Budget Report 2020
1st April 2020
On 11th March 2020, the Chancellor of the Exchequer, Rishi Sunak, delivered the first Budget speech in over a year. This was the first Budget since Brexit and alongside the global spread of the COVID-19 virus (Coronavirus), this was certainly a budget speech to listen out for. In our report we will provide a summary of the key points made during the speech.
The main economic response to Coronavirus
The Bank of England cut interest rates to 0.25%, the same level as it was just after the 2016 referendum (Elliott, 2020). However since then, on the 19th March, it was cut further to 0.1% in order to encourage spending – a plan that should help businesses stay afloat during the lockdown. The Bank of England will also buy more government bonds to add more money into the British economy to help its stability. The interest rate cut will affect variable rate and tracker rate mortgages, but not fixed rate mortgages, leaving the latter at a slight disadvantage.
- Contributory employment and support allowance (ESA) will be claimable from day one, rather than day eight.
- The minimum income floor for Universal Credit will be removed.
- The requirement to physically attend a job centre will be removed – everything can be done on the phone and online.
- Sick pay will be available to individuals self-isolating. Sick notes will be available by contacting NHS 111.
- Any company eligible for small business rates relief will be allowed a £3000 cash grant – a £2bn injection for 700,000 small businesses.
- £1bn of additional funding, including a £500m local authority hardship fund.
Alcohol, tobacco and fuel
- Fuel duty to be frozen for the 10th consecutive year .
- Vehicle Excise Duty – rates are due to be increased in line with the Retail Prices Index from April 2020.
- Duties on spirits, beer, cider and wine to be frozen.
- Business rate discounts for pubs to rise from £1,000 to £5,000 this year.
- Tobacco taxes will continue to rise by 2% above the rate of retail price inflation.
- The threshold at which national insurance contributions are paid has risen from £8,632 to £9,500; 31 million people will benefit from this.
- The income threshold at which tax relief on pension contributions starts to taper will rise from £110,000 to £200,000. However, the pension contribution amount once exceeded this threshold has been reduced from £10,000 to £4,000.
Capital Gains tax
- The tax-free allowance for capital gains is set to increase from £12,000 to £12,300.
- Some changes have been made to Entrepreneur’s Relief. This is a system that allows £10 million in company assets, subject to certain criteria, to be realised at a special capital gains tax rate of 10%. The lifetime amount has been reduced from £10 million to £1 million.
- Businesses with a rateable value under £51,000 (including retail outlets) will benefit from a “tax holiday” lasting for the entire tax year. This is part of the Government’s efforts to financially support businesses who would otherwise struggle in the wake of the Coronavirus pandemic.
- Government will provide lenders with a guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance to SMEs as part of the effort to maintain businesses during the Coronavirus outbreak.
- Corporation tax rates are staying the same at 19%.
- The present £3,000 relief that reduces employer’s NIC contributions is to be increased to £4,000 from April 2020.
- The February floods caused by Storm Dennis affected many communities, particularly in rural areas. £120 million will be given to those communities as emergency relief, and £200 million for flood resilience.
- Over the next 5 years, the total investment in flood defences in England is going to be doubled to £5.2 billion.
- Potholes are a common annoyance for drivers throughout the U.K. In the 2020 Budget speech, it was announced that over the next 5 years, £2.5 billion will be spent on fixing potholes and resurfacing roads in England.
Affordable homes and rough sleepers
- There will be a £12 billion investment into the Affordable Homes Programme, which will help to build 200,000 new affordable homes. This is the largest investment into the Affordable Homes Programme in 10 years.
- £650 million will be invested into helping rough sleepers into permanent residence. This will help to provide an extra 6000 homes for rough sleepers.
Broadband and 4G
- £5 billion will be used to help people access gigabit-capable broadband in the most difficult places to reach in the U.K. This will help the U.K. to move towards a digital future.
- Over £500 million will be invested to extend 4G mobile coverage to 95% of the U.K.
- There will be a £27 billion strategic investment for roads and motorways, which includes a new tunnel near Stonehenge.
- The Government is spending record amounts on Britain’s roads, railways, housing and broadband. More than £600 million will be invested into Britain’s infrastructure by the middle of 2025.
The Financial Review Team