Autumn Budget 2021: How Will it Affect You?
From the rise in the National Living Wage to changes to the Universal Credit taper rate, alcohol duties and business rates, there was plenty to impact on your bank account in Rishi Sunak’s Autumn Budget. Find out all the biggest takeaways with our guide to the Chancellor’s announcements.
While March’s address saw the Chancellor continuing to navigate the ongoing pandemic, Rishi Sunak’s Autumn Budget was less directly targeted at firefighting Covid-19, and instead focused on the rebuild.
It was inflation, more so than Covid, that cast a long shadow over the Budget, with Sunak announcing that the Office for Budget Responsibility (OBR) is expecting the Consumer Prices Index (CPI) to hit 4.4% in 2022.
There was better news when it came to gross domestic product (GDP). The OBR forecasts growth of 6.5% in 2021, up from previous estimates of 4%.
Alongside these revised forecasts, Sunak also revealed a raft of measures that will have an impact on both people’s personal finances, and businesses in general.
Below we detail the most important announcements from the 2021 Autumn Budget, and what they mean for your wallet.
How will the Autumn Budget 2021 affect my personal finances?
Increase in the National Living Wage
Arguably the biggest announcement of this Autumn Budget was revealed a few days early.
Sunak nevertheless confirmed that the National Living Wage for those aged 23 and over would be rising 6.6% to £9.50 an hour from 1 April 2022.
For 21- and 22-year-olds, the rate will increase from £8.36 to £9.18 an hour, which is a 9.8% rise, while for 18- to 20-year-olds it will jump from £6.56 to £6.83 an hour. And for those aged 16 and 17, minimum wage will increase from £4.62 to £4.81 an hour.
Universal credit taper rate reduction
As well as changes to the National Living Wage was news that the Universal Credit taper rate – the amount Universal Credit is reduced for every £1 you earn over your work allowance – would be cut from 63% to 55%.
If you are eligible for Universal Credit, this means that, for every £1 you earn over your work allowance, your Universal Credit will now be reduced by 55p rather than 63p. This change will be implemented by 1 December 2021 at the latest.
Alongside this, the work allowance in Universal Credit – the amount you can earn before your payments are affected – will also be increased by £500 a year.
Sunak stated that these changes are worth around £2.2 billion, which compares to the £6 billion lost by those claiming Universal Credit now that they no longer receive the £20 a week uplift introduced during the pandemic.
Air passenger duty amendments
One of the more controversial announcements made by the Chancellor, especially given the proximity to Cop26, was a 50% reduction in air passenger duty for domestic flights from April 2023.
While it is part of the government’s plan for the UK to ‘level up’, critics argue that it undermines the aims of the UN Climate Change Conference, which begins at the end of October.
It was also revealed that flights of 5,500 miles or more would be subject to an increase in air passenger duty costing £91, again from April 2023. This applies across the UK except for Northern Ireland, which has its own devolved rules for long-haul flights.
Tax changes to alcohol duty
Much to the joy of drinkers and pubs alike, the Autumn Budget contained an overhaul of how alcoholic beverages are taxed, taking effect from April 2023.
Impending increases to duties on spirits, wine, cider and beer were cancelled.
Instead, sparkling wine, drinks made from fruit, and draught beer and cider will all be subject to lower tax rates. This latter move could see the cost of a pint fall by three pence.
It wasn’t all good news, however. Stronger drinks, such as red wines, fortified wines and high-strength ciders, will see a small increase in their rates. This is in line with the broad idea that, according to Sunak, “the stronger the drink, the higher the rate.”
Twelfth consecutive freeze on fuel duty rates
Playing the hits, the Chancellor revealed that for the 12th consecutive year, fuel duty rates would be frozen.
This will be a relief for those worried about rising prices at Britain’s petrol pumps in recent months. However, much like the reduction in air passenger duty, the decision has drawn ire from those seeking a shift to green transportation.
Pension boost for Net Pay Arrangements
The government announced it is closing a loophole, which has seen low-earning individuals saving into their pensions using a Net Pay Arrangement miss out on a 20% lift to their contributions.
Covering contributions from 2024-25 onwards, the government will introduce a top-up payment system designed to make up the difference between tax relief on Net Pay and Relief at Source pension schemes.
It is estimated this will give, on average, an extra £53 a year for 1.2 million people.
» MORE: How pension tax relief works?
In one of the less flashy announcements in the Autumn Budget, the band of savings subject to the 0% starting tax rate will remain at £5,000 for 2022-23.
Similarly, the adult ISA annual subscription limit will be kept at £20,000 for 2022-23, while the Junior ISA and Child Trust Fund limit will be maintained at £9,000.
How will the Autumn Budget 2021 affect my business?
Changes to business rates
There were a number of changes to business rates announced in the Autumn Budget, top of the list being a one-year, 50% cut in rates for the retail, hospitality and leisure sectors in England.
Providing further relief, the business rates multiplier has been frozen for another year in a move the government says is worth £4.6 billion over five years.
And to try to make business rates fairer, revaluations will take place every three years rather than every five years, starting in April 2023.
Recovery Loan Scheme extended
In more good news for businesses, the Recovery Loan Scheme will be extended until 30 June 2022, with finance available up to a maximum of £2 million per business. However, the government guarantee will be reduced from 80% to 70% – a move designed as a step towards post-Covid-19 normality.
Also announced were nearly £750 million in new investment incentives, including in green technologies such as solar panelling, and the extension of the £1 million Annual Investment Allowance through to March 2023.
What was announced before the Autumn Budget?
Given our uncertain times, the government hasn’t limited its major announcements to the day of the Budget itself.
The previous weeks and months have been filled with significant changes to everything from national insurance to pensions.
One of the biggest announcements confirmed with the Autumn Budget was the 1.25% rise in National Insurance contributions, taking effect from April 2022 to April 2023.
This will be followed by the Health and Social Carey Levy, also taxed at 1.25%, from April 2023.
Alongside the National Insurance hike came news that the government would be ditching the triple lock pensions promise, where state pensions rise in line with the highest of inflation, average earnings or 2.5%.
A sharp increase in wages meant the government was looking at an 8% increase to the state pension. This prompted the government to suspend the triple lock for 2022/23.
Instead, the state pension will rise by 2.5% or by the rate of inflation, whatever is higher. For 2022/23 this will mean the state pension will increase by 3.1%, based on the inflation figures for September 2021.
With energy prices, food costs and National Insurance on the rise, the government announced £500 million in support for vulnerable households in September 2021.
The Household Support Fund will be distributed by councils from October 2021, and is designed to help struggling families and households pay for food, clothing and utilities over the winter months.
» MORE: Learn how to create a budget
Image source: Getty Images
Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more