In the government’s first budget since re-election and leaving the EU, newly appointed Chancellor Rishi Sunak delivered a budget for “challenging times”. Amidst widespread political and social uncertainty, Sunak addressed the need for the budget to deliver immediate security for today while also laying the foundation for future prosperity. It was, he said in what would be his mantra for the announcement, the budget of a government that “gets things done”.
With the peak of the UK’s Coronavirus cases expected in the coming weeks, the Chancellor wasted no time in getting straight to the paramount issue. His plan of action combined a “health response” and an “economic response” to ensure stability and security throughout the crisis. While he acknowledged there would be tough times ahead that would also mean temporary disruption to the economy, the measures taken in the budget were designed to shore up the economy against a drop in productivity and falling demand.
Following talks with the Bank of England, Sunak already confirmed that there will be an emergency cut in the base interest rate from 0.75% to 0.25%. In addition to this, he announced a raft of measures that would protect businesses and public services such as the NHS. The government will use fiscal action to support public services, households and businesses. This means that banks can lend with confidence while business rates will be abolished for thousands of small firms.
Sunak stated that there is a “live global debate about what the low-interest environment means for fiscal policy.” Subsequently, he will take time to consider these issues and review the fiscal framework in time for the autumn, he says. In a speech that paid tribute to a history of British innovation and creativity, Sunak expressed a clear desire for a “dynamic low tax economy” with “low and stable inflation” that would “invest in ideas”. A breakdown of the main areas addressed in the budget can be found below.
Sunak stated that the total value of his fiscal stimulus is £30bn – one of the most comprehensive responses of any government around the world to date. It will include:
- Statutory sick pay made available to anyone advised to self-isolate. For those who do not qualify for sick pay, it will be easier to get benefits. They will also be able to claim benefits from day one. The minimum income level will be also be temporarily removed from universal credit.
- There will be help for businesses, and the cost of having someone off work for up to 14 days will be refunded in some cases. Sunak says £2bn will be allocated to cover firms that lose out because staff are off sick. He says this will apply to firms that employ fewer than 250 staff.
- The Chancellor has promised to spend an extra £6bn on the NHS, rising to “whatever it costs”. This will pay for 50,000 more nurses, 50 million more GP surgery appointments and work to start on 40 new hospitals. He says the government has already pledged a “record” funding increase for the health service, with £34bn promised over five years – “the biggest cash increase in public services since the Second World War”.
Describing growth forecasts, the Chancellor said that even before Coronavirus hit, the economy was slowing. In a move that he described as “brave and bold” Sunak announced a £170bn investment programme over the next five years, saying it will boost growth by 0.5% of GDP. The government’s five year investment will focus on world-class infrastructure. The OBR says this means growth will be 0.5% higher than it otherwise would have been, increasing long-term productivity by 2.5%.
- IR35: Although the Chancellor did not make direct reference to the Off-Payroll reforms in the Budget, he affirmed that the government would take “aggressive” steps to tackle tax evasion. Section 2.178 of the Budget document confirms that: ‘The government has recently concluded a review of the reform, and is making a number of changes to support its smooth and successful implementation….the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced.’ The Chancellor said that the extra revenue will go towards the funding settlement for the NHS.
- Personal taxation and wages: The National Insurance Contributions tax threshold is to rise from £8,632 to £9,500 – which equates to savings of up to £100 a year for 31 million employees. Sunak says the government will increase the national living wage to two-thirds of median earnings by 2024, meaning that it will rise to £10.50 an hour.
- Pensions Tax Relief: Sunak says he is changing the rules on pensions that have led to some doctors deciding not to work because it is not worth their while given the loss in pension they experience. The tapered annual allowance will be raised to £90,000.
- Energy and Fuel Duty: Fuel duty to be frozen for the 10th consecutive year. However the Chancellor warned that this isn’t sustainable for the future. Tax relief on red diesel and fossil fuels will be abolished for most sectors as it results in pollution. However this change will not take effect for two years. In response to concerns raised by farmers, agriculture will retain this relief. The Chancellor announced a freeze in electricity duty to encourage clean energy, but from April 2022, gas duty will increase.
- Corporation Tax: There will be a reversal of the Corporation Tax rate cut, instead of it being cut to 17% it will remain at the current 19% for now.
- Digital Services Tax: The government will go ahead with a “digital sales tax”, resulting in a 2% levy on the UK revenues of search engines, social media services and online marketplaces, from 1st April. The tax will aim to raise almost £200m a year.
Business, digital and science
The controversial Entrepreneurs’ Relief will be retained so that genuine entrepreneurs will continue to benefit. However the lifetime allowance will be drastically reduced from £10m to £1m in response to claims that the Relief is both “ineffective and unfair”.
The Chancellor pledged to invest in “technologies of the future” with £5bn to get high-speed broadband into the most remote areas, a £1.4bn funding boost for a Science Institute in Weybridge, Surrey and an extra £900m for research into “high-potential technologies” such as nuclear fusion, space and electric vehicles.
In Summary, the Chancellor reaffirmed his belief that public finances were strong enough to cope with the impending disruption, while tax cuts and measures to protect business would allow the “energy” and “creativity” of the British people to prosper.
If you’ve been affected by any of the issues in the Budget, ContractingWise has a range of options to help you keep your contracting career on track. To talk to a member of our team, call: 0203 642 8679