Budget 2020

Today’s post takes a look at the usual speculation in advance of the Chancellor’s Budget 2020, and at what actually happened.

Budget 2020

It’s hard to escape the conclusion that most budgets are anti-climatic.

• The industry and the mainstream press speculate wildly about measures that might be included, and then most of them aren’t.

Looking back over 35 years, I can only really remember the Lawson budget from the 1980s (tax cuts) and the Osborne budgets from around five years ago (pension reforms).

• I guess Gordon Brown’s A-Day pension changes were also announced in a budget, but for some reason, I remember the implementation day much more clearly.

This one might be different.

• For the first time in a century, we didn’t get a budget last year, and the previous three years were dominated by Brexit infighting.

This year we’ll have two: this is the one held over from 2019, and there should be another in the autumn as usual.

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After Boris’s election victory in December, Sajid Javid looked set to deliver an upbeat budget to kick off the new government’s five-year term.

• Infrastructure upgrades and the “levelling up” of the North were expected to be the main themes.

But in the last month we’ve had:

1. A global virus pandemic
2. Stock market and bond yield crashes
3. An oil price shock
4. And the replacement of Javid with Rishi Sunak as chancellor
   • He has a financial background and is married to a billionaire’s daughter, so the numbers shouldn’t phase him.

To top things off, this morning we’ve had a 0.5% pa interest rate cut.

• We’re now back at 0.25% pa, the lowest rate in history – not that I expect interest rate cuts to offset the effects of a virus lockdown.

Mark Carney – amazingly, still the Bank of England governor – said afterwards that rates might be cut further, to “just above zero”.

So pretty much anything could have happened this afternoon – let’s look at the pre-speech guesses.

• Commentary on what actually happened is in blue.

Speculation

Virus

More money for the NHS was widely predicted.

• And indeed, we were promised that the NHS would get whatever it needs.

The possible easing of the annual pension allowance taper (see below) could also be seen as supporting doctor retention.

People were also expecting some kind of help for businesses affected by the slowdown of the economy due to the virus.

• The rate cut announcement included support for more lending to small businesses, and some commentators suspected there might be a hardship fund or a delay in the payment of government bills (eg. to HMRC) or a suspension of business rates.

What we also got was a loan scheme of up to £1.2M per SME, with an 80% guarantee from the government to the banks making the loans.

• The government will also fund statutory sick pay (SSP) for up to two weeks.

Business rates have been abolished for a year for “shops, cinemas, restaurants and music venues… with a rateable value of less than £51,000.”

• These businesses also get a £3K cash grant.

And the businesses rates exemption has been extended to “museums, art galleries, and theatres; caravan parks and gyms; small hotels and B&Bs; sports clubs, night clubs; clubhouses and guest houses.”

A temporary cut in the VAT rate was also a possibility but didn’t happen.

• VAT was removed from newspapers and magazines (and digital books?) – and tampons.

All told, the Chancellor said the stimulus package would be £30bn for the year.

Infrastructure

Existing fiscal rules might support an additional £10bn pa of infrastructure spend, on broadband, road, rail and houses.

• But in recent interviews, Sunak has hinted that he might relax the rules, so perhaps an extra £20bn or £25bn pa might be available.

Reports just before the budget suggested that infrastructure spending would be raised to triple the average over the last 40 years.

• That would mean more than £600bn over five years.

Certainly, record low gilt yields mean that it has never been cheaper for the government to borrow.

Some kind of climate change investment (perhaps tree-planting, vehicle charging points or carbon capture) was expected.

• Flooding and Grenfell-driven cladding replacement might also feature.

There was a £1bn package on spending on green transport and some extra pollution taxes.

• And £5bn on gigabit broadband to the most inaccessible parts of the UK.

And £2.5bn on pothole repair, £500M on car charging, £5.2bn on flood defences (over six years) ans £800M on carbon capture.

• And £640M for a new “nature for climate” fund – 30,000 hectares of trees “a forest larger than Birmingham” – and 35,000 hectares of peatland.

Detailed planning of all this spending might be delayed, however, as Treasury officials have been tied up recently with Brexit and virus plans.

Brexit

Brexit is no longer at the top of the agenda, but some statement on how customs would work in the future, and on how the Irish Sea border with Northern Ireland might work was expected.

• There might also be a commentary on future immigration, and how the low-pay, low-skill workers excluded by the proposed points system might be replaced.

I didn’t spot anything on this.

Company taxes

The scrapping of the planned cut in corporation tax from 19% to 17% had been previously announced.

• This was confirmed.

The NIC threshold should be raised to £9.5K.

• It was.

There were plans to reduce the minimum wage age limit from 25 to 21 at some time during the parliament.

• Instead, we got an increase in the minimum wage to £10.50 by 2024.

The controversial extension of the IR35 rules to the private sector was expected to go ahead.

• I didn’t spot anything on this.

And entrepreneur’s relief (10% CGT on the first £10M from the sale of a company) was expected to be cut or abolished.

• It was cut from £10M to £1M.

Javid had been expected to introduce a 2% tax (on turnover?) on tech firms like Facebook, Amazon and Google.

• But Donald Trump said he would retaliate with tariffs so many expected Sunak to delay this until the autumn, in order to help with UK-US trade negotiations.

I didn’t spot anything on this in the speech, BUT it is hidden in the small print of the full report (no companies are named).

Personal taxes

There was a lot of early speculation that higher rate income tax relief on pension contributions might go, and that a mansion tax could be introduced (both decidedly non-Tory policies).

• But this talk disappeared after Sunak replaced Javid.

Changes to Council Tax and stamp duty were still seen as possible.

I didn’t spot anything on this.

Fuel taxes were expected to rise (partly for green virtue-signalling purposes) but the impact of the virus slowdown meant that most expected these to be deferred for at least a year.

• The freeze on fuel duty continues.

The starting point for the annual pension contribution allowance taper was thought to be likely to be increased from £110K to £150K, to help with the NHS pensions crisis.

• This is easy to confuse with the gradual taper of the annual 0% allowance for high earners, which was not expected to change.

The pensions tapered personal allowance threshold was increased by £90K, to £200K (and that for adjusted income from £150K to £240K).

Nor was the pension lifetime allowance (LTA) expected to change (an inflationary rise happens each year now).

• And the MPAA (money purchase annual allowance) was expected to remain at £4K pa.

Planned beer and spirits tax rises were cancelled, and duties on cider and wine were also frozen.

• And the business rates discount for pubs was increased from £1K to £5K.

Inheritance tax

Philip Hammond’s review into the simplification of IHT reported last year.

• They recommended annual gifting allowances and the shortening of the seven-year rule to five years.

In January 2020, MPs called for the 40% IHT rate to be reduced to 10% for estates below £2M, and 20% above.

• They also wanted an annual gifting allowance of £30K (with a 10% tax above that).

On the other hand, the ability to pass on pensions tax-free has come under fire.

• And some have called for the removal of the business property relief (BPR) on AIM shares.

I didn’t spot anything on this.

Conclusions

It seems odd to call a £30bn stimulus package an anti-climax, but from a personal finance perspective, that was.

• The market seems to agree, as the FTSE-100 is falling again, despite the interest rate cut.

Perhaps we’ll get a more interesting speech in the autumn.

• And perhaps coronavirus will be just a memory by then.

Until next time.