Sunak’s opening remarks

Rishi Sunak says his budget delivers a stronger economy for the British people: stronger growth, public finances and employment. The chancellor says he will give people the support they need with the cost of living and levelling up.

He says the budget does not draw a line under Covid, but does begin the work of building an economy post-pandemic.

“Let there be no doubt: our plan is working,” he says.

Rowena Mason, deputy political editor: Sunak has adopted the prime minister’s claims that the UK needs to move to a “new economic model” of higher wages and productivity. He is sounding decidedly like a Johnsonian optimist, trumpeting better than expected economic growth, rather focusing on fiscal discipline or balancing the books. He does, however, inject a note of caution about the threat of inflation, while insisting it is a global problem.

Inflation

The chancellor says inflationary pressures are affecting the UK economy, with the Office for Budget Responsibility (OBR) forecasting that inflation will average 4% next year.

He says the pressures are global in nature and are “impossible for us to address alone”. However the government will act to support households, he says.

Rowena Mason, deputy political editor: Sunak says he has written to the Bank of England re-emphasising its remit on maintaining low and stable inflation. The measures to help struggling households are likely to be the flagship policy in the budget, with Labour warning they need to be immediate to help people through the winter.

Growth

The chancellor says forecasts from the Office for Budget Responsibility (OBR) show the economy will grow by 6.5% this year.

Sunak says it will take until the start of 2022 for the economy to return to its pre-pandemic size.

GDP will grow by 6% next year, 2.1% in 2023, 1.3% in 2024, 1.6% in 2025.

In March, the OBR had forecast growth of 4% this year, after a plunge of 9.9% in 2020 – the worst recession for 300 years.

The OBR’s estimate for long-term scarring for the economy has been revised down from 3% to 2%.

Unemployment is forecast to peak at 5.2%, down from a forecast for about 12% forecast last year.

Rowena Mason, deputy political editor: This is much better than expected, giving Sunak more room for manoeuvre on spending than he previously thought.

Borrowing

Sunak says he is setting new “fiscal rules” for management of the public finances. Debt must fall as a percentage of GDP. In “normal times” the state should only borrow to invest in future growth, balancing everyday spending. This must happen by the third year of each forecast period.

Sunak says borrowing in the current financial year 2021-22 will be 7.9% of GDP, and will fall to 3.3% next year.

Debt levels will fall as a share of national income.

In March, the OBR estimated a budget deficit – the gap between spending and tax income – of GBP233.9bn for 2021-22, or about 10.3% of GDP.

Rowena Mason, deputy political editor: Fiscal rules seem to change almost annually these days, as new chancellors tweak their parameters to suit their aims and ideology. Sunak says he is on track to hit the new rules, which appears to be hardly surprising given that he has just devised them for himself. They will give him more flexibility on borrowing than the previous rules and contain caveats about only applying “in normal times”.

Spending review

Sunak says there will be a real-terms rise for every government department.

Departmental spending in this parliament will rise by GBP150bn, in the “largest increase this century”. Spending will grow in real terms by 3.8% a year.

Sunak says: “If anybody still doubts it, today’s budget confirms it. The Conservatives are the real party of public services.”

The Institute for Fiscal Studies estimates average real-terms annual growth in departmental resource budgets was higher in previous years, above 4% in 2000 and 2002 under Labour, and 4.1% under the Conservatives in 2019.

There will be grant funding for local government GBP4.8bn, in the “largest increase in core funding for over a decade”.

Overseas aid will return to 0.7% of GDP by the end of the parliament, after a cut to 0.5% announced last year.

Rowena Mason, deputy political editor: The real-terms rise in budgets for government departments is more generous than expected, with the Institute for Fiscal Studies having previously warned that some could have been facing a squeeze. Part of this is likely to go on increases in spending on pay for public sector workers and to cover the rise in the national living wage.

Education

Sunak says funding for each pupil will be returned to 2010 levels, in an increase worth GBP1,500 a pupil.

The government is tripling investment to create 30,000 special school places, he confirms.

Total support for catch-up funding because of the Covid pandemic will be almost GBP5bn.

Rowena Mason, deputy political editor: The extra money for schools is a new announcement that had not been trailed in the run-up to the budget. However, an increase in school funding to 2010 levels shows it has taken more than decade to return to previous levels after Tory austerity.

Levelling up

Sunak announces GBP1.7bn of funding in the first grants from the Treasury’s Levelling Up Fund, for towns and cities including Stoke-on-Trent, Leeds, Doncaster and Leicester.

