12 Mar 2020
Nobody could envy the Chancellor’s task today. Just four weeks into his new job, Chancellor Rishi Sunak has had to deliver his first ever budget. Households and businesses in parts of the UK are still reeling from the legacy of some of the worst flooding in decades, and the initial effects of the coronavirus are starting to be felt. Already, demand for goods and services is falling, as people choose to go out less and socialising loses its appeal.
Elsewhere in the world, Saudi Arabia and Russia are at loggerheads over oil prices, and politicians and economists struggle to predict how this perfect storm is likely to play out. So you can’t help but have some sympathy for the new kid on the block who is, he reminds us, introducing the first budget in 50 years outside the EU.
Firstly, the small and medium enterprises that do so much to fuel UK PLC can take some comfort. Given that they are likely to suffer most as the measures to combat the coronavirus take their toll – employees self-isolating, plummeting sales, coping with fixed costs and diminishing cashflows – the Chancellor has produced some pretty quick wins.
Those self-employed and small businesses will have access to a £7bn support fund, and SMEs with fewer than 250 employees will have 14 days’ statutory sick pay refunded from day one by the Government. This move, of course, helps everyone. Nothing could be worse for the wellbeing of the country than employers encouraging potentially sick staff to clock in as normal.
Banks will offer loans of up to £1.2m to small businesses and the government will cover losses for up to 80 per cent of the loans. With the Bank of England cutting the base rate from 0.75% to 0.25% just hours before the Chancellor stood up, it’s looking like it could be a good time to borrow.
The Chancellor is also softening the approach to revenue collection, as was implemented after the financial crisis of 2008. Businesses with cash flow issues will be able to apply to defer tax payments and ask for time to pay from HMRC who will have “scaled up” this particular department, and a temporary new coronavirus working capital fund will be established to offer additional support.
Those business owners in the retail, leisure and hospitality sectors – the very people most likely to experience a rapid drop in business if we do see an epidemic – will receive 100 per cent discount on business rates for a year, if their premises are subject to a rateable value of below £51,000. In addition, other businesses eligible for the retail discount for rateable values less than £51,000 will benefit from a 100% exemption from business rates in 2020/21 and pay no rates at all – a much needed boost to the High Street. The Chancellor will be overseeing a longer term review on business rates in general after the budget, although that has been promised for years, so don’t hold your breath.
With boosts to the rates of relief that companies who conduct R&D can claim to an increase in the employment allowance from £3,000 to £4,000 (effectively an annual allowance against employers National Insurance) there were a number of small giveaways.
There’s good news for employees and the self-employed too. National Insurance Contributions thresholds will be raised from £8,632 to £9,500, saving a typical employee by around £104 a year and the self-employed £78 per year.
For those on the National Living Wage, there was a pledge to increase the hourly rate to £10.50 per hour by 2024 following a 6.2% rise in the current year – great for lower paid employees, perhaps less good for employers in the short term particularly with the current coronavirus issues.
The UK’s construction industry will see a boost as the government plans to spend £27bn on more than 4,000 miles of roads, and almost £1.1bn of allocations from the housing infrastructure fund will be made to build 70,000 new homes in high demand areas.
Those of us struggling with poor internet connectivity – and more and more of us rely on being able to work remotely, coronavirus or not – will be glad to hear that £5bn of funding will be invested in gigabit-capable broadband.
And for those firms struggling to recruit talent with the right skills, the additional £1.5bn promised for further education funding won’t be an instant fix but is a step in the right direction.
Of course, all these lifelines will have to be paid for, eventually. The Chancellor is reducing the lifetime limit for entrepreneurs’ tax relief from £10m to £1m – but around 80 per cent of small businesses will not be affected, so it’s not likely to be a generally unpopular move – and the move will save £6bn over the next five years. Corporation tax, which was planned to be cut to 17 per cent, will remain at 19 per cent for now (raising £7.5bn a year by 2024/25) , and those who have been overdoing tax avoidance can expect a knock on the door from the tax inspector – HMRC reckons it can secure an additional £4.4bn revenue by clamping down on transgressors.
There was also a nod to the environmental lobby with a new tax on domestically produced and imported plastic packaging of £200 per ton from 2022, with further initiatives aimed at decarbonising industry, promoting the use of electric vehicles and restoring local habitats.
Investment in the NHS, from recruiting more nurses to persuading doctors to work more hours, may be well-meant but the detail of how quickly that can be put into effect is still unclear. As we know here in the South West, we have the lowest unemployment of any UK region except Northern Ireland, so finding the appropriate qualified staff to fulfil those pledges will be a challenge in itself.
However, if you can’t find any crumbs of comfort in the above, take heart. The planned increase in duty on fuel, wine, spirits, beer and cider is being shelved for now, at least. We’ll drink to that.