When the ship and its crew is in danger the captain needs to lead by example, up on deck lashed to the wheel and trying to steer the ship out of the storm.
The Budget was delivered by the Chancellor Rishi Sunak on 11 March 2020. It was the first Budget we have had since the then Chancellor Philip Hammond stood up to deliver what turned out – we didn’t know it at the time - his fourth and last Budget on 29 October 2018. Back then, many of us had probably never really heard of Rishi Sunak. If the past, as the saying goes, is another country, then Philip Hammond’s Budget now looks to have taken place on a different planet! Since then the UK has had a new Prime Minister, a general election and a new Government, two new Chancellors, has left the EU under a withdrawal agreement which ends on 31 December 2020 and, last but not least, we are now grappling with the threat posed by the coronavirus outbreak. What more could happen? Oh, and Philip Hammond is no longer in Parliament, having stood down at the December 2019 election.
Could we have such a different landscape as we did back in October 2018? Rishi Sunak is only a month into the job, having been given it unexpectedly after Sajid Javid resigned in February 2020 without ever having presented a Budget himself. While new to the job, this played to Rishi’s advantage. So much has changed since October 2018 that all bets are off as to what might happen next. That being so, this was probably not the time to be obsessed with charts (or even Mr Hammond’s famous spreadsheets!) and fiscal rulebooks: when the ship and its crew is in danger the captain needs to lead by example, up on deck lashed to the wheel and trying to steer the ship out of the storm, and hopefully not getting washed overboard in the process.
Given the Chancellor had been handed the leading role in the production with very little time to learn his lines, his delivery was pretty near word perfect – if we didn’t know who Rishi was before 11 March 2020 we certainly do now. It was a bravura speech of that there was no doubt, with a new catchphrase “this Government gets things done”. But, as we listened, we did wonder how it would all add up. We knew the answer only when we got our hands on the Red Book: it didn’t!
The public finances The Red Book turned out to be true to its name – a sea of red as compared to the last Budget. Ignoring any short-term impact that might result from the coronavirus, the net total policy decisions added about £175bn of extra spending over the next five years, or an average of £35bn a year.
The gross spending increase was over £200bn, reduced by tax receipts of about £27bn. Of the increased spending, the split between current and capital spending is about 60:40, so well over half of this new spending is extra spending on the here and now – we appear to have moved on from austerity to splashing the cash or, probably more accurately, the UK’s credit card.
Of the extra tax receipts, most of this comes from a limited number of sources: the reduction in the UK’s contribution to the EU Budget, the reversal of the decision to reduce the corporation tax rate from 19% to 17% from 1 April 2020, reducing the entrepreneurs’ relief limit to £1m, removing relief for red diesel and further investment into HMRC to improve compliance. In the greater scheme of the huge increase in the proposed spending, only the first two of the latter changes bring in, or more accurately save, serious money.
The Chancellor was at great pains to stress his commitment to businesses, although that wasn’t enough to stop the off-payroll working (IR35) juggernaut in its tracks or delay it from being introduced next month, or the decision to keep the corporation tax rate at 19%, or the entrepreneurs’ relief limit being cut back from £10m to £1m for disposals on or after Budget Day.
On the credit side the Government announced a further extension of temporary reliefs for business rates for properties with a rateable value below £51,000: the discount for the upcoming year will be increased from 33% to 50% and for 2021 will be increased to 100%. In addition, he announced a fundamental review of business rates which will report in the autumn and a call for evidence will be published in the spring (ie, shortly!). He also announced an increase in the structures and building allowance from 2% to 3% with effect from 1 April 2020.
VATOne of the surprises of the Budget was the announcement that the current zero-rating of books and printed matter will be extended to their e-equivalents. This change will apply from 1 December 2020, a slightly surprising date although this rate has been permissible under EU law since late 2018.
We were pleased to see that VAT postponed accounting will be adopted from 1 January 2021 although, ironically, that is permissible under EU law in any event.
Personal taxThere wasn’t much in the way of announcements on personal tax and national insurance. The current NIC threshold will be increased from £8,632 to £9,500 from 6 April 2020. The pensions annual allowance thresholds will be increased by £90,000 each. Thus the threshold income will now be £200,000 rather than £110,000 and the adjusted income from £150,000 to £240,000.
Making Tax DigitalIn our Budget requests, we suggested that the Government should review the rollout and costs to business of MTD for VAT before it decides whether to extend it to other taxes. We therefore welcome the government’s decision to publish an evaluation of the introduction of MTD for VAT. We believe that there should be a cost/benefit review as to whether it is working as needed for businesses.
In conclusionGiven Rishi Sunak’s first Budget was delivered at a time of considerable uncertainty and what looks likely to be a significant threat of the coronavirus, he struck a very positive tone, insisting that any problems it creates would be short-term and would be dealt with, while the UK’s medium to longer term outlook is very positive. It was an inspired performance, although the numbers in the Red Book highlighted that the net effect of all the spending commitments is a considerable increase in public spending. The Chancellor wants to get the UK building and boost productivity, but the jury is out on who will be paying for it.