UK Chancellor Rishi Sunak promises big spending after round of tax hikes

The UK's Chancellor of the Exchequer Rishi Sunak leaving 11 Downing Street, London, before delivering his Budget to the House of Commons yesterday. Photo: PA

David Milliken, Andy Bruce and William Schomberg

October 28 2021 02:30 AM

The UK Chancellor of the Exchequer Rishi Sunak promised higher public spending and new tax cuts as Britain’s economy rebounded more strongly from the Covid-19 pandemic than previously expected.

In a so-called half-year budget the UK finance minister also vowed to protect households from rising inflation, encourage more lorry drivers and capped a planned hike in the tax on alcohol.

Mr Sunak announced multi-billion-pound investments to help Prime Minister Boris Johnson meet spending promises to voters and ease a cost-of-living squeeze for low-earning households yesterday.

But at the same time Britain’s official budget forecasters said the tax take there was on course to be its biggest since the 1950s, thanks in large part to tax increases announced in March and September.

The UK’s Office for Budgetary Responsibility (OBR) said the economy was likely to grow by 6.5pc in 2021, a lot faster than forecast in March.

The higher growth forecast for 2021 meant the economy was expected to regain its pre-pandemic size at the turn of this year, not in the second quarter of 2022 as predicted in March, although that was still later than in other countries.

It also meant Mr Sunak – who racked up Britain’s biggest ever peacetime budget deficit to combat the coronavirus – would be able to borrow less than previously expected.

Mr Sunak said every government department would get a real-term increase in spending and he promised the biggest increase in a decade in the core funding of local governments.

On taxes, Mr Sunak moved to lessen the hit for low-earning families from the recent end to a pandemic emergency top-up of their welfare benefits, and he cut business rates for one year for hard-hit sectors such as retail and hospitality.

He also announced further measures to ease a shortage of truck drivers which has led to supply chain problems.

Mr Sunak acknowledged the risks posed by rising inflation, much of which he blamed on problems in the global economy.

The OBR said it expected inflation to hit 5pc next year.