The announcement follows the publication of the department’s most recent verdict on the Autumn Budget and Spending Review 2021. The committee’s report surveys the current UK tax burden, changes to the health and social care levy, as well as the pre-briefing of budget measures.
During the last budget in late October, Chancellor of the Exchequer Rishi Sunak announced substantial increases in departmental spending alongside various tax hikes.
“Taxes are rising to their highest level as a percentage of GDP since the 1950s. I don’t like it, but I cannot apologise for it,” Sunak said in October. “It’s the result of the unprecedented crisis we faced and the extraordinary action we took in response.”
The committee has warned that if the chancellor wishes to cut taxes while simultaneously meeting his fiscal rules, he may have to identify departmental spending areas where he can reduce spending in real terms, even in the face of heightened demand.
In particular, the committee criticised underspending in education. Following the most recent budget, school funding per head has only now returned to levels seen in 2010.
Speaking on Tuesday, Sunak announced a £1 billion fund including cash grants of up to £6,000 per premises for each eligible business as well as $30 million to support England’s theatres and museums. Sunak also announced that the Government would support some firms with the cost of sick pay for Covid-related absences.
The chancellor called the new support measures “generous” as he recognised the difficult situation many hospitality businesses continue to face in the run-up to Christmas. However, Sunak did not comment on whether further support would be offered to businesses should additional coronavirus restrictions be introduced.
As covid cases continue to soar, the Government is under mounting pressure to act to reduce the virus’ spread. On Monday, a further 91,743 covid cases were reported in the UK, marking the second highest daily total on record since the pandemic began in 2020.
Between April and November, borrowing dropped to £136 billion, down nearly £116 billion in the same period of 2020, according to data from the Office for National Statistics.
However, the figure was still nearly three times its level two years before, prior to the coronavirus pandemic. The Chancellor of the Exchequer, Rishi Sunak, is currently under pressure to come up with new measures to support the hospitality sector which has been hit hard by the emergence of the Omicron variant of the virus.
"These data predate the recent surge in coronavirus infections caused by the Omicron variant, with a near-term tightening of virus restrictions once again a possibility," said Bethany Beckett of Capital Economics.
"Although the economy has got better at coping with restrictions with each new wave, we still suspect it would prompt a deterioration in the public finances via lower tax revenues and the potential reintroduction of government support schemes."
Business rates apply to most non-domestic properties, including restaurants, pubs, cinemas, theatres, music venues, hotels, and gyms. The 50% discount is a tax cut worth £1.78 billion, the largest single-year cut to business rates in 30 years, except for the emergency pandemic reliefs.
In his Autumn Budget and Spending Review speech, the Chancellor of the Exchequer said that abolishing business rates altogether would be an irresponsible move, as they generate £25 billion for the economy. However, Sunak said that to make business rates fairer, they will be re-evaluated every three years.
Properties that are eligible for the discount will receive up to 50% off their bill, subject to a cap of £110,000 per business. This is more than double the relief announced pre-pandemic for the 2020-21 financial year.
Turning to Twitter, Sunak said the move was “a tax cut worth almost £1.7bn and with Small Business Rates Relief over 90% of all these businesses will see a discount of at least 50%. Taken together, today we cut business rates by £7bn.”
"We’re taking steps to ease the burden of business rates and boost our high streets [...] Without action, millions of businesses would see their tax bills going up next year because of inflation,” Sunak continued, “So I’ve decided that next year’s planned increase in the multiplier will be cancelled. That’s a tax cut for business worth £4.6bn over the next five years."
Health, transport, and the cost of living were sharply focused on in the chancellor's speech, with changes announced including the removal of the freeze on public sector pay and an increase to the national living wage.
Sunak emphasised the growing proportion of people in jobs as well as the country’s economic bounce back from the pandemic so far. “Our plan is working so far,” Sunak said, although, “the budget does not draw a line under covid, we have challenging times ahead.”
The chancellor addressed the pressure inflation is putting on the UK economy, as well as the strains caused by the ongoing supply chain crisis. He warned this could “take months to ease”, but the government is therefore planning to pump new funding to improve lorry park facilities and will freeze vehicle excise duty for HGVs.
Total departmental spending is set to increase by £150 billion by 2024-25, with the government promising a “new economy” for the country. Sunak said the spending increase is the largest this century.
On Wednesday, Sunak is also expected to announce plans to attract highly skilled workers from abroad and amend regulations to make it easier for international companies to relocate to Britain.
International companies with strategically important investment proposals can expect to receive grants towards their schemes under the government’s plans, provided they pass an assessment to ensure they provide value for the UK taxpayer.
“We want to make the UK the best place in the world to start, grow and invest in a business, as we continue to support enterprise, create jobs, and level up as we recover from the pandemic,” Sunak said.
Last week, the government hosted 200 business leaders at a global investment summit in London. The summit included a dinner with Prime Minister Boris Johnson for the world’s top business leaders and a reception at Windsor Castle with the Queen as the country attempted to impress multinational companies.
The Green Savings Bonds are offered at a 0.65% fixed annual rate over a three-year term and are available through NS&I’s website. The bond will allow savers of 16 years and above the chance to back the UK government’s sustainable projects, helping to tackle the climate crisis.
