Spring Budget – “We’re getting it done!”11 March 2020
Wednesday 11 March 2020 saw the delivery of the new Chancellor Rishi Sunak's first Budget. As he said himself, there were many 'firsts' involved in his speech; it's the first Budget of a new decade, the first in almost 50 years to take place outside the EU and the first of the new Government.
His speech followed the surprise move by the Bank of England at the start of the day. The response to the coronavirus outbreak has been closely co-ordinated with the Bank of England's response, which included the announcement this morning of a reduction in bank base rates by 50 basis points to 0.25%, and measures to help banks supply what may well be much needed credit over the shorter term to business.
The initial focus was very much on the impact of coronavirus. The Chancellor warned that the outbreak would have a significant short-term effect and pledged a £30bn package to help the UK respond effectively. He confirmed that there is likely to be temporary disruption to the supply side of the economy, as the workforce is affected, and that support would be provided for businesses to ensure that this temporary impact on productive capacity does not become permanent. He also noted that a fall in demand is unavoidable as people remain at home when self-isolating or unwell, and the Chancellor confirmed that security and support would be provided for those who become ill or cannot work.
Before we go further, it is important to note with this and any Budget, that the 'devil is in the detail', and please check any points noted below carefully for your own circumstances.
The Chancellor announced a 'three-point plan' to support the UK through the outbreak, as follows:
- NHS support: whatever extra resources the NHS needs to cope with coronavirus, it will receive.
- Individual support: during the immediate crisis, if people fall ill or cannot work, their finances will need to be supported.
- An extension to the Statutory Sick Pay (SSP) regime had already been announced prior to the Budget, to make SSP payable from day 1 rather than day 4 of illness. This has been taken further, to allow SSP to be available for all those who are advised to self-isolate, even if they are not presenting with coronavirus symptoms. A sick note will soon be obtainable through 111, to avoid the need to visit a GP.
- For the self-employed, those on contributory Employment & Support Allowance (ESA) will be able to claim from day 1, rather than day 8.
- A £500M hardship fund has been announced for local authorities to directly support vulnerable people.
- Business support: The Chancellor noted that small to medium sized enterprises (SMEs) would be worst hit by the coronavirus outbreak and has announced Government funding for the cost of providing SSP to employees off work because of coronavirus for up to 14 days. A new temporary loan scheme has also been announced to support SMEs. Furthermore, business rates will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
In summary, the key message was that coronavirus will have a significant impact on the UK economy – but that this will be temporary, and that the Government will do whatever it takes to get us through it.
…and the rest of it!
The notes below are only part of the headlines revealed in today's speech, and full details may be found here: https://www.gov.uk/government/publications/budget-2020-documents/budget-2020
The Chancellor confirmed at the outset of his Budget that the growth forecasts from the Office for Budget Responsibility (OBR) will be affected over the shorter term by coronavirus. However, he was keen to stress that the nature of the shock is temporary and that we were facing a slowing world economy before the outbreak. Combined with political uncertainty, productivity and GDP growth figures have been reduced compared to March 2019. However, the OBR has confidence in the future of the economy, which was predicted to grow 1.1% this year, not taking into account the coronavirus impact. Annual output is forecast to be 1.8% in 2021-2022, 1.5% in 2022-23 and 1.3% in 2023-24. Inflation is forecast to be 1.4% this year, increasing to 1.8% in 2021-22 and staying at around the target of 2% thereafter.
Environment and energy
A plastic packaging tax is to come into effect from April 2022 – manufacturers and importers whose products have less than 30% recyclable material will be charged £200 per tonne.
Subsidies on red diesel will be scrapped for most sectors in two years' time, although the agricultural, rail and domestic heating sectors will retain the relief.
£120M in emergency relief has been made available for communities affected by this winter's flooding, as well as £200M directly to local communities to build flood resilience. In addition, investment in flood defences will be doubled over the next six years to £5.2bn.
Tax and spending reforms will be introduced to make it cheaper to buy zero or low emission vehicles, and more rapid charging hubs will be introduced.
The Chancellor announced that over £600bn in total is set to be spent on roads, rail broadband and housing by the middle of 2025. For those in rural areas, you might be pleased to hear that the aim is for 4G coverage to reach 95% of the country over the next five years. In terms of local road investment, a £2.5bn pothole fund has been announced.
The Government is keen to spread investment and economic decision-making across the country and intends public net investment to be the highest since 1955. As part of this aim, Treasury offices will be established in Wales, Scotland and Northern Ireland and a new economic campus will be established in the North of England. The longer-term aim is to move 22,000 civil servant jobs outside central London.
In terms of personal finances, the key headlines were as follows:
- The tapered annual allowance for pension contributions: for those on the highest incomes, the standard annual allowance of £40,000 from all sources tapers down. The threshold at which tapering starts has been raised by £90,000, meaning that from the tax year 2020/2021 the 'threshold income' will be £200,000. The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 gross from April 2020. This is a complex area and higher earners will need to take advice.
- The Lifetime Allowance for pensions – the maximum that someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime – will as planned increase to £1,073,100 in 2020/2021, in line with CPI.
- The threshold for National Insurance contributions will rise from £8,632 to £9,500 from April 2020.
- The adult ISA annual subscription limit for 2020/2021 will remain unchanged at £20,000. The annual subscription limit for a Junior ISA (JISA) or Child Trust Fund (CTF) will be increased significantly from £4,368 to £9,000 in the new tax year
- Entrepreneurs' Relief will be retained; however, the lifetime allowance will be reduced from £10M to £1M.
We hope this update is helpful in looking at today's Budget. 11 March 2020 will be historic in the financial world as these changes, and their effects, manifest themselves. If you need help with your own financial planning, then please contact the team at Chapters Financial Limited and please note that no individual advice has been provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI