Earlier today, the new Chancellor, Rishi Sunak, delivered the first Budget of the decade and the first Budget in 50 years outside of the European Union, in what he declared ‘gets things done.’  A large part of the Budget focused on coronavirus and the government’s response to support the economy and promote business and spending stimulus for the short-term. This follows the Bank of England’s announcement this morning of an emergency interest rate cut from 0.75% to 0.25% where it has been encouraged that the benefits of the reduction be passed through to customers. The overwhelming promise from the Chancellor was that the government will do “whatever it takes to support the economy” to protect the country and its people.  

Below we have summarised the most relevant announcements:

Coronavirus

• £30bn of economic stimulus was announced to support businesses this year and mitigate the impact of the growing coronavirus threat on the economy.  

• That stimulus includes £7bn to support businesses this year as well as £5bn to create an emergency response fund for the NHS.

• Statutory sick pay will be available to individuals asked to self-isolate after day one as opposed to day four. This will include any individual, even if they don’t currently exhibit symptoms, who has been in an affected country.

• Self-employed individuals will be able to claim the Employment and Support Allowance after one day of illness instead of the normal 8 day wait period.

• Businesses that have less than 250 employees, will be refunded for statutory sick payments of up to 14 days per employee.

• A £500m hardship fund is being provided to local authorities for distribution to vulnerable people.

• Small businesses will have access to loans of up to £1.2m to cover potential business interruptions associated with the virus outbreak. Up to 80% of these loans will be guaranteed by the government.

Growth & Employment

• The Office for Budget Responsibility (OBR) outlined its economic growth forecasts for the UK economy (before considering the impact of coronavirus) to be the following:

  • 2020 – 1.1%

  • 2021 – 1.8%

  • 2022 – 1.5%

  • 2023 – 1.4%

• Public sector net borrowing is expected to increase to 2.1% of GDP this year, rising to 2.4% and 2.8% in 2021 and 2020.

• However, headline debt as a percentage of GDP, is predicted to be lower in 2024 than it is today.

• OBR has backed the measures being taken by the government and has predicted that the extra investment over the next five years should lead to a long-term increase of 2.5% in GDP over the downgraded estimates.

Spending and Public Services

• More than £600bn is set to be allocated towards infrastructure spending over the next five years across roads, rail, broadband and housing.

• A £2.5bn fund will created to allow for more than 50m potholes to be fixed

• To help NHS funding, the Immigration Health Surcharge that new migrants must pay will increase to £624. There will be a discounted rate of £470 for children.

• A focus has been placed on investment into Research & Development (R&D). The amount allocable towards R&D this year will be £25bn with an increase of 15% next year.

• £120m will be made available to repair the recent storm damages in flooded areas and a £200m investment will be made in vulnerable areas to help shore up flood defences. The investment into flood defences will be doubled to £5.2bn over the next five years.

• A ‘Nature for Climate’ Fund will be set up with the goal to further protect natural habitats and will include the planting of 3,000 hectares of new trees and peatland.

• The Red Diesel tax relief will be removed for most sectors but will remain for the agriculture and rail sectors.

• Treasury will review their spending rules with the primary goal of putting regional prosperity at the top of spending decisions. There is a goal to open new Treasury offices in Wales and Scotland and over the coming years will look to move more than 22,000 civil servants outside of London.

Business

• The headline change for business surrounds entrepreneurs’ relief. There has been a large call towards wholesale abolishment due to it being expensive and unfair. Whilst the Chancellor is sympathetic to the arguments against it, he noted the importance of encouraging entrepreneurial ventures and instituted a partial abolishment of entrepreneur’s relief. The lifetime limit for relief will be cut from £10m to £1m.

• Small Business VAT will be removed for firms in the retail, leisure and hospitality sector for this year.

• Small Businesses will also receive a £3,000 cash grant per business.

• The business rates discount for pubs will be increased from £1,000 to £5,000 for this year.

• Later this year, the business rates system will be reviewed more fully to determine what it looks like in the future.

• Duties on all alcohol and fuel will be frozen this year.

Savings

• The headline change for high earners surrounds pensions tax break changes set to take effect from April. Currently, the annual allowance for pension contributions is £40,000. This amount is subject to tapering once an individual’s adjusted Income exceeds £150,000. For every £2 of income over £150,000 an individual’s allowance is reduced by £1, meaning once income is over £210,000, contribution allowances are £10,000. Under the outlined changes, the £40,000 annual allowance will be available for individuals with an Adjusted Income that is less than £240,000. Individuals with income above £240,000 will be subject to a tapering of their allowance. The minimum level to which the annual allowance can taper down will be lowered from £10,000 to £4,000. Anyone whose earnings were between £210,000 and £300,000 will be better off, while those earning more than £300,000 will be subject to the further tapering from £10,000 to £4,000.

• The pension lifetime allowance is set to increase in line with CPI in April 2020 to £1,073,100.   

• The annual allowance for Junior ISA’s will increase from £4,368 to £9,000 in April.

Personal Tax, Wages and Welfare

• A commitment was made by the government to increase the National Living Wage to 2/3 of median earnings by 2024. This would be the equivalent of £10.50 per hour in today’s monies.

• As expected, corporate taxes will remain at 19% as opposed to be previously planned reduction to 17%. 

• The National Insurance threshold is being expanded from £8,632 to £9,500.

• VAT has been removed on all digital publications, including journals, books and magazines.

• No other new headline announcements were made on personal income tax.

• The extension of IR35 to the private sector is still set to come into effect from April resulting in increased tax bills for many contractors and freelancers.

Housing

• A Stamp Duty Land Tax surcharge of 2% will be applicable to all non-UK residents purchasing residential property in England and Northern Ireland from April 2021.

• £1bn has been earmarked for a Housing Building Safety Fund to remove all unsafe combustible cladding from housing that extends more than 18 metres in height.  

• A reminder from the last budget that those for those claiming Private Residence Relief (PRR) the final period exemption for capital gains tax between ceasing to live in a property and selling the property is being reduced from 18 months to 9 months from April 2020. For those entering a care home, they will retain a 36 month final period exemption

These are just a few of the changes that were outlined today. If you have any questions about the implications of these changes on you, please do not hesitate to contact your Wealth Manager. 

Important Information

The information contained in this email is intended for clients of MASECO LLP and should not be reproduced, copied or made available to others, in whole or in part, without MASECO’s prior written consent.

• Nothing in this document constitutes investment, legal or fiscal advice and should not be construed as such.

• This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.

• MASECO gives no assurance or guarantee that the information is accurate or complete and it should not be relied upon as such.

• The extent of the benefit (if any) of the measures announced in the Budget and summarised herein will depend on the individual circumstances of each client and may be subject to change in the future.