When Philip Hammond delivered the last Budget 499 days ago, in the midst of the Brexit negotiations, he could not have imagined that the next Budget would be dominated by the spread of a lethal contagion.
Nor is it likely that he thought Rishi Sunak – then a relatively inconspicuous junior minister – would be the one delivering it, with Mr Hammond having resigned and lost his seat in Parliament in the meantime.
Even a few weeks ago, there was little reason to expect that Mr Sunak, by then promoted to Chief Secretary to the Treasury but still largely unknown, would deliver the Budget on the date announced by then-Chancellor, Sajid Javid.
It was only when Mr Javid resigned suddenly in February – becoming the first Chancellor not to deliver a Budget since Iain Macleod, who died a month after his appointment by Ted Heath in 1970 – that Mr Sunak was propelled into the limelight.
This left him just weeks to prepare the first Budget since October 2018 and so the first since Boris Johnson became Prime Minister, the first since the Conservatives regained a majority in Parliament, the first since Brexit and of course the first since covid-19 began its lethal spread.
The scale of the task facing a man still in his thirties could hardly be overstated, as several of his Parliamentary colleagues entered self-isolation.
Being the first Budget following the General Election, we had a little more idea of what the Chancellor was likely to say, given the content of the Conservative Manifesto and December’s Queen’s Speech. Reforms to Entrepreneurs’ Relief, Research and Development (R&D) Tax Credits and National Insurance Contributions (NICs) all featured prominently in the manifesto and so were widely-tipped to be addressed in the Budget.
Recent days had also seen promises of record investment in infrastructure, as well as help for businesses and individuals affected by covid-19.
Yet, despite these clear indicators, a nation gripped by fears of an epidemic, sharp falls on the markets and the Bank of England’s dramatic dawn move to slash interest rates to 0.25 per cent injected significant uncertainty into the proceedings.
After rising to the top of Government largely undetected, the unexpected Chancellor was the centre of attention in equally unexpected circumstances when he was called to speak by the Chairman of Ways and Means, following Budget day tradition.
- Covid-19 response
- Economic overview
- Personal taxes, pay and duties
- Transport, infrastructure and the environment
With covid-19 having brought about panic on the global markets as recently as Monday, it was no surprise that the Chancellor began his statement by addressing the economic impact of covid-19.
Describing the economy as “sound” and the public finances as “robust”, he predicted supply-side disruption to the economy and repeated previous forecasts that as many as a fifth of the workforce could be absent at any given time.
The Chancellor said that the Government is launching a response to the potential economic impact of covid-19, worth as much as £12 billion and comprising three parts.
First, he said that the Government will provide the NHS with whatever funding it needs to be able to deal with the consequences of covid-19.
Second, he said that the Government will act to support the finances of people who cannot work as a consequence of covid-19, including those who are self-isolating. As had previously been indicated by ministers, Statutory Sick Pay (SSP) will be paid from day one, while the self-employed and people working in the ‘gig economy’ will gain quicker access to benefits, such as Universal Credit.
Third, the Chancellor announced a package of measures to protect businesses from the economic impact of covid-19. Businesses with fewer than 250 employees will have the cost of paying SSP to employees who are absent owing to covid-19 for up to two weeks reimbursed by the Government.
Meanwhile, there will be deferred tax arrangements available for businesses and self-employed individuals, a temporary Coronavirus Business Interruption Loan Scheme, worth up to £1.2 million per business, and business rates will be suspended for a year from April for those with a rateable value below £51,000 in the retail, leisure and hospitality sectors.
The Government will also provide a cash grant of £3,000 to each business eligible for the small business rates relief, worth £2 billion in total to the UK’s 700,000 smallest businesses.
In an indication of how covid-19 is dominating the agenda, the Chancellor was 20 minutes into his hour-long Budget before he began addressing the state of the economy.
He said that growth is predicted to be 1.1 per cent this year, albeit not taking into account the likely impact of covid-19.
Annual output is forecast to reach 1.8 per cent in 2021-22, before falling to 1.5 per cent in 2022-23 and 1.3 per cent in 2023-24.
Meanwhile, inflation is expected to be 1.4 per cent this year, rising to 1.8 per cent 2021-22.
Public sector borrowing will rise this year to 2.1 per cent of GDP, to 2.4 per cent and 2.8 per cent in the following years.
Reports in several newspapers in the last month had led people to speculate about whether Entrepreneurs’ Relief might be scrapped altogether by the Chancellor.
In the end, he opted not to, while saying that he was sympathetic to those behind such calls.
Instead, he opted to retain Entrepreneurs’ Relief but to reduce the lifetime allowance from £10 million to £1 million with immediate effect.
As expected, the Chancellor froze Corporation Tax at 19 per cent, instead of pressing ahead with the previously planned cut to 17 per cent.
The Chancellor said that he will increase the Employment Allowance by a third to £4,000 from April, cutting the tax bill for almost half-a-million small businesses.
Meanwhile, he said the rate of R&D Tax Credits would rise from 12 per cent to 13 per cent and that the Government will consult on whether qualifying costs should include investments in data and cloud computing.
Following on from his announcement about business rates concerning covid-19, the Chancellor also said that the whole system of business rates will be reviewed this year.
He reaffirmed the Government’s commitment to raising the National Living Wage to two-thirds of median earnings by 2024 – expected to be around £10.50 an hour.
There were few rabbits in the Chancellor’s proverbial hat when it came to personal taxes, pay and duties, with most of the key announcements having been trailed in advance.
These included increasing the NICs threshold from £8,632 to £9,500 – a measure that was included in the Conservative Manifesto.
Another announcement that had been trailed ahead of the Budget was the scrapping of the five per cent rate of VAT on women’s sanitary products.
Duties on spirits, beer, cider and wine will be frozen, while fuel duty will be frozen for the tenth year running.
Moving to pensions, the Chancellor said that the tapered annual allowance thresholds will both be increased by £90,000 to £200,000. As a consequence, from April, the tapered annual allowance will not affect people with an annual income of less than £200,000 - the “threshold income”. Only where an individual has an “adjusted income” of £240,000 or more will the annual allowance begin to taper down. At the same time, people with a total income of £300,000 or more, including pension accrual, will see the minimum amount the annual allowance can taper to fall from £10,000 to £4,000.
The lifetime allowance for pensions will rise in line with the Consumer Prices Index in 2020-21 to £1,073,100.
Non-UK residents will be faced with a two per cent Stamp Duty Land Tax (SDLT) surcharge from April next year, in a move HM Treasury says is intended to control house price inflation.
One of the biggest areas of spending in the Budget was transport and infrastructure, with the announcement of £600 billion for roads, rail, broadband and housing over the next five years, with £2.5 billion to fix potholes over this period.
The Chancellor said that a £1 billion fund would be created to remove all unsafe combustible cladding from public and private housing in buildings taller than 18 metres.
In another announcement that is sure to have caught the eyes of many businesses, he said red diesel will be scrapped in two years for all sectors, apart from farmers and the railways.
With 2019 having been the first year since 1900 in which no Budget had been delivered and much having happened since the last one in 2018, there was plenty for the Chancellor to say that will impact upon entrepreneurs and small businesses in particular.
In total, the measures announced represent £30 billion of extra Government spending, which he said would “support British people, British jobs and British businesses”.
Link: Budget 2020