The Backdrop Budget
The backdrop to today’s Budget should have been last month’s cabinet reshuffle, which saw the shock resignation of the former Chancellor, Sajid Javid, and the promotion of Rishi Sunak.
Behind the scenes, the change in chancellor was the symptom of a far greater tug of war at the heart of government. As we wrote about here, a fiscally prudent Javid was seen by Boris Johnson and his closest adviser Dominic Cummings, as an impediment to the pair’s ambitious spending plans, designed to woo northern voters who helped sweep Johnson to victory in December’s election.
With Javid gone, his advisers dispensed with, and a loyal Boris supporter in place at the Treasury, the question on our lips ahead of today’s Budget would normally have been whether the statement would reveal a new spending happy Number 10, committed to making austerity a distant memory.
However, the onset of potentially one of the biggest public health crises in generations, and the biggest drop on the FTSE since the financial crisis, made an already challenging Budget, even more so for the new Chancellor.
On the day the Bank of England announced an emergency cut in interest rates to an historic low of 0.25%, the Chancellor focused on measures to ensure the country is ready to fight the coronavirus, whilst introducing measures to ‘level up’ the economy in line with commitments in the Conservative manifesto.
Here are the key announcements for business:
Support to cope with Coronavirus
As expected, the Chancellor announced several measures to help businesses deal with the immediate, and potential, impact of the current health crisis. Perhaps most significantly, the Government will cover the costs of the first 14 days of sick pay for employees of SMEs of fewer than 250 staff. The Government will also offer a £3,000 grant for businesses that qualify for Small Business Rate Relief, and the current business rates retail discount will be increased to 100% for small businesses in 2020/21.
Finally, a Coronavirus business interruption loan scheme will support up to £1bn of bank lending to SMEs, underwritten by the government up to 80% of the value of each loan.
National Insurance and Corporation Tax
From April, the National Insurance threshold will rise to £9,500 for employees and the self-employed. This should benefit 31 million people, with the average employee saving £104 in tax during 2020/21. In addition, to support small businesses, the government is increasing the Employment Allowance per employee from £3,000 to £4,000.
Corporation Tax will remain at 19%.
The Chancellor announced infrastructure investment amounting to £600bn of spending over the next five years. This includes £27bn for English roads, £5bn for the roll out of gigabit broadband for the hardest to reach areas of the UK, £510 million for a Shared Rural Network to improve mobile coverage, and £10.9bn investment to help reach the target of 1 million new homes by 2025.
As well as promises of investment in broadband and mobile coverage, outlined above, the Budget confirmed that the government intends to press ahead with a “digital sales tax”, a 2% levy on the UK revenues of search engines, social media services and online marketplaces, from 1 April. This move will be deeply unpopular with the US Government, and will likely play a significant part in upcoming trade negotiations.
The Budget also announced that the Government will accept all six of the recommendations of the Furman Review into unlocking competition in digital markets. This includes the creation of a pro-competition Digital Markets Unit within government, greater intervention in mergers between digital platforms, and a market study into the digital advertising market.
Science and Innovation
The Chancellor announced an increase in public R&D spending to £22bn per year by 2024/25, and investment of £800m will be injected into a new ‘blue skies’ funding agency focused on high risk/high reward science projects.
In addition, Government will increase the rate of R&D tax credits and consult on widening the definition of qualifying expenditure to include data and cloud computing.
In life sciences, the government will provide the British Business Bank with additional resources to launch a dedicated £200 million investment programme which is expected to enable £600 million of investment.
If you are interested in having a discussion to explore your policy or regulatory challenges, or what developments in the Budget mean for your business, please contact the Brands2Life Public Affairs team on email@example.com