Rishi Sunak unveiled his inaugural budget as Chancellor of the Exchequer and the UK’s first since October 2018. With trade negotiations with the EU underway and a new threat from the COVID-19 virus, the 39-year-old Chancellor has had to deliver his first Budget against a unique set of circumstances.
This budget signals an end to austerity and an increase in capital spending financed by the biggest rise in borrowing for 30 years. It delivers on the varied promises made in the Conservative manifesto while also factoring in emergency funds for COVID-19.
Atticus Communications analyse some of the key elements of the UK’s 2020 Budget.
Response to COVID - 19
The Chancellor began his budget speech by focusing on the threat posed by COVID-19, known as the coronavirus, highlighting that tackling this pandemic is “above party” and explaining how at a certain point, one-fifth of people across the UK could be off work at any one time. However, to reassure the public, Sunak announced how the NHS will receive all the funding that it needs to cope with this threat. In total, the UK Government announced a £30bn fiscal stimulus that will help to support individuals, business, and the wider economy during these uncertain times. The NHS itself will receive a £5 billion coronavirus response fund to help it respond to the virus. Additionally, the Government has also offered to help individuals who have been advised to self-isolate by extending Statutory Sick Pay (SSP). Some of the other measures that have been introduced to help support businesses through this period include helping businesses which need a deferral period on their tax liabilities as well as expanded Business Rate relief.
Personal Finance and cost of living
A number of measures relating to personal finance were announced today by the Chancellor. The key announcements include an increase in the National insurance threshold from £8,632 to £9,500 leaving the average worker in the UK £100 better off per year. In order to tackle the cost of living, Sunak also froze all fuel and alcohol duties, applied a zero VAT rate to e-publications, and abolished the tampon tax.
NHS
As promised in the Conservation election manifesto, the Chancellor announced today that he would spend an extra £6bn on the NHS over the next five years. This figure would help to construct 40 new hospitals and would also help to fund 50 million additional GP surgery appointments. However, despite the Chancellor’s announcements, the acting leader of the Lib Dems, Sir Ed Davey, argued that five years of Conservative Government cuts have left the NHS chronically under-funded.
Housing and Property
The Chancellor today announced that a new stamp duty land tax surcharge of two percentage points will be brought in for buyers of property who are non-UK residents. This will affect both overseas buyers and expatriates and will predominantly be of interest to those in the retail market, though is not expected to impact corporate occupiers. This surcharge will fund measures to combat rough sleeping. Sunak also announced the extension of Government support for the Affordable Homes Programme, promising a new multi-year settlement of £12 billion. Alongside this, 70,000 new homes are set to be built in areas of high demand across the country, with this measure to be funded with £1.1bn from the Housing Infrastructure Fund. Following the Grenfell tragedy, the Government paid heed to expert advice and confirmed an additional £1 billion to remove unsafe cladding from residential buildings above 18 metres to ensure people feel safe in their homes.
Levelling up and infrastructure
During the 2019 General Election, then as a Prime Ministerial candidate, Boris Johnson had spoken of the need to “level up” the UK and today’s announcement offers some insights as to how the Government expects to “get it done”. A major aspect of levelling up has focused upon infrastructure investment and today Sunak announced various measures concerning this issue. Sunak declared that the Government will spend £27billion on English strategic roads. He also announced the government’s commitment to funding the Manchester-Leeds section of Northern Powerhouse rail.
Aside from increased infrastructure spending, Sunak also spoke of how over 750 staff from various Government departments will move into an economic campus in the north of England and how in the long term the Government wants to see over 22,000 civil service roles shifted from London and into the regions. The Chancellor also declared West Yorkshire will gain a Mayor for the region and will receive a London-style funding settlement for transportation. However, not all announcements had a purely English focus, Sunak also declared that the Government will provide an extra £640 million of funding for Scotland, £360 million for Wales and £210 million for Northern Ireland, measures of which will be important in highlighting the Government’s commitment to strengthening the Union.
