For those among us with ties to Britain, the UK’s first post-Brexit Budget this week was not only an important one after the turmoil of last year - it also unambiguously reminded us of the new challenging times we are living in. With the global coronavirus pandemic having replaced Brexit as the major turmoil factor and nightly news headline, Chancellor Rishi Sunak unveiled an unprecedented £30bn package to boost the economy and mitigate the impacts of the coronavirus outbreak.
But Brexit is not completely out of the picture. The UK government has acknowledged that the financial distress many businesses face due to the coronavirus comes on top of the Brexit preparation that could substantially add to the cost and administrative burden they will face at the end of this year. And the second round of EU-UK Brexit talks scheduled for next week have been thrown into doubt because of the virus, so various longer-term cost burden risks remain on this front that also had to be factored into the Budget.
Two budgets in one
Just a month into his job as Chancellor, Sunak rose to the challenge with a Budget that finally ditched the long-held Conservative belief in fiscal rectitude as being the main priority. Instead his generous cheque book will rely on heavy borrowing rather than on major tax increases – which he kept to a minimum. This is the kind of stuff that could have come right out of Labour’s own playbook.
Nonetheless, Sunak’s answer to current challenges was to produce two Budgets in one: the main Budget that includes borrowing and spending plans for the coming years, and an emergency coronavirus Budget woven into it.
Mitigating impacts of coronavirus
As for the virus-focused part of the Budget, Sunak introduced a £30bn stimulus for the economy to help stave off the worst impacts of the coronavirus.
This consists of a mixture of extra cash for health services, loan guarantees, a business-rates tax holiday this year for firms in the retail, leisure and hospitality sectors, a promise that the government will pick up the anticipated significant cost of sick pay for small firms due to the virus, more time for small firms to pay tax, and cash grants of £3,000 to virus-affected small firms. Mr Sunak described the business-rates suspension as “a tax cut worth over £1bn, saving each business up to £25,000”.
Other moves aimed at cushioning the anticipated fallout from the coronavirus pandemic, include –
- A £5bn emergency response fund to support the NHS and other public services.
- A £500m hardship fund for town councils to help the most vulnerable in their areas.
- £6bn in extra NHS funding over 5 years for staff recruitment and hospital upgrades.
- People advised to self-isolate can claim statutory sick pay.
- Non-eligible self-employed workers will be able to claim a contributory Employment Support Allowance (ESA), available from day one, and not after a week as now.
- Firms with fewer than 250 employees will be refunded for two weeks for sick-pay payments.
- Small firms will be able to access "business interruption" loans of up to £1.2m.
These measures will not only help many firms deal with the impacts of the coronavirus, but they are in themselves business friendly and will help boost the economy. He scrapped the planned cut to corporation tax and the rate of the tax will remain at 19% rather than falling to 17%. Sunak also promised a full review of the entire business rates system later this year.
Pension tax overhaul
Of interest to UK expats and residents alike may be the news that the government is overhauling pension tax rules for higher earners to end a bitter dispute with doctors, who were turning down extra shifts to avoid shock tax bills. As part of the government’s support to the National Health Service (NHS) in the fight against the coronavirus, staff like doctors earning up to £200,000 a year will be enabled to work extra hours by raising two key thresholds at which tax penalties kick in for higher earners.
But to offset this, government will reduce pension tax breaks for those earning £300,000 plus a year to what amounts to little more than a token sum.
Here are some of the other highlights of his Budget:
- Infrastructure was a big winner with more than £600bn allocated for roads, rail, broadband and housing by the middle of 2025.
- Of this, £27bn will be for motorways and other arterial roads; £2.5bn will be to fix potholes and resurface roads; £1.5bn goes towards upgrading the buildings of further education colleges; £650m will be used to tackle homelessness; and new £1bn fund will be used to remove all unsafe combustible cladding from all public and private housing higher than 18 metres.
- Foreign buyers of properties in England and Northern Ireland will pay a stamp levy surcharge of 2% from April 2021.
- A major tax break was given in respect of national insurance by raising the tax threshold for National Insurance contributions to £9,500 – this will exempt 500,000 taxpayers from this tax while those earning more than £9,500 will on average save £85 a year.
- VAT on digital books, newspapers and magazines has been scrapped as well as the 5% VAT on women's sanitary products.
- There were no other new announcements on income tax, National Insurance or VAT.
- Sin taxes for alcohol were frozen but tobacco taxes go up 2% above the rate of retail price inflation.
- The duty on fuel will be frozen for the 10th consecutive year.
- Major funding has been allocated to for scientific research.
- Taxes to reduce plastic packaging and encourage usage of recycled material in manufacturing come into effect.
- Subsidies for fuel used in off-road vehicles - known as red diesel - will be scrapped for most sectors in two years' time but will remain for farmers and rail operators.
- £120m in emergency relief for English communities affected by this winter's flooding, plus £200m for flood resilience and total investment in flood defences of £5.2bn over 5 years were introduced.
- Additional amounts of £640m for Scotland, £360m for Wales, and £210m for Northern Ireland were allocated.
So while Chancellor Sunak has largely spared UK taxpayers from shouldering tax increases, the eventual full impacts of the coronavirus pandemic on the UK economy has yet to reveal itself.