Chancellor of the Exchequer, Rishi Sunak, delivers the second budget report for 2021. © Leon Neal via Getty.
Chancellor of the Exchequer, Rishi Sunak, delivers the second budget report for 2021. © Leon Neal via Getty.

'Shared global problems' for supply chains in UK budget

posted by Juliette Rowsell and Peter Crush
in Law
27 October 2021

UK Chancellor of the Exchequer, Rishi Sunak, unveiled his autumn budget in the House of Commons this afternoon

In a wide-ranging speech, which took longer than an hour to read, Sunak promised to “deliver a stronger economy for the British people”. But he admitted pressures caused by ongoing supply chain difficulties will “take months to ease”. 

Sunak said: “It would be irresponsible for anyone to pretend we can solve this [supply chain problem] overnight. I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own.” 

Supply Management compiled the top takeaways from the UK Budget report for procurement and supply chain:  

1. Inflation will rise to 4% 

Sunak confirmed inflation is expected to hit 4% over the next 12 months, up from the current 3.1%, according to predictions by the Office for Budget Responsibility (OBR).

Sunak said this could be explained by two factors: “As economies around the world reopen, demand for goods has increased more quickly than supply chains can meet. Also, having been shut down for almost a year, it takes time for factories to scale up production, for container ships to move goods to where demand is, and for businesses to hire the people they need.”  

He also said inflationary pressures were being driven by increased costs of oil, coal and gas, which he said have more than doubled. 

2. HGV relief  

Vehicle excise duty rates for HGVs will remain frozen in 2022-2023, and the HGV Levy will be suspended for another 12 months from August 2022. Sunak also announced the government will be investing £32.5m into HGV roadside facilities, a major boost to the UK’s logistics sector which has this year been crippled by lorry driver shortages. 

David Wells, chief executive at business group Logistics UK said: “Logistics UK is happy to hear the Chancellor’s commitment to improve the quality of HGV parking spaces available. However, as the government’s own figures estimate, there is currently a shortfall of more than 1,400 spaces nationally, and so there is still more to be done.  

“We will remain in close contact with government on this issue, to ensure that spaces needed are finally delivered, after more than three years of promises which are yet to be fulfilled.” 

3. Fuel duty freeze  

Fuel duty had been expected to rise from midnight tonight from 57.95p per litre to 60.79p. However the Chancellor confirmed the planned 4.9% increase would be scrapped following increases in petrol prices after global shortages of gas, which reached record highs of 142.94p per litre on Sunday.  

Sunak claimed this would save HGV drivers £130 per tank fill-up. 

4. Incentivising tonnage tax 

Sunak announced changes to tonnage tax, a form of corporation tax applied to shipping. He said the new system would create a “simpler” and “fairer” tax system. 

He announced the tax breaks would be rewarded to ships that fly the Red Ensign flag – a flag flown by British merchant or passenger ships since 1707. When a shipping business participates in the UK’s tonnage tax regime, they accrue less tax by paying based on the amount they can carry, rather than the profits they make.

It is hoped the move will encourage more international shipping firms to fly the Red Ensign and boost the UK economy by having headquarters in the UK.

Gavin Simmonds, policy director commercial at the UK Chamber of Shipping, welcomed the package saying it would “immediately strengthen the UK flag shipping”.

Sunak told MPs: “When we were in the old EU system, ships in tonnage tax were required to fly the flag of an EU state. But that doesn’t make sense for an independent nation.” 

5. National living wage increase 

The national living wage is to rise from £8.91 to £9.50 an hour for those aged 23 and over.

Edward Winterschladen, executive vice-president at procurement consultancy firm Proxima said: “The National living wage rise will increase labour costs for business, but that may not be such a bad thing. 

“It is positive news for workers, and for most businesses, external supplier costs are a far bigger burden than labour costs, thereby providing opportunities to off-set rises in direct labour costs by looking more closely at their external supplier spend and identifying areas of waste or duplication. 

“This could lead to a win-win of higher wages and more efficient business operations.” 

6. Investment in buildings 

Investment relief will mean businesses can make property improvements and pay no extra business rates until 2023. 

Traditionally, the business rate system has discouraged firms from investing in substantial building improvements – such as making structural improvements, renovations, or adding things like solar panels or air conditioning units – because improvements tend to increase the rateable value of the property, meaning more annual tax. 

But in what could well be seen as a boost to the building supplies sector, businesses will be able to substantially invest in their properties and pay no new tax rises for nearly two years.  

Sunak also said business rate revaluations would be more frequent, at every three years.

But Vivienne King, chair of the Shopkeepers’ Campaign, said there was disappointment “that there is no commitment to annual revaluations so that tax bills reflect the market property values”.

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