In a nutshell, today’s Budget was one of the most extraordinary in recent memory.
It marked a significant swing in economic policy, from austerity ‘coming to an end’, to a rate of borrow-and-spend that nobody would have imagined possible from a conservative government.
It also marked a shift in more immediate priorities, from preparing for a post-Brexit Britain, to dealing with the challenges of Covid-19.
The dramatic increases in public spending will be welcomed by many, but there was little detail on where exactly the money will come from. The answer of course is that it will be borrowed.
This government has previously been clear of its intentions to take advantage of historically low interest rates – which have today been lowered further – to borrow to invest. Logical perhaps, but current projections already have overall debt standing at £2 trillion by 2025. It is also worth noting that the OBR forecasts for growth announced by the Chancellor were locked down some two weeks ago – since that time, Covid-19 has begun to have a significant impact which will continue to grow.
Investment and business support
The majority of investment is in infrastructure – the largest such capital investment in 65 years – and a ‘levelling up’ of the UK’s regions with London and the South East. Most notably, this falls between roads, rail, broadband – and indeed potholes.
There was reassurance for small businesses in the wake of Covid-19; exempting firms in the retail, leisure and hospitality sectors with a rateable value below £51,000 from business rates is enormously helpful, and the support for statutory employee sick pay and wider business interruption is also greatly welcome. The creation of a new £1bn ‘Coronavirus Business Interruption Loan Scheme’ – to be delivered via The British Business Bank and with more favourable terms and conditions than the current Enterprise Finance Guarantee scheme – will be helpful for SMEs, but will not solve the fundamental problems of reduced customer demand and supply chain deficiencies.
A change to Entrepreneurs’ Relief had also been widely trailed, but the announced cut in the level from £10m to £1m will be unpopular with many business owners and potentially leaves the relief open for abolition in the near future.
Other than a rise in the threshold for National Insurance contributions, there were no notable announcements on taxation. Given the current economic and health uncertainty, it seems sensible not to ‘rock the boat’ in this respect.
Delivering on our sustainability and climate change commitments was one of ICAEW’s priorities for this Budget. The introduction of a plastic packaging tax and the per-tonne charge for products with less than 30% recyclable material are sensible ways of pushing business to work that bit harder to meet their responsibilities.
I also commend the general scrapping of the red diesel subsidy, although the number of sectors exempt from this decision means that the environmental benefits may not be as substantial as at first glance.
Additionally, both the introduction of the plastic packaging tax and scrapping of the red diesel subsidy will not be fully implemented for two years. Businesses do need time to prepare and adjust, but the scale of our climate emergency requires measures to be implemented at pace.
This was a remarkable Budget, delivered in volatile times. Total additional borrowing of £96.6bn has been forecast over the next 3-4 years to pay for the spending commitments announced today.
The short-term objective of providing reassurance over the Covid-19 crisis seems to have been achieved.
The longer-term goal of improving public infrastructure, on a fiscally sustainable footing, is a very different challenge. The scale of this Chancellor’s plans certainly matches the rhetoric of the Conservatives’ election campaign; whether we have the skills and competencies to efficiently execute this level of investment remains to be seen.
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