Green projects including offshore wind, zero-emissions public transport, and innovative low-carbon technologies will be eligible for funding, as well as programmes that help the UK prepare for the implications of a changing climate. Projects that increase living and natural resources, such as protecting biodiversity and environmentally sustainable agriculture will also be eligible.
There is a rapidly rising demand for environmentally-friendly investments, especially amongst younger generations. The bonds will offer savers a means of generating both financial and environmental returns.
The government will regularly update savers on which projects have received funding and will share the positive environmental impact their investment is having.
Chancellor of the Exchequer Rishi Sunak said: “Our world-first Green Savings Bonds give savers across the UK the chance to back the Government’s green projects and put their money to work in the fight against climate change.
“The UK is already a world leader in green finance and these innovative new savings bonds will deliver both financial returns and environmental benefits, in a transparent and secure way.”
The Institute For Fiscal Studies (IFS) said Sunak was on track to lift the UK’s tax burden to the highest sustained level seen during peacetime as he prepares to unveil a package of tax increases at this month’s budget and spending review. The introduction of any tax hike will go against the Conservative manifesto for the December 2019 election, which stated: “We will not raise the rate of income tax, VAT or National Insurance.”
The tax raid would help fund an expansion in the UK to the highest level of government spending since the 1980s. However, the IFS said several government departments would still face budget cuts. It warned that continually squeezed areas, such as prisons, further education, and local government could see their budgets shrink by more than £2 billion next year.
“These budgets were cut substantially in the 2010s, and a further round of cuts would be difficult to reconcile with the government’s stated objectives – particularly around ‘levelling up’,” the IFS said.
The IFS also accused the government of effectively “smuggling in” tax rises under the cover of the pandemic and as living costs increase amid the ongoing energy crisis.
£10 billion has been raised to go towards net-zero projects such as renewable energy, electric vehicles, pollution prevention and control, and green building infrastructure. It is estimated that investors have placed over £90 billion in orders for the 0.875% green gilt, with JPMorgan, Barclays, BNP Paribas, Citi, Deutsche Bank, and HSBC acting as bookrunners.
According to the UK Treasury, the green gilt is the largest inaugural green issuance by any sovereign and has attracted the largest-ever order book for a sovereign green transaction.
The gilts — also known as government bonds — are sold to institutional investors, proving a fixed rate of return until their expiry. The UK’s first green gilt is a 12-year bond that will mature by the end of July 2033.
The rapidly expanding green finance sector is "vital in helping us to tackle the environmental challenges we face,” Chancellor of the Exchequer Rishi Sunak said. “The launch of our first green bond is a signal that the UK continues to be a world leader in this area.”
"This funding will be used to finance vital green government projects across the country, including things like clean transportation, renewable energy and preserving our natural environment. In helping us to build back better and greener, it will also help to create jobs as we transition to net-zero."
Following on from the government’s initial green gilt issuance, a second is set to launch next month ahead of the COP26 Climate Summit In Glasgow. The overall aim is to raise a minimum of £15 billion for green projects.
Excluding state-controlled banks, public sector net borrowing in August reached £20.5 billion, down from $5.5 billion from August a year earlier. On average, economists polled by Reuters had forecast borrowing of £15.6 for the month.
Last year, government borrowing in the UK soared due to heavy spending throughout the peak of the pandemic, reaching its highest level since World War II. During the current financial year, borrowing dropped significantly. However, it will very likely still come out high by historical standards.
UK public debt as a share of gross domestic product hit £2.023 trillion, or 97.6% of GDP, in August. This is the highest ratio seen since March 1963.
Next month, in October, Chancellor of the Exchequer Rishi Sunak will unveil new budget and growth forecasts. He will also reveal new multi-year spending limits for government departments and possibly longer-term fiscal goals.
Last week, a report by the Financial Times said that the Chancellor of the Exchequer would set out a target for ending borrowing for day-to-day spending within 3 years.
UK businesses receiving a portion of the £1.1 billion in funding include a solar power startup, a protein bar company, a VR gaming company, and a producer of kombucha drinks. The Future Fund closed its applications at the end of January 2021, having been established to "innovative companies which are facing financing difficulties due to the coronavirus outbreak."
The government has said that these convertible loans may be an option for companies reliant on equity investment and unable to access other government business support programmes, either because they are pre-revenue or because they’re pre-profit. If not repaid, the loans would convert into equity stakes at the next funding round, with external investors required to at least match the amount contributed by the government.
158 largely loss-making businesses are now backed by the UK government through the fund. 1,200 startups took loans, meaning Chancellor Rishi Sunak will likely be left with stakes in hundreds of other businesses.
It remains unclear as to how the government intends to monetise any investments upon maturity of the loans, with firm commitments yet to be revealed.
The Chancellor of the Exchequer has written to Prime Minister Boris Johnson warning of the impact that the UK’s strict border controls is having on the country’s economic recovery.
Last month, England lifted the requirement for fully vaccinated citizens to complete the quarantine period when returning from medium-risk destinations. From 2 August, visitors from the EU and US with the same vaccine status will also be exempt from the quarantine period. However, travellers are still required to take costly tests before departure and soon after arrival. Sunak’s letter to the Prime Minister comes ahead of Thursday’s meeting of ministers to consider changes to the current coronavirus travel restrictions. However, many believe that the restrictions should remain in place to prevent a further increase in cases or the outbreak of a new variant.
