Hi Carl - thanks for your helpful suggestions. I haven't tried rebooting in safe mode as this is a brand-new out-of-the-box MacBook Air! But I have restarted it several times to no effect.
As I said in my first message the problem mainly seems to be with the commands "new line" and "new paragraph"
It seems that if you pause dictation for a few moments, the dictation system switches off, then the line spacing and paragraph breaks are inserted automatically. Or you can manually turn off keyboard dictation and the new lines and paragraph breaks are inserted automatically, then you can switch dictation back on and carry on. This never used happen prior to Big Sur as far as I can recall.
I have tested this on Apple’s Pages app, Word for Mac and Mail and the the same thing happens in all apps. I've also tested it in typing this message and the same thing occurs.
The “new line “ and “new paragraph” commands work fine if I dictate an email on my iPhone.
Just to be sure now, I will do a safe mode reboot, test then re-start and see what happens. However, it certainly seems to me that this is perhaps an issue that Apple need to fix.