British tax rates will rise to levels last seen in the 1950s. Our Budget2021 analysis
WHO IS RISHI SUNAK? Listen to the chancellor’s recent rhetoric, and one could be forgiven for thinking he was cast in the mold of a predecessor, George Osborne, who slashed the state in response to the global financial crisis. In a speech to the Conservative Party faithful on October 4th Mr Sunak called borrowing “immoral”, and emphasised his eagerness to restore order to the public finances. But the budget he delivered on October 27th presented a rather different impression.
The Brownite giveaway was prompted by a surprisingly perky economy. In March the OBR projected GDP growth of 4.1% this year. Now, thanks to rosier employment figures, it predicts 6.5%. In the same period, medium-term damage expected from covid-19 has gone from a gloomy 3% of GDP to a cautious 2%. Part of this is simply the passage of time revealing that investment has performed better than expected.
Mr Sunak did offer some red meat to party members. There was relief for payers of business rates, a cut to corporate-tax rates for banks and the now traditional fuel-duty freeze . But none of these will cost more than £2bn a year by 2024-25. Mr Sunak also announced new fiscal rules: there will be no borrowing for day-to-day spending in three years’ time and debt will fall as a share of GDP.
Given how much of the budget was trailed before, some wondered whether anything would be left for the main event. But the chancellor managed a few surprises. Half the planned increase in departmental spending in 2024-25 will restore foreign aid to 0.7% of GDP, a target abandoned during the pandemic. A welcome simplification to the mess of alcohol taxation was seized on by Mr Sunak, a Brexiteer, as a benefit of leaving the EU .
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