Finance

Budget 2021: Five key takeaways for the City

The unveiling of the chancellor’s red box is always a closely-watched event in the City. This time around was no different, coming at a pivotal moment in the Covid economic recovery.

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Here are five key takeways.

Appeasing the City

Briefings before the Budget hinted that Sunak would offer carrots to a business community still navigating the fallout of Brexit, with the mood music suggesting that enterprise had begun to question the interventionist turn taken by the Conservative Party in the wake of the pandemic.

Sunak said that the Budget paved the way for “investment in a more innovative, high-skilled economy because that is the only sustainable path to individual prosperity”.

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Making the point explicit, he said the government would be “backing business, because our future cannot be build by government alone, but must come from…our entrepreneurs,” adding that business investment had been revised upwards for the next five years.

“Innovation comes from the imagination and drive of businesses,” he later added.

Inflation stations

Right from the outset, Sunak noted his speech was set to a backdrop of faster inflation.

The Office for Budget Responsibility expects CPI to average 4% over the next year, he noted.

The majority of the price hikes can be explained by two forces, he said. As economies around the world reopen demand has risen quicker than supply chains can accommodate, while global demand for energy has surged at a time when supplies had already been disrupted.

“Where the government can ease these pressures we will act,” he said, adding that he had written to the Bank of England to reaffirm its remit to achieve low and stable inflation with a 2% target.

Talent and retention

Keen to put aside fears that talent is leaving the UK after the departure from the EU, Sunak announced that he would review the eligibility for work visas to make it quicker and easier for growth businesses to bring in high-skilled individuals from overseas.

Skills spending more broadly would be raised £3.8bn, the chancellor added, including the launch of Multiply, a £560m, three-year plan to improve basic maths skills.

Return to work

At Prime Minister’s questions before the Budget, Boris Johnson was asked whether or not, in the face of Covid-19 case rates well outstripping other nations, it was time for another lockdown.

“The reality is that, of course we monitor all the data very carefully every day, we see nothing to suggest we need to deviate from the plan that began with the roadmap in February that has given people and business in this country the unlockings we’ve seen and indeed the fastest growth in the G7,” he said.

Sunak echoed the positivity about the economic reopening; the OBR had revised down its Covid-19 scarring assumption from 3% to 2%, he said.

Departmental spending

During the pandemic, Sunak broke a Conservative manifesto pledge by cutting overseas aid spending from 0.7% to 0.5%. The move was described at the time as a temporary measure until public finances recovered, but many assumed it would last many years.

However, in a surprise move, Sunak said spending was scheduled to return to 0.7% by 2024-25. Contrary to briefings suggesting government departments would also continue to feel the squeeze, he also announced a real terms rise in spending for every department.

To contact the author of this story with feedback or news, email FN Staff

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