On 11th March 2020, Rishi Sunak announced the new UK budget. He presented several announcements that are set to affect businesses, the self-employed, and working families. Here is a summary of the main points from the latest budget.
What Is the Budget?
Set each year by the British Government, the UK Budget outlines public expenditure and tax revenues to be gathered during the next financial year. It outlines government fiscal policy in relation to current events, business activity, and public spending in areas such as the environment and housing – the 2020 Budget, for example, provides details on how the government will respond to the challenges presented by coronavirus Covid-19
What Happened in the Budget?
As anticipated, Chancellor Rishi Sunak has opened the 2020 Budget speech with commentary on the coronavirus Covid-19. The core message here is that the UK economy will suffer significantly in the short term, but that the budget will also prepare for “prosperity tomorrow”. In a statement of reassurance, Sunak has emphasised that this is a temporary issue: “People will return to work. Supply chains will return to normal.”
Both supply and demand will be affected. Up to 20% of the UK workforce could be off work at any point, whilst global supply chains will experience disruption; equally, there will be a reduction in demand from consumers. The government and the Bank of England will take a two-pronged approach, having already reduced interest rates as an emergency response. Sunak and Mark Carney, governor of the Bank, will be in constant contact.
Sunak has provided the following breakdown of the £30bn stimulus to support the UK through the coronavirus crisis:
- £7bn to support the self-employed, businesses and vulnerable people
- £5bn emergency response fund to help the NHS and other public services
- £18bn to support the economy in other ways throughout the year
Small and Medium Businesses
Measures are to be put in place to reduce the impact on those who fall sick. Those eligible for statutory sick pay will receive it from day one of absence rather than day four. The cost of salaries, bills, and statutory sick pay will present a challenge, particularly for small and medium businesses – in response to this, the government will offer SMEs loans of up to £1.2m to cover up to 80% of lost funds through a dedicated coronavirus loan scheme.
There will also be a £3,000 cash grant for each small business (i.e. those which are currently eligible for small business rates relief). In total, the small business support fund will amount to a “£2b cash injection direct to 700,000 of [the UK’s] smallest businesses.” In addition, business rates will be abolished for small shops, cinemas, restaurants, and music venues for the rest of 2020, referring to retail, leisure or hospitality businesses with a rateable value below £51,000.
Sustainability and the Environment
In response to recent flooding throughout the UK, flood defences will be improved through a major boost in funding. The immediate problem of repairing damaged flood defences is to be rectified through an initial investment of £120m, followed by a further £200m to support local communities with the process of building flood resilience. Over the next six years, investment in flood defences will be doubled to £5.2bn.
As part of the 2020 Budget, Sunak has also announced that the government will plant a “forest larger than Birmingham” (30,000 hectares) in an effort to mitigate the UK’s contribution to global warming through carbon dioxide emissions. In addition, £640m will be provided for a new nature for climate fund and £800m will be spent on creating two more carbon capture clusters, resulting in up to 6,000 new jobs.
New rapid-charging hubs for electric cars will be rolled out, with the objective of achieving comprehensive coverage across the UK such that drivers are never more than 30 miles from a charging station. The new hubs will cost £500m, whilst an additional £300m investment will go towards tackling nitrogen dioxide emissions. Other clean transport initiatives will include a “comprehensive package of tax and spend reforms,” lowering the cost of zero or low emission vehicles, and the scrapping of diesel tax relief.
In total, an additional £6bn will be spent on the NHS. Sunak has promised that the government will finance 50,000 new nurses, 50 million more GP surgery appointments, and 40 new hospitals across the UK. Confirming earlier pledges, the government will provide an additional £34bn over the next five years. The Chancellor of the Exchequer claims that this is “the biggest cash increase in public services since the Second World War”.
Affordable and safe housing will be a priority for the UK Budget moving forward: the Affordable Homes Programme will be extended with a new, multi-year settlement of £12bn, the largest investment in affordable housing since the Conservatives came into power a decade ago. The interest rate on social housing will be dropped by one per cent. Furthermore, Sunak has confirmed “£1.1bn of allocations from the Housing Infrastructure Fund to build nearly 70,000 new homes in high demand areas across the country.”
The threshold for National Insurance will be increased from £8,632 to £9,500 as of April 2020, which is anticipated to affect 31 million people and provide a yearly saving of £104 per employee on average. That said, the Institute for Fiscal Studies has called this figure into question, estimating that the threshold shift will result benefit those affected by £85 per person.
Budget 2020: A Summary
To sum up, the highlights from today’s 2020 Budget were:
- £30bn support fund to help the UK to recover from the effects of coronavirus.
- Loans of up to £1.2m for small businesses that are affected by increased sick leave payouts.
- Business rates to be abolished for retail, leisure or hospitality firms with a rateable value below £51,000.
- Investment in flood defences to be doubled to £5.2bn.
- £500m to be spent on increasing the coverage of electric car charging points.
- £34bn to the NHS over the next five years, with £6bn of investment this year.
- An extra £12bn will be spent on affordable housing.
- The national insurance threshold is to be raised from £8,632 to £9,500 next month.
In a notable omission from his speech, Sunak made no mention of the proposed changes to IR35 and the impact this will have on off-payroll workers.
What does the budget mean for you?
If you need further advice following the proposed changes announced by Rishi Sunak, you can contact our team today and we will be more than happy to answer any queries you may have.
You may also find it useful to visit our pages on the following topics:
- Accountancy Tips for Self-Employed
- What Is IR35 and When Does it Apply?
- Accounting Tips for Small Businesses