Alongside these announcements, the Chancellor declared that £120 million will be made immediately available to help repair all of the damaged flood defences as a result of the winter floods that battered the country. Furthermore, Sunak also announced how investment in flood defences over the next six years will double, reaching a figure of £5.2bn.
Relief for businesses
A raft of measures designed to help businesses were also announced today as the UK is about to journey through a challenging economic period. The Chancellor maintained corporation tax levels at 19% stressing that this is still the lowest rate amongst G20 countries. More broadly, Sunak stated how “Businesses need support to start-up, grow and export”. Today’s budget was particularly supportive to those businesses who are trying to export overseas with Sunak declaring that the Government will set out £5bn of new export loans for businesses. With the Chancellor dedicated to showing the Government’s commitment to the regions and ambitions for a “Global Britain”, Sunak spoke of how there will also be dedicated trade envoys representing the North, Midlands, Wales and the West of England in embassies across the world. However, as widely anticipated, the Chancellor did not abolish Entrepreneurs’ relief but instead, reformed it by reducing the lifetime limit for relief from £10m to £1m.
Digital Tax
For larger digital companies, today’s budget may not be so positive as the government confirmed the introduction of a digital services tax that has recently angered the US. However, the tax is only expected to raise around £500m per year. With the US having already expressed strong opposition to the digital services tax, compounded by the UK’s recent decision on Huawei and the 5G network, it remains to be seen how this decision will influence the outcome of upcoming trade negotiations between the two countries.
Low on the green agenda
With the UK hosting COP26 later this year, the green agenda was expected to feature in the budget. Though it did not get as much of a push as expected, the Chancellor did make a few announcements. Sunak announced a Carbon Capture and Storage (CCS) Infrastructure Fund to establish CCS on at least two UK sites - one by the mid-2020s, a second by 2030. In an attempt to reduce emissions and to push vehicle drivers to move away from polluting vehicles, Sunak announced an investment in electric vehicle charging infrastructure. Additionally, he also announced £532 million for consumer incentives for ultra-low emission vehicles and reduced taxes on zero-emission vehicles. Additionally, he gave a nod to air quality improvement by removing the entitlement to use red diesel except for agriculture, fish farming, rail and non-commercial heating, and announced a provision of £304 million to help local authorities reduce nitrogen dioxide emissions and improve air quality. In the debate discussing the budget in the House of Commons, Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy (BEIS) Select Committee commented that the budget “does not reflect the scale of the climate emergency.”
Research and Development
Other key headline announcements include the fact that the Chancellor is set to increase investment into Research and Development (R&D) to the tune of £22bn per year. Sunak pronounced that this level of investment, as a percentage of GDP, will be higher than that of other nations such as China, the US and Japan. Indeed, a further £800m was promised to go towards the creation of a new “blues-skies” funding agency here in the UK that will be modelled on ‘ARPA’ in the US. This institution will help to fund research that has a high chance of failure. Many may view this announcement as a sign of Dominic Cummings influence on the budget with the Prime Minister’s adviser having previously advocated for a UK version of ARPA on his blog in September 2018.
Rishi Sunak’s first budget decisively marks an end to the last decade of austerity. The Office of Budget Responsibility (OBR) has already declared the budget as the largest giveaway since Norman Lamont’s budget of 1992. Conservatives will be hoping that the increase in spending outside London will help to shore up support for the party across ‘Red Wall’ seats. Indeed, despite the Chancellor having announced a £30bn stimulus package to combat the threat of the coronavirus, time will tell if this is enough to steady the UK economy through this challenging period. The extent to which the markets have been reassured by the Chancellor’s announcements remains to be seen with the FTSE 100 index closing some 97 points below the point at which it started prior to the Chancellors’ speech.
Over the next few days, MPs will now seek to comb through every detail announced in today’s budget ahead of the final finance bill being tabled in Parliament. This budget also launches the Comprehensive Spending Review 2020 (CSR) that will conclude in July. The jury remains out whether with looming COVID-19 uncertainty the Chancellor has done enough to ride out the shocks of an uncertain period with such an ambitious budget.
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