We haven’t been short of financial announcements from the UK government this year, but the 2021 Budget is the most important. In this post I will run through some of the most important announcements for you.
With rising inflation, increasing energy costs and an uncertain economic future means people are increasingly worried about their financial situations. Chancellor Rishi Sunak seems confident he has the answers, but his critics are less convinced.
The 2021 Budget seemed more generous than expected, but there are some very important changes.
So, will you be better or worse off as a result of the 2021 Budget? Read on to find out…
- National Minimum Wage increase
- Education and skills
- Families and children
National Minimum Wage increase
The National Living Wage is increasing once more. From 1 April 2022 it will rise from £8.91 an hour to £9.50 – a 6.6% increase in the minimum wage. This is over double the current 3.1% cost of living rise – although this could well still increase.
Rishi Sunak is set to announce a rise in the National Living Wage from £8.91 per hour to £9.50, to come into effect from 1 April next year.
For those working full time (40 hours a week), the new minimum wage adds up to a total salary of £1,646 per month or £19,760 a year.
The increases to the wage rates follow recommendations made by independent advisory board the Low Pay Commission.
The main criticism of the national minimum wage increase is that it only applies to those aged 23 and over. Many younger people work just as hard as their older colleagues and they still have the same bills and rent to pay.
Not all younger people can rely on family support.
Those aged 21-22 will see an 83p increase in the National Minimum Wage to £9.18 per hour. But those aged 18-20 will see their minimum wage increase by just 27p an hour.
For 16-17 year olds, the increase will only amount to 19p an hour. Apprentices will receive a 51p national minimum wage increase. However, they will still only earn £4.81.
The Treasury has also announced it will be lifting a pay freeze imposed on millions of public sector workers last year during the pandemic.
The exact amount people will receive depends on the area in which they live, their role, and how much their pay has increased already in recent years.
The main tax announcements had already been made.
The new health and social care levy will add 1.25 percentage points onto your National Insurance contributions from April 2022. This increase with also apply to share dividends.
However, Rishi Sunak says he wants to lower taxes. He hopes to do this by the end of this Parliament.
A few other changes were also announced…
Currently there is essentially a “tax on work”, whereby you lose a substantial sum of money when you start working or take on more work.
The 2021 Budget outlined that this rate will be cut by 8%. This will fall from 63% to 55%. Work allowances will also increase by £500.
Over 2 million families will keep over £1000 extra a year. It equates to a £2 billion tax cut for some of society’s lowest paid individuals.
The planned rise in fuel duty has been cancelled. This means the average tank of fuel should cost £15 less in real terms than 12 years ago.
Flight duty changes
The government is reducing the tax you pay on domestic flights – an interesting decision in the middle of a climate emergency.
However, this will be funded by a long-haul tax hike. Essentially, the further you fly, the more you will pay. This change is expected to affect only around 5% of all passengers.
In the 2021 Budget, Rishi Sunak dubbed this the “most radical simplification” of alcohol duty in over 140 years.
Main duty rates will fall from 15 to 6. Simply put, the stronger the drink, the stronger the tax. Some drinks – like spirits and strong red wines – will see an increase in tax.
Lower alcohol drinks like ciders and low strength beers will pay less tax than previously.
The duty premium of 28% on sparkling wines has been reduced to be in line with other wines. This cut also applies to fruit ciders – who also previously faced a premium.
The planned increase in duty on all alcoholic drinks has also been cut. This is essentially a tax cut of £3 billion.
Education and skills
The 2021 Budget included £1.6 billion over three years to roll out new T-levels for 16 to 19-year-olds plus £550 million for adult skills in England.
Currently there are around 2,000 students on T-level courses, but the government hopes to quickly increase these numbers.
The government said it will spend a further £830 million on modernising colleges in England.
The Chancellor also emphasised the importance of “lifelong learning”. The aim of this is to increase earning potential by giving individuals more desirable skills.
To support this, the government is investing in wide ranging skills agenda. Increasing spending by 42% (£3.2 billion).
Many adults in this country have numeracy skills lower than the level expected of 9 year olds. This costs individuals a huge amount in lost earnings over a life time. Funding for training to improve this.
The Treasury said it will allocate £1.8 billion for building around 160,000 new homes on derelict or unused land – usually known as brownfield sites – in England.
There will also be £9 million available for councils to turn neglected urban spaces into “pocket parks” roughly the size of a tennis court.
Rishi Sunak claimed this will unlock over 1 million new homes – largely built on brownfield sites. No further details about these homes were revealed, but it’s likely there will be requirements for a certain proportion to be “affordable”.
The cladding scandal has left many crippled in debt and some have lost their homes as a result. The government is releasing £5 billion to help pay for the necessary works.
This will be in part funded by a new Residential Property Developers Tax. This will apply to those with profits over £25 million and be charged at a rate of 4%.
Families and children
The Chancellor announced £500 million to support parents and children in England.
How this will be used remains ambiguous, but it was said £200 million will go to supporting families with complex issues. £82 million will be used to fund centres in 75 different areas to provide advice for parents, while £100 million will be given for mental health support for expectant parents; and £50 million for breastfeeding support.
However, the was very little mention of childcare. Currently one of the biggest issue facing parents is the huge cost of childcare. Many find they are better off reducing their hours or not working at all.
This feels like a missed opportunity from the government to make a real difference – and boost the economy in the process.
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If you enjoyed this post about the 2021 Budget, please like it and share it on social media or with your friends. Do you think there are any money lessons we can learn from James Bond? Which of these changes would you like to make?