Budget – March 2020

The Spring Budget Statement lays out measures to combat Covid-19 and unveils a significant capital spending spree to ‘Get things done’

The opening part of yesterday’s budget statement from new Chancellor Rishi Sunak focused on efforts to combat the coronavirus, with £30bn pledged to alleviate the impact on the UK’s economy. Warning of a significant short-term impact, the Chancellor promised a temporary and targeted Government response, co-ordinated with an emergency interest rate cut announced by the Bank of England early yesterday morning. With the Office for Budget Responsibility downgrading UK productivity and growth, and the equity markets falling at the news that the US has closed its doors to travellers from Europe, the package of measures can’t come soon enough for the many small businesses that fear being wiped out by the knock-on effect of the virus.

Measures being introduced to help include the following:

• £5bn emergency response fund to support the NHS and other public services.
• payment of statutory sick pay from day one not day four for all those required to self-isolate even if they have no symptoms.
• Contributory Employment Support Allowance benefit claimants will be able to claim sick pay from day one not day eight, with no requirement to go to a Job Centre.
• £500m hardship fund for Local Authorities to support vulnerable people.
• The cost of statutory sick pay for firms with fewer than 250 staff will be refunded by the government up to 14 days.
• Small firms will be able to access “business interruption” loans of up to £1.2m.
• Businesses and the self-employed will be able to defer tax. A dedicated phoneline is being established to help with enquiries.
• 100% retail discount on business rates will be extended – any eligible retail leisure business will pay no business rates, saving each business up to £25,000. Nearly half will pay nothing over the next year. A review into the long-term future of business rates is promised.
• Any business eligible for small business relief will receive £3,000, helping the 7,000 smallest businesses.
• £7bn is being provided for the self-employed and business.
• £150m IMF relief.

The spending spree did not stop with efforts to counter the effect of Coronavirus, however, as the Chancellor sought to come good on pledges made during the general election with his ‘Delivering on our promises to the British People’ Budget. The manifesto commitment to level up economic growth and opportunity across all regions and nations saw an announcement about a £600 billion infrastructure funding for road, rail and broadband across all parts of the country by 2025, as well as a surprise increase in public R&D investment to the tune of £22 billion per year by 2024-25.

The Government has decided not to significantly raise taxes and has frozen duties on beer, cider and wine. Nor will it make any change to fuel duty, which will come as a disappointment to those who were hoping the Government’s stated commitment to lead the way in environmental policy would see this rise. While interest rates remain historically low, it seems as if the Government is willing to make hay while the sun shines.

The headlines per sector are as follows:

Environment & Energy

The Government was keen to push its environmental credentials with a promised net zero review and a focus on high skill, low carbon jobs.

• Increased taxes on pollution. From April 2022, the Climate Change Levy on electricity will be frozen, but increased on gas. There will also be a new support scheme for biomethane funded by a Green Gas Levy.
• £800m to establish two or more carbon capture and storage clusters by 2030.
• Government support of heat pump and biomass boiler installations through the introduction of a Low Carbon Heat Support Scheme.
• Extension of the Climate Change Agreement scheme for a further two years to support the most energy-intensive industries in their transition to net zero.
• Plastic packaging tax to come into force from April 2022.
• Manufacturers and importers whose products have less than 30% recyclable material will be charged £200 per tonne.
• Fuel subsidies for off-road vehicles (red diesel) will be scrapped for most sectors in two years’ time. Agriculture will retain relief and rail, domestic heating and fishing.
• £120m in emergency relief for communities affected by this winter’s flooding and £200m for flood resilience. Investment in flood defences to be doubled to £5.2bn over next five years
• £640m “nature for climate fund” to protect natural habitats, including 30,000 hectares of new trees.

Tech

• £22 billion pledged to raise public investment in R&D meaning that 0.8% of GDP will be spent on innovation, putting the UK ahead of the USA, Japan, France and China.
• Commitment to take forward the six strategic recommendations laid out by Professor Furman in last year’s review into the state of competition within digital markets.
• Recommitment to a Digital Services Tax, with plans to implement a 2% levy on sales for certain digital businesses, such as Facebook and Google, by 1 April
• £5 billion to support to the rollout of gigabit-capable broadband in the most difficult to reach 20% of the country.

Financial Services

• A fundamental review of the relationship between the financial regulators and politicians in a bid to create a more ‘coherent’ regulatory architecture. The Government’s Financial Services Future Regulatory Framework Review will include a two-year forward look at major regulatory initiatives.
• Review of FinTech to be led by Ron Kalifa and consultations on how cryptocurrencies are regulated and promoted.

Transport & Infrastructure

• £640 billion of gross capital investment will be provided by 2024-25.
• £2.5 billion to fix potholes and resurface roads over five years.
• Local transport schemes to get £4.2 billion from 2022-23 for five-year funding settlements for eight Mayoral Combined Authorities.
• Infrastructure and Projects Authority to lead a study into supply chain capacity to assess how industry can best deliver the Government’s infrastructure ambition.

Housing & Planning

• Affordable Homes Programme extended with a new, multi-year settlement of £12 billion.
• £400m for Mayoral Combined Authorities and local areas to establish housing on brownfield land.
• North to receive £1.1 billion in allocations from the Housing Infrastructure Fund
• Planning White Paper being launched today to create simpler planning system.
• PWLB interest rates cut by 1% to aid investment in social housing
• Homeless - £650m for rough sleepers – 6000 new places
• Stamp duty surcharge for foreigners.
• Grenfell – unsafe materials building safety fund £1bn  - all unsafe cladding is removed from all buildings above 18m in height.  

Private sector

• Business support: £130m of new start up loans. £200m for scale ups £200m for £5bn export grants
• Entrepreneurs relief – was unfair ¾ went to a small number. IFS criticised. But need more risk taking. Lifetime limit cut from £10m to £1m.
• R&D credit goes from 12 to 13%

Overall, the sense is that the Chancellor ‘got it done’, but that challenging times lie ahead. With next to no GDP growth forecast in many areas and uncertainty about the UK’s future trade deals with Europe and the rest of the world, a further stimulus package might well be needed further down the line despite this being the largest fiscal boost for 30 years.