Guidance

Autumn Budget 2021: a GAD technical bulletin

Published 29 October 2021

Introduction

The Chancellor of the Exchequer presented his Autumn Budget and Spending Review 2021 to Parliament on 27 October. This bulletin focuses on areas in which GAD advises, including announcements relating to pensions, savings, and the Chancellor’s ambition to ‘make work pay’.

Spending Review

This Budget coincides with the conclusion of the Spending Review 2021 (SR21). SR21 sets out the government’s spending priorities for the remainder of this Parliament and finalises departmental funding settlements for the period to April 2025. The Chancellor announced a cash increase to total departmental spending of £150 billion over that period. Every department’s overall spending will increase faster than inflation and, on average, spending growth will exceed inflation by 3.8% each year.

SR21 sets out the priority outcomes that government departments will deliver with their agreed funding - see Chapter 4 of the Autumn Budget and Spending Review 2021 report. Also available, linking together spending and performance, are the metrics that will be used to measure progress - see Spending Review 2021: Priority outcomes and metrics.

The government’s commitment to sustainable public finances over the medium term is underpinned by new fiscal rules. The government has updated its fiscal rules to reflect the significant change in economic and fiscal context from COVID-19. The fiscal outlook has improved since the Office for Budget Responsibility’s March 2021 forecast (see their latest Economic and Fiscal Outlook – October 2021). Further information on the government’s fiscal framework is available in Annex A of the main report and in the updated Charter for Budget Responsibility.

Pensions and savings

The Chancellor announced the government would consult, before the end of the year, on further changes to the regulatory charge cap for defined contribution auto-enrolment pension schemes. Amendments to the scope of the cap will be considered to enable investments into the UK’s most productive assets, while continuing to protect savers. The government will also continue wider policy work to understand and remove various barriers to illiquid investment.

HM Revenue & Customs has published details of legislation introduced to ensure the pensions tax framework continues to apply as intended to the public service pension schemes. Often known as ‘the McCloud case’, schemes are implementing remedy to correct for unlawful age discrimination following the 2015 scheme reforms - this will impact certain members’ benefits. Technical changes to tax legislation are needed. These changes will (as far as possible) put those members in the tax position they would have been in, had they always had the pension provision they finally receive.

The government also announced reforms relating to the administration of tax relief for lower-earning individuals saving in a pension scheme using a Net Pay Arrangement. The changes are intended to better align outcomes with equivalent savers in schemes using Relief at Source, where tax relief can be higher for low earners.

For the financial year starting in April 2025 the government will introduce top-up payments, paid directly to low-earning individuals saving in pension schemes using a Net Pay Arrangement. The government estimates 1.2 million individuals could benefit by an average of £53 a year. Further details are available in Pensions tax relief administration: Call for Evidence Response.

The following savings tax thresholds were confirmed for 2022 to 2023:

• the band of savings income that is subject to the 0% starting tax rate will remain at its current level of £5,000

• the annual subscription limit for Individual Savings Accounts (ISA) will be maintained at £20,000 for adults and £9,000 for Junior ISAs and Child Trust Funds

The Autumn Budget also confirmed September’s announcement on how the State Pension will be uprated for April 2022. The ‘Triple Lock’ will be temporarily suspended for one year. The State Pension and Pension Credit will instead increase by either the rate of Consumer Price Inflation (CPI) or 2.5%, whichever is higher.

Making work pay

In his Budget speech, the Chancellor talked about building “a society that rewards work”. Aligned to this, he announced a reduction in the taper rate that applies to Universal Credit. In a change that will be introduced by 1 December 2021, the taper will fall from 63% to 55%, slowing the rate at which benefits are withdrawn as households earn more. At the same time, the amount that certain households can earn before their Universal Credit award is reduced – the Work Allowance - will be increased by £500.

The Spending Review 2020 had announced a ‘pause’ on most pay rises in the public sector during 2021 to 2022. However, SR21 announced a return to a normal pay setting process for the next 3 years. Where applicable the government will seek recommendations from Pay Review Bodies.

The National Living Wage (NLW) and National Minimum Wage will increase in line with the recommendations of the Low Pay Commission. For individuals aged 23 and over, the NLW will increase by 6.6%, from £8.91 to £9.50 an hour, effective from 1 April 2022.

Next steps

If you would like to discuss any of the topics covered in this bulletin, or to learn more about the potential impact of other Autumn Budget or SR21 announcements, then please get in touch with your usual GAD contact.

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