34 Britain TheEconomistOctober30th 2021
be using most of the windfall delivered by
better economic growth to lower borrow
ing (or, perhaps, as a slush fund for tax
cuts). But now, he is spending—and in par
ticular to ease the pressure on public ser
vices brought about by the pandemic. The
health department will see the biggest in
crease, because hospitals must deal with
both covid and an enormous backlog, but
most will have at least some sort of rise.
This will begin to reverse the cuts applied
by Mr Osborne (see chart).
Given how much of the budget was
trailed before, some wondered whether
anything would be left for the main event.
But the chancellor managed a few surpris
es. Half the planned increase in depart
mental spending in 202425 will restore
foreign aid to 0.7% of gdp, a target aban
doned during the pandemic. A welcome
simplification to the mess of alcohol tax
ation was seized on by Mr Sunak, a Brexi
teer, as a benefit of leaving the eu(it would
not have been possible as part of the bloc).
Firms running retail, hospitality and lei
sure properties will enjoy a temporary cut
to business rates, to help their postpan
demic recovery.
The most impressive rabbit Mr Sunak
pulled out of his hat was an increase in the
generosity of Universal Credit, a benefit for
workingage people. He faced criticism in
September for allowing a pandemicrelat
ed uplift to expire, which cost recipients
£1,000 a year. Rather than reverse the cut,
Mr Sunak reduced the rate at which the
benefit is withdrawn as people earn more.
The Resolution Foundation, a thinktank,
was quick to point out that together with
higher minimumwage rates, the change
would still leave the poorest fifth of house
holds £280 a year worse off. But it does at
least cushion the blow.Critics complain that the outlook for
households’ disposable income is still
pretty dismal. Mr Sunak’s cursory treat
ment of climate change smacked of com
placency—and the trove of documents re
leased alongside his speech revealed little
that would fulfil Britain’s bold climate
change ambitions. Given the number of
global leaders about to descend on Glas
gow to discuss the matter, it was slightly
odd to announce a cut on shorthaul flights
taxes (and not to raise fuel duty). Before the budget, there was lots of
noise about the growing distance between
Mr Sunak and the prime minister, Boris
Johnson. There were even rumours that Mr
Johnson would move the chancellor to a
different, less prominent job, so perturbed
was he by his rival’s star power. But the fis
cal event revealed them to be aligned, at
least as far as governing the country is con
cerned. Both arehappy to spend big if cir
cumstances callforit. Neither is a small
state ideologue.nA rising tide
Britain, departmental budgets*
%changesince2009,realtermsSource:IFS *FiscalyearsbeginningApril,day-to-dayspending2-40-60 -20 60402002024 forecast2021Housing and
communitiesWork and PensionsTransportCultureForeign OceLaw Ocers Dept.EnvironmentMinistry of JusticeMinistry of DefenceTreasury & HMRCEducationHome OceHealthA
chancellorextollingthevirtues
of innovation and entrepreneurship
is about as surprising as a defence min
ister praising the army. Entrepreneurs
can thus be forgiven for taking budget
day dispatches with a pinch of salt. But
Rishi Sunak’s address on October 27th
matched the warm words with action.
A panoply of programmes will funnel
taxpayer money to the private sector. The
governmentbacked British Business
Bank will receive £1.6bn ($2.2bn) to
allocate to its regional funds, which
provide debt and equity capital for fledg
ling businesses. The Global Britain In
vestment Fund—which invests in life
sciences, offshore wind and car manu
facturing—gets a £1.4bn boost. A further
£150m goes to a fund that aims to rebal
ance geographical inequalities in access
to earlystage equity capital.
All of this is dwarfed by a pledge to
raise government spending on research
and development (r&d) to £20bn a year
by the end of the parliamentary term, in2024. After adjusting for inflation, that
represents an increase of around a quar
ter from current levels. It is sorely need
ed. Britain’s gross r&dexpenditure was
1.8% in 2019, compared with an average
of 2.5% in the oecd, a club of mostly rich
countries. Most of the difference is due
to lacklustre r&dspending from Britain’s
private sector compared with its in
ternational peers. But the Treasury hopes
that more public funds will spur greater
private investment as well.
Accompanying the extra money was
an early warning of an attempt to muscle
firms into spending more of it at home.
Of the £47.5bn of r&d for which compa
nies claimed tax relief in 2019, only
£25.9bn was carried out in Britain. Not
ing that countries like America and
Australia do not offer similar rebates for
r&dperformed overseas, the govern
ment promised to “refocus the reliefs
towardsinnovationintheuk.”
As well as handing out cash, the
chancellor set about reassuring startup
founders and their investors that long
held gripes would be dealt with. One of
these is a cap on the fees workplace
pension schemes can pay to investment
managers. Designed to protect retire
ment savings from outsized investment
charges, it also limits pension schemes’
ability to invest in things like infrastruc
ture and earlystage companies, due to
the performance fees charged by venture
capital funds. Treasury officials will now
consult on loosening the cap.
Another is access to foreign talent,
which is set to be liberalised next spring.
A new visa programme will allow those
with a job offer from a fastgrowing
British firm to migrate with few strings
attached. A second will make graduates
of top universities eligible for visas, even
if they do not have a job offer. It is time
for startup lobbyists to come up with a
new wishlist. ThebudgetSomething ventured
The government rolls out the red carpet for entrepreneurs and their investorsNo expense spared