Rt Hon Rishi Sunak, Chancellor of the Exchequer, has presented a new Budget to Parliament.
This was published alongside a new Economic & Fiscal Outlook (EFO) report by the Office for Budget Responsibility (OBR), the government’s official forecaster.
There are few real surprises, as most measures were “trailed” in advance in the general media, but it is clear that the Chancellor has tried to balance two urgent, but opposed, forces – dealing with Coronavirus whilst also attempting to manage debt. This is a political as well as a fiscal challenge.
Although repayment of borrowing and fiscal rebuilding is discussed – and promised – the conditions and likely timing for this remain rather vague.
For businesses, perhaps the most important policy measure is the new “super-deduction” option (para 2.111), intended to give businesses a powerful incentive to invest in capital.
The major business items “missing” from the Budget are info on business rate reform (long-delayed) and any specific mention of policy on movements for seasonal agricultural workers (SAWs) – although some information was given about movement for “elite” workers.
Key points are provided below.
(1) General situation
The action taken by the government to address Coronavirus has succeeded. The “roadmap” lays down a route out of the crisis – there is more optimism now than in November.
The economic and fiscal impact of the virus has been severe, however, comparable to major wars. Recovery is expected to take decades and there is risk that higher interest rates might make current borrowing unsustainable.
The government has a 3 broad aims, in order of priority:
- Support jobs and businesses during the recovery phase
- Restore public finances, as the situation allows
- Build a more modern economy
Strategic “themes” developed before Coronavirus remain in-place:
- Developing skills, creating a “knowledge-led” economy
- Encouraging business investment and new enterprises
- Investing in infrastructure, especially “green” projects
- “Levelling-up” across UK regions
- Looking for ways to improve productivity and competitiveness
- Responsible approach to public finances
(2) Selected policy measures
(2a) – Supporting jobs and businesses
- (para 2.14) “Furlough” schemes extended to September 2021, employer contributions rising from July
- (para 2.15) Two further Self Employment Income Support grants, in April and September, wider eligibility
- (para 2.18-24) Special welfare provisions extended
- (para 2.29-30) Further support for apprenticeships
- (para 2.33) Planned increase in National Living Wage (NLW) expected to go ahead
- (para 2.42) Funding for lenders as part of Recovery Loan Scheme
- (para 2.43) Restart Grants of £6k for retail and £18k for hospitality, leisure and accommodation
- (para 2.44) Statutory Sick Pay rebate scheme for Small and Medium-Sized Enterprises (SMEs) extended
- (para 2.45) 5% Value-Added Tax (VAT) rate for hospitality, accommodation and leisure retained to September
- (para 2.47) Business rate relief for retail, hospitality and foodservice
- (para 2.54) Contactless card payment limit increased from £45 to £100
(2b) Restoring public finances
- (para 2.66) Income tax allowance and higher rate threshold will rise next year, then static until 2026
- (para 2.68) Corporation tax will rise in 2023, to 25%
- (para 2.71) Duty on beers, wines, spirits and fuel will remain unchanged
- (para 2.88) Vehicle Excise Duty (VED) on HGVs will remain unchanged, to support the haulage industry
- (para 2.90) Eligibility for use of “red” diesel will be reduced, although agriculture will continue to benefit*
(2c) Building a more modern economy
- (para 2.111) “Super-deduction” option, allowing businesses to deduct 130% of cost of capex from profits
- (para 2.112) New UK Infrastructure Bank will begin funding major projects, beginning in 2021
- (paras 2.113-114) 8 new “freeports” in England, with others to follow in NI, Scotland and Wales
- (paras 2.138-139) Funding for training and software to boost productivity
- (para 2.140) Further changes to migration system to encourage “elite” migration
- (para 2.144-145) Creation of “green” investment platforms, including for retail investors
- (Box 3D) Special funding ringfenced to protect GB / NI supermarket supply chain function
* “Red” diesel – diesel for off-road use, subject to low tax and dyed red to prevent misuse