It seems as though there is always something driving the focus of the budget in recent years; for a considerable time, this has been Brexit. Following the UK’s departure from the EU in January, however, it may have been expected that this year’s budget would be about preparing the UK for life outside of the EU and setting out the stall for what the next five years of a Conservative government would look like.
However, the continuing Coronavirus crisis and its gathering hold over Europe, has taken centre stage. With numbers of confirmed cases in the UK steadily climbing, and fears growing over how periods of self-isolation and forced closures of public places could affect businesses, the Treasury had pre-empted today’s announcement with the promise that the Budget would include measures to shield the economy as much as possible against the potential fallout as the virus continues to spread across the country.
As Rishi Sunak, took to the podium to deliver his first budget as Chancellor, it is likely to have been under rather different circumstances than those he imagined when he took over from his predecessor Sajid Javid just last month.
This unexpected shift in focus has meant that some of the original contents of the budget are likely to have been shelved, possibly paving the way for additional changes to be announced in the autumn statement instead.
Sunak’s primary aim today was to reduce panic and instil both business and consumer confidence on the day the Bank of England announced an emergency cut its base rate down to 0.25% - the lowest level in history.
Stimulus packages for businesses
With the overarching priority being to help businesses and individuals survive the immediate disruption caused by the spread of coronavirus, Sunak introduced a three point £30bn fiscal stimulus package to help the NHS, employees, and business owners:
- Promised the NHS will get ‘whatever it needs, whatever it costs’ to help during this time
- Temporary changes surrounding the eligibility for Statutory Sick Pay
- Introduced a raft of measures to help businesses including abolishing business rates for small businesses, an extension of the Time to Pay scheme, as well as an emergency loan scheme
Support was extended to both businesses and also individuals who may find themselves experiencing financial distress as a direct result of the escalating coronavirus crisis. These measures aim to secure the economy and give businesses some breathing space. These are temporary relief procedures rather than long-term changes to taxation rates, protecting businesses while the threat posed by the coronavirus exists.
Statutory Sick Pay (SSP)
SSP will now be available from day one rather than day four. Furthermore, SSP be available to all individuals who have been advised to self-isolate with a sick note now being obtainable by contacting 111 rather than having to see a doctor. There will also be a £500m hardship fund to local authorities to directly help people in their area during this time.
He also announced a compensation scheme to help companies saddled with large SSP bills to cope with an anticipated spike in employees needing to take time off work due to illness or else as a precautionary measure. This will enable business with fewer than 250 employees, SSP will be refunded in full for up to 14 days; this is worth £2bn and is expected to help 2 million businesses.
In an unprecedented move, Sunak announced that business rates would be abolished for a full year for retail, leisure and hospitality business with a rateable value below £51,000. This is expected to be worth up to £25,000 for businesses and means that nearly half of all business properties will not be liable to pay business rates. Sunak also pledged a review at the autumn budget for the long-term outlook for business rates. For the 700,000 of our smallest businesses who do not stand to benefit from this reduction in business rates, they will instead be given a £3,000 cash grant.
Business Loan Scheme
Temporary business interruption loan scheme which will open up £1.2m in loans to businesses requiring a cash injection. In order to ease the banks fears about lending, these loans will be 80% secured by the government thereby reducing the risk in the event of non-payment.
Time to Pay (TTP) extended
Sunak pledged to give businesses more time to settle their financial obligations to HMRC through an extension of current Time to Pay (TTP) agreements. This could immediately help cash flow at a time when trade is likely to be down, yet the overheads of running a business remain the same. There will be a dedicated helpline to help businesses arrange this.
In simple terms this can be seen as a tax holiday, meaning VAT, PAYE, Corporation Tax can be deferred in order to free up cash flow. The aim is that this will not only ease immediate financial distress, but importantly allow trade between companies to continue and facilitate payments between suppliers which keeps money moving around the supply chain. A similar initiative was implemented during the 2001 foot-and-mouth outbreak to provide help to the agricultural sector.
Away from coronavirus… Entrepreneurs’ Relief reforms
As predicted by many in the run up to the budget, Entrepreneurs’ Relief has been reformed. The controversial tax relief scheme allowed for a reduced rate of tax to be paid on capital gains following the sale or solvent liquidation (MVL) of a limited company.
Until today’s announcement, a lifetime limit of £10m was in place; this has now been decreased to a £1m lifetime limit. This is expected to save around £6bn over the next five years, with this money being diverted to fund a cut to other business taxes.
Other selected measures
- A pledge to increase the national living wage to two thirds of median earnings by 2024, projected to be £10.50 an hour.
- The National Insurance threshold will be increased from £8,632 to £9,500 from April. This represents an average cut of £104 and is estimated to benefit 31 million people.
- Abolishment of tampon tax meaning not VAT will be payable on any women’s sanitary products.
- Business rates discounts for pubs will be £5,000 rather than £1,000. Planned duty increase on spirits will be cancelled with all other alcohol duties frozen.
- Fuel duty will remain frozen for another year.
- £130m funding for start-up loans.
- Introduction of a new plastic packaging tax.
- Corporation tax will not be cut from 19%; a planned cut to 17% has been shelved.