The Autumn Budget 2021: Reeves Responds
Updated: Oct 26, 2022
Reeves Independent analyses the Autumn Budget 2021 to unearth any changes that may affect you, our valued clients.
It was a big spending budget with a lot of 'give-aways’, but it has to be remembered that it comes against a background of rising inflation and already announced tax increases.
The annual ISA allowance and personal income tax allowance have not changed and nor have allowances on IHT. The pensions lifetime allowance stays at £1,073,100.
The good news for business owners is the announcement of a 50% business rates discount for the retail, hospitality, and leisure sectors in England in 2022-23, up to a maximum of £110,000. There will also be more frequent revaluations every three years and businesses will pay no extra rates on property improvements for 12 months.
The bad news, however, is that the corporation tax rate is still increasing in 2023/24 to 25%, although businesses with profits of £50,000 or less will continue to be taxed at 19%. One way for employers to mitigate the rise in corporation tax is through gross pension contributions. This is made from company profits before corporation tax has been paid.
Inflation in September was running at 3.1% and, according to the Office for Budget Responsibility, OBR, is likely to rise to average 4% over next year. High inflation undermines other efforts to increase wages – which have grown in real terms by 3.4% since February 2020 - and pension contributions.
Also, the Bank of England has a remit to keep inflation under control and might do so by raising interest rates.
Not only does inflation undermine wage increases and any uplift in the state pension, combined with an increase in the rate of National Insurance, it may make people less inclined to believe they can afford to top up their pension contributions.
The triple lock guarantee has been suspended for 2022/23, meaning that the state pension will rise by either the inflation rate or 2.5%. As inflation is estimated to reach 4%, this will see the state pension increase by the same amount.
National Insurance rates will rise by 1.25% from April 2022, however, the red Budget book revealed some NI income thresholds are also rising in line with inflation, which means you may be able to keep more money than you might have thought. The annual allowance on pension contributions remains unchanged and, as part of the March 2021 Budget, the pensions lifetime allowance was frozen at £1,073,100. Around 1.2 million low earners currently missing out on tax top-ups on their pension contributions are to receive payments from the government under measures outlined in the Budget.
The Chancellor confirmed consultation “on further changes to the regulatory charge cap for pension schemes, unlocking institutional investment while protecting savers".
The higher fees associated with non-standard investments have traditionally prevented pension fund managers from investing.
Documentation published alongside the Budget said the consultation will consider options to allow the cap to better accommodate well-designed performance fees to ensure savers can benefit from higher return investments, while unlocking institutional investment to support some of the UK's most innovative businesses. It added that the government would also continue wider policy work to understand and remove various barriers to illiquid investment.
This comes after the government’s work and pensions department opened a consultation in spring into whether the charge cap prevents schemes from investing in alternative investments, including venture capital, illiquids and growth assets.
This could open options for more diverse pension scheme investments and, while it requires further detail, it could mean exciting times ahead.
Rishi Sunak also announced funding for new homes building, redevelopment of brownfield land, and removal of dangerous cladding. He promised a multi-year investment of nearly £24bn to build new homes and confirmed £1.8bn would be spent on developing 1,500 hectares of brownfield land, unlocking one million new homes and an £11.5bn investment through the Affordable Homes Programme.
The Chancellor also promised £65m to ramp up England’s planning system, including digitisation to make local plans easier to access.
Overall, the Budget had some positive news on spending and tax. However, inflation does raise some doubts over the future. Nothing in the Budget calls for action on the part of our clients but, of course and as always, if you have any questions, our team of experts is on hand to help.