Politics aside, it takes a brave man to become Chancellor of the Exchequer and then, within 27 days, write and present a budget at a time of global crisis brought on by the smallest of enemies, a virus.

But present Rishi Sunak did and with gusto too. Only time will tell whether or not his speech goes down in history as one that ‘got things done’ – to reuse the phrase that he repeated some 26 times – or is just another where brave claims made rot in the cupboard.

Call for national unity

Sunak rose to the dispatch box and went straight for the topic that’s on everyone’s mind at present – coronavirus and how the government plans to tackle it. Touching on what everyone is hoping, that the outbreak is a serious, but temporary, disruption to the economy.

The Chancellor commented, “for a period it’s going to be tough” and announced a series of “temporary, timely and targeted” responses to support those who cannot work while helping businesses that are struggling through no fault of their own. The measures announced follow on from the Bank of England’s ‘surprise’ action in the morning – namely an immediate 0.5% cut in interest rates from 0.75% to 0.25% and billions of pounds of extra lending with ‘additional incentives’ to help banks support otherwise healthy SMEs.

Back to the budget, Sunak announced a three-point plan at a cost of £7bn. The first granted the NHS whatever resources it needs to cope with the virus, irrespective of cost.

Next, aside from those absent from work who will receive Statutory Sick Pay (SSP) from day one, those who self-isolate regardless of showing any symptoms 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. And any business currently eligible for small business rates relief will be provided with a £3,000 cash grant.

The state of the economy

With the headline material announced, the Chancellor turned to the state of the UK economy and other measures.

It’s entirely clear that even before the outbreak of coronavirus that the world has been slowing down. The Chancellor’s figures don’t include the effects of coronavirus, but GDP growth is predicted to stand at 1.1% in 2020 and 1.8% in 2021, then 1.5%, 1.3%, and 1.4% in 2024. Sunak announced an extra £175bn of capital investment over the next five years, which the Office for Budget Responsibility expects to mean that another 500,000 will be in work. Inflation is predicted to rise to 1.4% in 2020 and 1.8% next year.

Of course, it’s natural to ask with all of the announced spending where the money is coming from to pay for it? The answer is that part will come from tax changes, but a sizeable amount will follow from increased borrowing – which had been previously highlighted. In summary, borrowing is likely (OBR figures) to rise to 2.1% of GDP in 2019-20, 2.4% in 2020-21, 2.8% in 2021-22 and 2.5% by 2022-23.

In terms of the now annual rise in the National Living Wage (NLW), that 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. It’s worth pointing out that, according to Incomes Data Research, when the NLW was launched in 2016 it was designed to pay a rate that matched 60% of median earnings. While this increase will help the low paid it will increase employer costs; the Low Incomes Tax Reform Group is worried that this could lead to ‘false self-employment’ or fewer workers being hired.

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. However, the Low Incomes Tax Reform Group, is concerned that this doesn’t help those below the new threshold and that further, Universal Credit recipients will lose £63 of the £100.

For the self-employed who work as contractors there was little cheer because, despite numerous calls from campaigners, Sunak refused to delay the tightening up of IR35 legislation. And so, the self-employed who work for a company as if they are an employee could potentially end up paying the same level of tax that permanent staff members pay, but without the benefits.

Numerous changes

Sunak offered a number of ‘populist’ tax changes, chief of which was the removal of the so-called “tampon tax” – from January 2021 the UK will no longer charge 5% VAT on women’s sanitary products.

The planned rises in spirits, beer, wine and cider have all been postponed as has the much-vaunted increase in fuel duty. Tobacco taxes, however, will continue to rise by 2% above the rate of retail price inflation. And to help pubs stay afloat, the proposed business rates discount of £1000 per year has – for one year only – been increased to £5000. At the same time, the government is to give £1m to support the Scottish food and drink sector to promote itself worldwide.

For business, the Chancellor commented that the country needs “a thriving private sector” and to this end he announced £130m of funding to provide start-up business loans, £200m for the “British business bank to invest in scale-ups”, £200m for life sciences and £5bn in new export loans. And with a nod to the government’s newly found favour in the regions, dedicated trade envoys to represent the North, the Midlands, Wales and the West of England will be placed in UK embassies.

Following on from the government’s manifesto 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. As he explained, the relief apparently does little to incentivise the creation of businesses, mostly ends up going to a comparatively small number of individuals and costs the government some £2bn a year. 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 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.

On top of that is an increase in investment in R&D from the planned £18bn to £22bn as more of the funding – £400m – is spread around the regions.

It should be noted that RDEC change only helps larger firms; SMEs use a different scheme which only saw a delay of one year to April 2021 on a cap on tax credits payable; there was no rise in its allowance.

Other areas

On environmental issues, the Chancellor announced changes to how the issue of 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. 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 recent floods, £200m to local communities to help areas flooded repeatedly and £5.2bn for new flood defences.

These green changes will be partly paid for by the increase in Air Passenger Duty that will, from 1 April, see long-haul economy tickets rise by £2 to £80, and premium cabin fares rise by £4 to £176.

The regional governments are to be offered more funding – £640m extra for Scotland, £360m for Wales, and Northern Ireland will see £310m.

Other changes to infrastructure will involve gigabit broadband being rolled out nationwide at a cost of £5bn, and £510m being spent on creating a shared 4G network so that 95% of UK will be covered. Roads and rail will see spending too; Sunak noted that there would be “over £27bn of tarmac” through a strategic fund for roads and motorways providing “over 20 connections to ports and airports, over 100 junctions, 4,000 miles of road” alongside £2.5bn over five years to fix potholes. Some might question how this fits in with the government’s green credentials.

Housing saw a 1% cut in interest rates that apply to lending for social housing and there’s to be £1.1bn from the Housing Infrastructure Fund to build 70,000 new homes, £650m to help rough sleepers with 6000 new places, 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, whether publicly or privately owned.

To ease the pressure on NHS funding the planned cut to Corporation Tax has been shelved – it remains at 19% which, Sunak reiterated is the “lowest rate in the G20.” There’s also extra funding for HMRC to reel in an expected £4.4bn in additional revenue. And to get consultants and GPs working more, the pensions taper threshold has been increased by £90,000 to £200,000 to take the majority out of a tax trap; workers in other sectors will benefit if they earn under £200,000.

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. According to the Chartered Institute of Taxation, MTD hasn’t reduced errors, reduced costs or greatly improved productivity.

For importers, the introduction of ‘postponed accounting’ means that those who are registered for VAT will account for import VAT as an entry in the VAT return, rather than paying it at the time of import or by using a monthly deferral account; this will aid their cashflow significantly.

And finally, publishers will be pleased that the government is to remove VAT on digital books, magazines and manuals from 1 December. However, it should be pointed out that the EU changed the rules regarding this back in October 2018.


So, the Chancellor has combined election pledges with pragmatism in helping the country fight coronavirus. The question is – is the government be storing up economic problems for the future or is it hedging on the basis of interest rates will be low for some time? One thing is certain, the plan to place treasury offices around the country is noble, but will 22,000 civil servants all want to move out of London?

Published by Greg Whitaker

Editor of CAT Magazine and an experienced motoring journalist @GregWhitaker5

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