The Budget Statement announced what the chancellor described as the largest real-terms public investment package since records began in 1955 and sets out plans to meet specific commitments made in the Conservative Party manifesto, implement a strategy to 'level up' the UK and address the impacts of coronavirus.
The chancellor opened his statement by noting the Budget takes place against the backdrop of the global outbreak of coronavirus, which is creating short-term uncertainty. Addressing the economic impact of the outbreak, he said that while there is likely to be an immediate impact on the economy, caused by falling demand and shrinking productive capacity, this would only be temporary and the UK economy will recover. He noted that the economy is robust and well-prepared for the challenges ahead.
The chancellor used the Budget statement to set out the government’s three-point, £12 billion plan to provide support for public services, individuals and businesses financially affected by coronavirus, with key measures including a £5 billion COVID-19 emergency response fund, statutory sick pay for individuals in self-isolation, a Coronavirus Business Interruption Loan Scheme and an extension of the Business Rates retail discount.
The chancellor noted the strengths of the UK’s economy, based on its globally competitive tax system, innovative firms and reputable educational institutions, and a strong macroeconomic framework. He noted that since 2010, the total deficit had been reduced from 10.2% of GDP, to 1.8% of GDP in 2018-19.
Summarising the economic context, the chancellor said that the Office for Budget Responsibility’s (OBR) medium term growth forecasts showed without accounting for the effect of coronavirus, that the UK was facing a gradual economic slowdown. This led the OBR to downgrade its forecast for cumulative GDP growth by 0.5% points, reflecting downward revisions to potential productivity and net migration. The OBR expects GDP growth of 1.1% in 2020, revised down from 1.4% in its spring forecast, and for there to be no growth in business investment in 2020.
He noted that measures taken to address coronavirus, including monetary measures taken by the Bank of England, have not been captured in fiscal forecasts, however said that that the current target year for the Budget fiscal rule is not until 2022-23, which gives chancellor flexibility to implement these measures while still meeting fiscal rules.
He referenced OBR forecasts which show that public borrowing will increase significantly in the short-medium term, by an average of £21 billion from 2020-21 onward, however that this would be partly offset by the positive short-term impact of higher economic growth expected as a result of the Budget package, and that levels of borrowing would likely reduce in the long term.
Key measures announced in the Budget include:
- an economic crime levy to be paid by firms subject to the Money Laundering Regulations, to help fund government action to address money laundering in the UK and carry out the commitments made in the Economic Crime Plan. The Treasury will publish a consultation on the levy later in the spring
- £23 million was announced to improve the criminal justice system, including £5 million to begin a trial of domestic abuse courts in England and Wales, to allow the concurrent consideration of criminal and family matters. An additional £15 million to improve the support available to victims of domestic abuse, including a digital hub to make the criminal justice process in England and Wales easier to understand. The chancellor also announced £10 million of funding for measures to prevent domestic abuse, by working with Police and Crime Commissioners to expand existing projects such as the ‘Drive’ prevention programme
- Royal Commission on the Criminal Justice process – the government will provide an additional £3 million to launch a Royal Commission on the Criminal Justice process in England and Wales which will “allow work on the Commission to begin at pace over the next year.”
- multiple tax-related measures, including: a consultation on Insurance Premium Tax; a call for evidence on raising standards for tax advice; a 2% non-UK resident Stamp Duty Land Tax Surcharge; tax reliefs for qualifying housing co-operatives from the Annual Tax on Enveloped Dwellings and Stamp Duty Land Tax; a reduction in Entrepreneur's Relief lifetime limit to £1 million; and a review of business rates to report in autumn
- an increase in the National Insurance contributions threshold from £8,632 to £9,500
- changes to pension relief and saving tax - To support the delivery of public services, particularly the NHS, the two tapered annual allowance thresholds for pension tax will each be raised by £90,000
- review of changes to the off-payroll working rules (IR35) – following the government’s review, reform to the existing rules will be legislated in the Finance Bill 2020 and implemented on 6 April 2020, as previously announced
- £5 billion allocated to roll out gigabit-capable broadband in the hardest-to reach areas of England, Scotland, Wales and Northern Ireland and £510 million investment in the shared rural mobile network to extend 4G coverage to 95% of the country in the next five years
- Limited Liability Partnership (LLP) returns – the government will legislate prospectively and retrospectively in the Finance Bill 2020 that LLPs should be treated as general partnerships under income tax rules, which is designed to ensure that HMRC can continue to amend LLP members’ tax returns where the LLP operates without a view to profit
Further measures announced in the Budget include:
- a review of the UK fintech sector led by Ron Kalifa OBE, to support growth and competitiveness in the sector, and states that the government will support the UK’s fintech sector, along with the wider digital economy
- a Cryptoassets consultation in 2020, addressing the wider regulatory approach to cryptoassets, including new challenges from ‘stablecoins’
- measures to ‘level up’ the UK – including £360 million funding for the Welsh government. The chancellor confirmed that he will seek to review the Treasury’s Green Book, which governs how the department makes regional investment decisions. He also announced plans to move up to a fifth of the Treasury workforce, approximately 1,500 people, to a new northern base as part of the government’s ultimate ambition to move 22,000 civil servants outside of London
- immigration health surcharge (IHS) – The government will increase the IHS from £400 to £624. There will be a new discounted rate for children under the age of 18 of £470. For students and those entering on the youth mobility scheme, the surcharge will rise from £300 to £470
- an additional £1 billion funding to remove unsafe cladding from residential buildings above 18 metres
- a doubling of spending on flood defence schemes to £5.2 billion over the next 6 years, following the effects of recent flooding
- a plastic packaging tax of £200 per tonne on packaging made of less than 30% recycled plastics, to be implemented from April 2022
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