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Chancellor Rishi Sunak

Autumn Budget 2021: Chancellor flags inflation risks


The Chancellor highlighted concerns over rising inflation and warned it would not be resolved “overnight”.

27th Oct 2021
Editor in Chief AccountingWEB
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The Chancellor presented his 65-minute Autumn Budget as one that would “deliver a stronger recovery for the British people”, with “growth up, jobs up and debt down” but he also shared concerns over rising inflation and warned it would not be resolved “overnight”.

Many spoilers had already been issued to media left, right and centre ahead of the Budget - resulting in a wrist slap from Speaker Sir Lindsay Hoyle in advance and again in the House on the day.

National Living Wage changes were as expected, which the Chancellor said would be worth over £1,000 to the lowest paid workers, were consistent with previous increases and were a major commitment to high wage, high skill, high productivity economy of the future that he says he will deliver.

And we already knew that OBR forecasts being upwardly revised would give the Chancellor more cash to play with. 

The Chancellor confirmed that the OBR forecasts the economy to return to its pre-Covid level at the turn of the year – earlier than it had expected back in March.

OBR economic and fiscal outlook October 2021

Growth this year has been revised up from 4% to 6.5% and the OBR then expects the economy to grow by 6% in 2022, and 2.1%, 1.3% and 1.6% over the next three years.

The OBR has also revised down the scarring assumption (defined as the shortfall of potential output relative to the pre-pandemic trajectory at the five-year forecast horizon) from 3% to 2%.

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The Chancellor gave some considerable attention to the issue of inflation - a warning that fears are not as ‘unfounded’ as Boris Johnson had previously said earlier this month.

“It would be irresponsible for anyone to pretend that we can solve this overnight,” he said.

Sunak warned that we should expect CPI to average 4% over next year - the highest level in a decade - as supply chains struggle to meet increased global demand for goods and as global demand for energy has surged, causing increased prices.

The OBR report added that the UK's exit from the EU has also exacerbated problems such as delays at ports or with deliveries.

However, borrowing and debt are now predicted to move in the right direction - which the Chancellor said would allow further investment in public services.

Underlying debt is forecast to be 85.2% of GDP this year, peaking at 85.7% in 2023-24,  before falling in the final three years of the forecast.

Borrowing as a percentage of GDP is forecast to fall from 7.9% this year to 3.3% next, then 2.4%, 1.7%, 1.7% and 1.5% in the following years.

Angela Keery, tax director at Baker Tilly Mooney Moore, said: “Set to the backdrop of rising inflation, official forecasts revealed lower than previously assumed damage to the economy by one percent, yet businesses remain perplexed as to what the current fiscal climate will mean for their costs in the coming months.”

“In reality, companies could be left facing dramatic increases to their tax bills in January 2025 due to reforms of basis period rules, the period for which they pay tax each year. Pair that with the pending Health and Social Care Levy, a rise in the National Living Wage and the previously announced increase in Tax on Dividends and Corporation Tax rates, there is an understandable sense of anxiety that take-home earnings for individuals and businesses will drop significantly.”

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