EXECUTIVE REPORT
A budget for our time?
It takes a brave man to become Chancellor of the Exchequer and then present a budget during a global pandemic. But what does Rishi Sunak’s budget mean for businesses? Adam Bernstein investigates…
The Chancellor announced a series of responses designed to support those who cannot work, while helping businesses that are struggling through no fault of their own. His announcements follow a cut in interest rates from 0.75% to 0.25% and billions of pounds in lending to help banks support SMEs.
Sunak announced a three-point plan at a cost of £7bn. The first granted the NHS the resources it needs to cope with the virus. Next, aside from those absent from work who will receive Statutory Sick Pay (SSP), people who self-isolate are to get the same. The self-employed eligible to claim Contributory Employment and Support Allowance will be able to claim from day one too.
The last element involves enhanced support for businesses through the full refund to SMEs with fewer than 250 workers of SSP for 14 days; HMRC scaling up its Time to Pay scheme for firms in trouble following the outbreak; and a new, temporary, Coronavirus Business Interruption Loan Scheme with £1bn in funding which can offer loans of up to £1.2m to SMEs facing difficulties. SMEs in the retail, leisure or hospitality sectors that have premises with rateable values below £51,000 will welcome the suspension of business rates for one year. Any business currently eligible for small business rates relief will be provided with a £3,000 cash grant.
The state of the economy
GDP growth is predicted to stand at 1.1% in 2020 and 1.8% in 2021. It doesn’t help that inflation is predicted to rise to 1.4% in 2020 and 1.8% next year.
The National Living Wage (NLW) will increase by 6.2% from 6 April. However, the Chancellor went further and announced that the Low Pay Commission has been given a revised remit to ensure that NLW reaches 66% of median earnings - more than £10.50 an hour by 2024.
Another allied change relates to the National Insurance threshold which will rise from 6 April to £9500 from £8632. The Chancellor expects this rise to give workers an extra £100 a year.
Numerous changes
Following the government’s pledge to review the efficacy of Entrepreneurs’ relief, Sunak announced that it’s to be restricted so that it offers a lifetime allowance of just £1m compared to £10m previously. The predicted savings will be redirected to business via an increase in the Research and Development Expenditure credit (RDEC) from 12 to 13%, a rise in the Structures and Buildings Allowance (which
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relieves the construction costs for new structures and buildings) from 2 to 3%, and an increase in the Employers Allowance (which reduces an employers’ secondary Class 1 National Insurance costs) to £4000.
Other areas
On environmental issues, the Chancellor announced changes to how pollution is tackled, notably, from April 2022 the levy on electricity will be frozen while that placed on gas will rise; a new Plastic Packaging Tax of £200 per tonne will be applied to plastic packaging where less than 30% recycled plastic content is used; and the use of red diesel will be restricted to agriculture, rail and domestic heating and fishing in two years’ time. Those in construction, civil engineering and related trades, plant and equipment hire, transport, quarrying and mining and leisure will lose out.
There’s to be money for greener and cleaner transport options to make it less expensive to buy lower emission vans and cars, as well as pay for more rapid charging hubs. And there’s to be £120m for defences damaged in the recent floods, £200m to local communities to help areas flooded repeatedly and £5.2bn for new flood defences.
Other changes will involve gigabit broadband being rolled out nationwide at a cost of £5bn, and £510m for a shared 4G network so that 95% of UK will be covered. Sunak also noted there would be “over £27bn of tarmac” through a strategic fund for roads and motorways alongside £2.5bn over five years to fix potholes.
There’s to be £1.1bn to build 70,000 new homes, £650m to help rough sleepers, and a new stamp duty surcharge of 2% on non-UK residents from 2021. And for those in buildings covered in unsafe combustible cladding, there’s £1bn for its removal from structures over 18m in height.
To ease the pressure on NHS funding the planned cut to Corporation Tax has been shelved - it remains at 19%. And there’s also extra funding for HMRC to reel in an expected £4.4bn in additional revenue. Businesses caught by the Making Tax Digital (MTD) regime for VAT will welcome the Chancellor’s plans to evaluate MTD’s introduction before (if) it’s rolled out further.
Summary
So, the Chancellor has combined election pledges with pragmatism in helping the country fight coronavirus. The question is - is the government storing up economic problems for the future or is it hedging on the basis that interest rates will be low for some time?
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