The coronavirus Budget
Philip Fisher delivers an instant response to a Budget that was overshadowed by something far more serious.
On 13 February, less than one month ago, Sajid Javid was Chancellor of the Exchequer and expecting to be standing at the dispatch box this lunchtime, no doubt putting into effect plans that he and his team had been formulating for months.
It is amazing what can happen in less than one month. After the Prime Minister put a metaphorical gun to his head by sacking his closest advisers, Javid stood down and was instantly replaced by the relatively inexperienced Rishi Sunak.
After some humming and hawing, the new incumbent bravely decided to carry on with plans for a Budget today. Who knows what he might have said? Maybe even he doesn’t have any idea.
Astonishing events have transformed the world of politics. Coronavirus or COVID-19, completely unknown even in government circles a couple of weeks ago, has caused panic, justifiably or not, across the globe, sending financial markets into freefall, panicking the Federal Reserve into rates cut, mirrored this morning by the Bank of England and almost derailing the first Sunak Budget.
Tax, which may well have been a relatively small component in what was always likely to be a spending event, has become little more than a crutch to support the efforts to combat coronavirus, which could well close Parliament before too long and possibly turn our cities into ghost towns before the end of the month.
In addition to a blank cheque for the NHS, most of the significant measures geared to alleviate the financial consequences of coronavirus seem focused on helping small businesses, the self-employed and those who have the misfortune to catch the virus and are forced to self-isolate. Hopefully, Statutory Sick Pay is to be extended, taking immediate effect and applying to those who were previously excluded as a result of underpaying contributions or, to an extent, being self-employed.
In particular, there is a one-year business rates holiday for shops, cinemas, restaurants and hotels occupying premises with a rateable value of less than £51,000 (this figure will apply will presumably apply to the whole portfolio). These will be welcome but, depending upon the extent of the spread, may still not be enough to ward off hardship in many cases.
Over and above that, it is worth remembering that we have not had a Budget at all since October 2018. Looking more closely, Philip Hammond’s recent efforts were virtually non-events in the wake of the vote to leave Europe. Therefore, there has been no serious tax-planning Budget since George Osborne’s farewell (not that he knew it at the time) effort four years ago in the spring of 2016.
Many of us were, therefore, waiting for the Budget speech with interest, to see how many of these ideas would bite the dust or be deferred. To take the wind out of his sails, before the new Chancellor even got to his feet, the Bank of England rather gazumped him at breakfast time by cutting the base rate by 2/3 to 0.25%.
Sunak sticks to manifesto pledges
It seems like the dim and distant past, but only three and a half months ago, the Conservative Party manifesto was published, setting out the party’s plans for the future, including those on taxes. The headlines included:
- The rates of income tax, National Insurance and VAT would be frozen.
- Previously announced corporation tax cuts were to be reversed.
- NIC threshold increase to £9,500 year (2020/21), with an ultimate ambition, that the first £12,500 will be completely free of tax.
- Business rates to be cut.
- A package of evasion measures was to be implemented.
- Increase in the employment allowance for small businesses to £4,000.
- A new 3% stamp duty surcharge on non-UK resident buyers.
- R & D tax credits were to increase to 13% and widened to bring in cloud computing and data.
- Entrepreneur’s Relief was to be reviewed and reformed.
- Improvements making the tax system easier for the self-employed to navigate.
- A plastic packaging tax would commence in 2022-23.
- VAT on “tampons” (sanitary products) was to be abolished.
The majority of these measures were duly implemented, sometimes with minor tweaks. Sajid Javid must be pretty sick that all of his best lines have been unceremoniously stolen by his former protégé, who is claiming all of the credit.
There are a couple of significant changes. First, the stamp duty charge on non-residents is going to be coming in at 2% rather than 3%. Secondly, the entrepreneur’s relief change has been firmed up with the lifetime limit reduced from £10m to £1m. Strangely, this is regarded as good news, since there was much speculation that it would be abolished completely.
One might observe that both of these adjustments seem designed to help the wealthy rather than the man in the street.
In addition, the previously proposed albeit slightly tweaked IR35 legislation will be coming in this April, as originally planned, while pension tapering will start at £200,000, in response to problems adversely affecting NHS doctors.
VAT on electronic reading
Another measure that will be of particular interest to readers (pun not originally intended but still rather good) is the abolition of VAT on electronic reading materials, which comes in on 1 December. That will be welcome to almost everybody, although in reality it will probably do no more than boost Amazon’s profits.
Digital services tax
Rishi Sunak also forgot to mention the digital services tax. Reading the underlying documents, the omission was because he was too busy telling us about the things that he was going to get done, since this is being implemented at a rate of 2% from the first of next month.
Around the European departure, there are a number of consultations in the offing including a proposed Financial Services Bill, hinting that the government might welcome the opportunity to turn the UK into a mini tax haven.
Otherwise, the main headlines are likely to be around the coronavirus measures, which will provide a degree of support for small businesses but may still prove inadequate to save some from going under.
Beyond that, there is a clear intent to spend vast amounts of money without necessarily raising a great deal in terms of taxes. It will be interesting to see whether this really does add up. Given the rocky economic road ahead it has to be possible that austerity 2.0 is waiting to hit us where it hurts.
Finally, the Chancellor announced a raft of measures aimed at tax evasion with the expectation that HMRC will reel in a promised £4.4bn. There isn’t a great deal of information but the headlines include attacks on illicit trade in tobacco, construction industry scheme abuse and previously announced changes relating to VAT avoidance on building and construction and around the agricultural flat rate scheme.
Further, there will be a tightening of rules on drivers of taxes and minicabs to ensure that they pay taxes. There will also be tougher constraints on the promoters of tax avoidance schemes, although these seem to do little more than shore up holes that should not have been in the legislation in the first place. Perhaps more significantly, government is also keen to raise standards in the market for tax advice!
Roll on November and yet another Budget.