The funding includes allocations to constituencies held by the Labour leadership, he indicates: “We’re so committed to levelling up we’re even levelling up the opposition front bench.”

Libraries will be “renovated, restored and revived”.

Tax relief on museums and galleries was due to be announced in March next year; it will be extended until March 2024.

Rowena Mason, deputy political editor: There is a clear message here from Sunak that he is opting for “investment” rather than “retrenchment” – or spending over austerity. The main aim Johnson’s premiership is to retain the seats he won in the Midlands and north at the next election, with the “levelling-up” argument clearly aimed at this audience.

Infrastructure and investment

The chancellor says he will increase investment to support London-style transport across the regions of England.

The government will invest GBP21bn on roads and GBP46bn on railways to improve journey times between cities.

Sunak announces the government’s target for hitting research and development spending will reach GBP22bn by 2026-27, two years later than had been initially planned.

The government will invest GBP20bn in R&D by 2024-25. Sunak says this stands as a “record investment to secure the UK’s future as a global science superpower”.

Sunak announces he will limit tax relief for business R&D spending so that it only applies to domestic activities.

Rowena Mason, deputy political editor: Sunak is trumpeting billions of pounds more in investment spending. The small print will have to be examined to look at how much of this is new money, but he does appear to have gone down the road of big capital spending with the aim of boosting growth. Experts also pointed out the timings mean a target on hitting science funding would not be met until two years later than planned.

Employment and skills

The chancellor says the government will raise government spending on skills and training by GBP3.8bn over the parliament, an increase of 42%.

He confirms the government will launch a UK-wide numeracy service called Multiply .

He says the programme will help 500,000 adults improve their numeracy.

Rowena Mason, deputy political editor: Skills is not a very voter-friendly topic but the government considers improving lifelong learning a key part of improving productivity. Much of this had been pre-briefed but the 43% increase in spending is nonetheless striking.

Brexit

Sunak says changes after Brexit will encourage British merchant shipping lines to fly red ensign flags.

He jokes that this means “red flags are still flying somewhere in this country, even if they are all at sea”.

Internal domestic flights will have air passenger duty cut. He says 9 million passengers will have their duty cut by half, “bringing people together across the UK”.

Rowena Mason, deputy political editor: This minor measure gives Sunak an opportunity for his first joke – not a very funny one – saying Labour will be pleased to see a red flag flying. The air passenger duty cut seems ill-judged in the run-up to the COP26 climate change conference, as it will encourage people to take carbon-intensive short-haul flights rather than train journeys.

Business taxes

The chancellor confirms that the bank surcharge will be cut from 8% to 3%.

Sunak says changes to business rates will be reformed to support companies, including a new 12-month relief for companies to invest in their premises.

The chancellor says the investment incentives are worth GBP750m.

Next year’s planned increase in the business rates multiplier will be cancelled. That is worth GBP4.6bn over the next five years, he says.

Sunak announces a 50% business rates discount for companies in retail, hospitality and leisure sectors, up to a maximum of GBP110,000. It is a cut worth GBP1.7bn.

The chancellor says: “This is the biggest single year tax cut to business rates in over 30 years.”

Rowena Mason, deputy political editor: Tory MPs have been lobbying on this to support high street shops hit by the pandemic. Many small businesses will be pretty pleased with this and backbench Conservatives will be very happy to take this back to their constituents.

Pubs and alcohol duty

Sunak announces radical changes for alcohol duty, in what he calls the biggest changes for 140 years.

The UK’s main duty rates on alcohol will be cut from 15 to six in a simplified system.

Higher strength alcoholic drinks will attract higher duties, including stronger red wines, fortified wines and high-strength ciders. Lower strength drinks – such as rose, fruit ciders and liqueurs – will attract a lower tax rate than currently.

Pubs and bars will benefit from a new “draft relief” cutting duty on beer and cider sold in pubs by the most since 1923.

The cost of a pint will be permanently cut by 3p.

There will be a small brewers’ relief, including for cider makers.

The chancellor says the reforms are taking advantage of leaving the EU to simplify the system.

The chancellor says alcohol duties are “full of historical anomalies” as it dates back to 1643.

Rowena Mason, deputy political editor: There is a logic to these changes, punishing higher alcohol products and rewarding lower alcohol ones. However, big tax reforms have “minefield” written all over them – expect some aggrieved lobbying from some losers in the drinks industry and the potential for “pasty tax”-style headlines if there are some unintended consequences. It is also not clear whether the measures are revenue-raising or losing.