for those who work. The national living wage was also increased to £9.50 an hour and public sector pay was unfrozen.
Labour Shadow Chancellor Rachel Reeves, responding to the budget, said: “Families struggling with a cost-of-living crisis, businesses hit by a supply chain crisis, those who rely on our schools and hospitals and our police — they won’t recognize the world the chancellor is describing.”
“The chancellor in this budget has decided to cut taxes for banks. So at least the bankers on short-haul flights sipping champagne will be cheering this budget today,” she said.