Budget 2021: What to expect from Rishi Sunak’s latest update on the UK’s spending

Rishi Sunak will announce the government’s spending plans in the autumn budget 2021 this Wednesday, October 27.

The chancellor said UK finances “must be put back on a sustainable footing” as national debt hit its highest point since 1963 and Brits face a cost of living crisis.

Analysts will be paying close attention to the inflation figures announced by Sunak this week. Only in March, inflation was predicted as around 1.5 per cent for the year. But it is already more than double that, with Bank of England experts warning it could hit five per cent and wreak havoc on household finances.

Significant changes around the public purse have already been enforced or announced in recent weeks including the £20-per-week universal credit cut, the end of the furlough scheme and a 1.25 percentage point national insurance rise set for April.

Campaigners and opposition MPs are pleading with the chancellor to make reinstating the universal credit increase a priority in his budget to stop hundreds of thousands from falling deeper into poverty – but, realistically, few expect him to do so.

Here’s what else to look out for when Sunak delivers his statement to parliament.

Cash for the climate crisis

The budget 2021 will be announced just days before COP26 kicks off in Glasgow. But Sunak has yet to publish costings for taking major steps towards the UK’s net zero goal.

It’s likely the chancellor will focus on making households greener with cheaper, more environmental energy.

In the new heating and buildings strategy, the government will ban new gas boilers from 2035 and distribute grants of up to £7,000 to help people install electric heat pumps in their homes instead.

Ministers will also bump up the prices of gas by around £159 per year to make sustainable electricity the cheaper energy option.

The failed Green Homes Grant scheme, dubbed a “wasted opportunity” by the Green Party, was scrapped last year. Sunak could announce a new initiative to support people in retrofitting their homes, though he is reportedly considering cutting costs elsewhere – such as through the electric vehicle grants scheme – to save cash.

Levelling up

Boris Johnson’s government was elected in 2019 on the promise of “levelling up” the UK. Two years on and many – including MPs – are still unclear on what that means.

It’s possible that the prime minister could finally publish the long-promised levelling up white paper to coincide with the autumn budget 2021, and that the pressure is on Sunak to come up with spending ideas which will deliver on Johnson’s levelling up rhetoric. Childcare, public transport and care services could all be targeted in the spending review.

Minimum wage and pay changes

Experts expect Sunak will announce a 6.6 per cent rise in the minimum wage for workers aged 23 and over, bringing payments up from £8.91 to £9.50 per hour.

Though the government recently rebranded minimum wage as the national living wage, it is different from the real living wage, which is based on the cost of living. 

This will bring minimum wage in line with the current real living wage – calculated by the Living Wage Foundation (LWF) – of £9.50 per hour, but only for over-23s. The LWF recommends workers of all ages are paid accordingly.

The new minimum wage will also not be implemented until April next year, at which point the real living wage is likely to have increased above £9.50.

Labour passed a motion to back a £15-per-hour minimum wage at this year’s party conference.

Sunak could also end the public sector pay freeze which was introduced a year ago amid the financial shockwaves of Covid-19. It would mean potential pay rises for around 1.3 million teachers, council workers, firefighters and police officers.

NHS funding

The government announced a £5.9bn boost for the NHS in England to clear the backlog of appointments exacerbated by the Covid-19 crisis.

More than five million people in England are on waiting lists for hospital treatment. This is a record high.

The cash will also be put towards buying new equipment and improving IT systems, ministers said.

Health Secretary Sajid Javid gave assurances that the funding is “new money”, with the chancellor set to outline where the money is coming from in Wednesday’s budget announcement.

Tax rises and cuts

Boris Johnson already announced a manifesto-breaking 1.25 percentage point national insurance increase to funnel extra funds towards the NHS as it recovers from the pandemic.

It might not be the only tax change announced by Sunak, who admitted at the Conservative party conference that tax rises are “unpopular” but warned against “unfunded pledges, reckless borrowing and soaring debt”.

Rumours suggest the chancellor will make changes to capital gains tax, despite freezing the threshold until 2026. He has already frozen the threshold for income tax.

Upping the price of a pint 

VAT for the hospitality sector was cut from 20 per cent to five per cent during the pandemic, a tax relief which ends this month. Since pubs and other hospitality venues are no longer operating with limited capacity, it’s not expected this will be extended. But that likely means customers will bear the brunt of higher taxes for businesses, paying more in restaurants and bars.

A lifeline for energy companies and their customers

Brits are facing an energy crisis. Supply shortages have driven up the cost of wholesale gas, meaning energy providers have to pay more for fuel.

This combined with an energy price cap hike at the beginning of October means households are being handed massively inflated energy bills, with a risk that thousands of people could fall into arrears with their fuel providers.

Layla Moran, Liberal Democrat MP for Oxford West and Abingdon, said the government’s heating and boiler proposals would do “absolutely nothing to lift people out of fuel poverty” and benefit fewer than 100,000 homes. Sunak could announce support for struggling energy businesses or changes to make it easier for people to pay companies’ higher prices.

Cash for families

The chancellor will announce a £500m package to support young families, including a network of 75 “family hubs”.

The centres could serve a similar purpose as Sure Start hubs, hundreds of which have closed since 2015 due to government spending cuts.

Parents and children will be able to go to the family hubs for support. The cash package will also be used to help those at risk of family breakdown as well as boosting breastfeeding and mental health services.

This is “good news”, said Imran Hussain, director of policy and campaigns at Action for Children. “After years of cuts to these services, we hope this will mark the start of a programme of investment to ensure all children can access high quality early years services.”

But Kate Green, Labour’s shadow education secretary, said: “This supposed commitment rings hollow after 11 years of Conservative cuts have forced the closure of over a thousand children’s centres, cutting off the early learning that sets children up for life.”

Support for kids with special educational needs

The chancellor is expected to confirm a £2.6bn package to fund support for 30,000 children in mainstream and special educational needs schools.

The cash will also be used to improve building accessibility for disabled people.

Maths coaching for adults

Adults who struggle with maths could be promised new support as part of a £560m coaching programme which the government estimates will help 500,000 people across the country.