Budget 2021: five takeaways from Rishi Sunak’s announcements

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Budget 2021: five takeaways from Rishi Sunak’s announcements


Pocket the profit

This brings us to the third thing you need to know about this budget.

The Chancellor chose to pocket more than half of this windfall, using it to reduce her loan. It is in fact very significant.

He could have, had he chosen to do so, have spent most of the manna. It would have threatened its newly announced fiscal rules, but not, frankly, by that much.

And anyway, let’s not forget that these rules are his own creation. There is no definitive fiscal stone tablet indicating whether or not this is the “right” way to manage public finances.

In short: he made a choice, that of saving this money rather than spending it. Which raises some questions.

Is this a sign of its fiscal prudence? Will that undermine the nature of the economic recovery, since some of that money could likely have contributed to economic growth? Is he keeping it right before, say, the next general election?

Admittedly, this budget gives it ample room – even under its new budgetary rules – to splurge in 2023 or 2024 on more spending or tax cuts. The pre-election bribe is, one might speculate, in the box.

It is quite difficult, at this point, to say where the Chancellor is coming out of these questions.

If you have listened to his speech, you will probably have been a little taken aback. In one sentence, this man spoke proudly of the billions of pounds he was spending on public infrastructure; in the next, he warned that with the size of the state at its highest level in decades, this spending was not sustainable.

It comes back to a deeper unanswered question about the Conservative Party: are they advocating fiscal prudence or are they investing a lot of money in some of the most disadvantaged areas of the country?

For now, the Chancellor’s response seems to be: “yes, to both”. It remains to be seen how easily he will walk this tightrope in the years to come.

Chômage Budget Conway

Figures on dashboards

The fourth thing you need to know about this budget is that the vast majority of political decisions were made long before budget day itself.

Here is one way of looking at it. Typically, when looking at a budget document, the most important chart of all is found somewhere near the end, called a “dashboard”. This table sums up the fiscal impact (money inflows or outflows) of each policy in the document. It’s a big deal in Whitehall.

So what have we learned from this dashboard?

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“An economy worthy of a new era of optimism”

Well, again, let’s take 2022-23 as the primary year to focus on.

In this fiscal year the government will spend an additional £ 47 billion; but of that, around £ 39bn was decided months ago: the September announcement to spend more on health and social care and the announcement of the spending envelope for the spending review.

His policies will bring in an additional £ 24bn, but of that, a whopping £ 23bn occurred again in September, when the Prime Minister and Chancellor announced an increase in national insurance (finally, the “health and social levy”) and modified the triple lock guesthouses in double lock (savings of around £ 5 billion per year).

This is not to reject the policies announced today: the drop in the rate of degressivity of universal credit will be very important for many families and will alleviate some of the pains related to the suppression of the increase in the COVID period.

The reduction in business rates will make a difference for many businesses.

But these policies will cost around £ 2bn a year each – which isn’t exactly overly generous by the standards of recent budgets (again, recent budgets have been pretty huge).

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“Why can’t Britain do better than this? “

A budget harmful to the environment?

The last thing you need to know about the budget is that if you had been hoping for a great eco-friendly fiscal policy before next week’s COP26 climate summit then, well, you will be disappointed.

In fact, it’s worse than that: all else being equal, this budget could likely increase carbon emissions rather than decrease them.

It is something of a surprise; after all, the point of this particular COP summit is that after making bold pledges on climate change, governments around the world now need to show evidence that they are actually serious about achieving net zero.

So what did the chancellor do?

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Chancellor increases air travel within budget

Well, instead of raising taxes on emissions, he actually cut them. Britain has some of what you might call green taxes, the largest of which is the fuel tax and the second is the air passenger tax.

In this budget, Rishi Sunak froze fuel taxes and cut ODA.

We understand why: gasoline prices are close to records and the number of thefts remains very low compared to the pre-pandemic era.

These tax measures will help households – especially the poorest and those outside London, who tend to suffer the most from rising fuel prices.

With inflation on the rise, is it really a good time to penalize motorists whose finances are already tight?

But hey, that’s the net-zero dilemma. It is ultimately a trade-off between cheap but dirty fossil fuel and expensive but clean renewable energy.

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Has climate change been budgeted for?

As much as he can be enthusiastic about clean technologies, the more he invests through the review of spending on these technologies, the clearest indication of a chancellor’s preferences is his tax policy.

And the Chancellor signaled in this budget a preference for fossil fuels over clean energy.

Now, the above is not an exhaustive list. It was, as I said, a complex budget. And with complex budgets, it often takes a few days to understand their true meaning or unravel the problematic elements below the surface.

But it may be a start.

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