This week Rishi Sunak delivered his first budget speech, full of spending promises and to resulting cheers from the Tory back benchers, echoing his boast that the Government was ‘Getting it Done’. The big idea is to see public expenditure rise to £100bn a year higher in cash terms than today by 2025.
In the detail, few of the anxieties expressed in advance by financial services commentators proved well founded, for example around any withdrawal of pension tax relief.
But the Coronavirus Covid-19 has meant a hurried rearrangement of priorities and material extra spending, in fact a total of £12bn just on the effects of the outbreak – comprising £5bn for the NHS, £1bn on Stationary Sick Pay, £2bn on cash support for business and £4bn on business rate relief. This is part of a co-ordinated response tied to the Bank of England’s cut of base rates to 0.25%. And to the release of its contingency reserve to allow UK banks extra liquidity. The sudden onset of Corona means this year’s economic forecasts from the Office of Budget Responsibility have not been updated for any projected effect of the disease. Although you might say what has been published shows the striking impact of Brexit on the economy – we are where we are. Who knows where we will be once the peak of infection has passed?
To make good on promises to ‘level up’ the economy, this Budget contains substantial extra public expenditure in the coming year, of £18bn, over and above the money put in to reduce the impact of Corona. The clear winners are the NHS and infrastructure. The ratio of public debt to national income will rise over the next five years to nearly 80% of national income, up from around 75%. Meanwhile current spending of social and other local services remain at the levels introduced under austerity. Will better roads and hospitals be enough to retain the support of voters in the North? And will the international bond markets step up and lend us all the extra money we plan to spend? The 2020/21 requirement for borrowing is £156bn in total.
Whatever your political views, the sooner the health crisis is behind us, the better for us all.
10 changes which might be of interest to advisers
- Junior ISA (JISA) – Subscription limit raised very substantially, from £4,369 to £9,000 from April 2020.
- Top slicing – Legislation to follow to clarify operation top slicing taxation rules affecting relevant gains post 11 March 2020.
- Pension reliefs – Annual allowance tapering starts when ‘adjusted income’ exceeds £240,000, an increase of £90,000. The Lifetime Allowance increases to £1,073,100.
- National Insurance Contribution (NIC) – NIC primary threshold raised to £9,500, saving a typical employee £104pa.
- IR35 -Reforms under to be legislated in Finance Bill 2020 with effect from 6 April 2020.
- Loans to small businesses – 80% government guarantee on loans to small businesses affected by Coronavirus making lending easier to obtain.
- Small business grants – £3,000 grants available via local government to businesses with rates exemptions.
- Business rate reliefs – 100% business rates relief for 2020 for retail properties qualifying for Small Business Rates Relief.
- Entrepreneurs Relief – Maximum available relief on eligible gains cut from £10m to £1m.
- VAT on fund fees – UK Treasury to investigate VAT on funds, DFM and financial services generally, with a view to maintaining UK competitiveness post-Brexit.
Further budget reading
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