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Budget plans overtaken by virus

Chancellor Rishi Sunak’s maiden Budget has been overshadowed by the growing impacts of the coronavirus outbreak on the UK economy.

9th Mar 2020
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In interviews with the Telegraph and the BBC’s Andrew Marr Show on Sunday, the Chancellor vowed to announce measures in his Budget on Wednesday to protect UK businesses from the effects of the pandemic.

With just days to go before his big speech, Sunak would not be drawn on the detailed proposals, but said the government would give the NHS “all the support it needs to get through this” and that he was looking at ways to offer temporary support to small businesses.

Already, the coronavirus is having a visible impact that reaches beyond supermarket shortages of toilet paper and hand sanitiser to the wider the economy

Events, travel and hospitality sectors have already borne the brunt of the outbreak. FlyBe was placed into administration last week. The ailing regional airline had been hanging on in hope of a relaxation in air passenger duty on domestic flights, but any Budget concessions will come too late.

Three Six Nations rugby matches have already been cancelled - Ireland vs Italy and next weekend’s Italy/England and France/Ireland games. Organisers of the Manchester and London marathons are considering whether their races can be staged in the next few weeks and football leagues are discussing the possibility of playing matches behind closed doors.

Already numerous business conferences including QuickBooks Connect have been cancelled, leading to knock-on impacts in the hospitality sector.

‘As if somebody flipped a switch’

“It’s as if somebody flipped a switch last week,”  UK Hospitality chief executive Kate Nicholls told BBC Radio 4’s Today programme on Monday morning. “As soon as the government action plan was invoked, businesses put in place travel bans and restrictions and started encouraging people to work from home.”

Central London has already seen a 30% drop in demand and with events and bookings being cancelled around the country, sales over the next 2-3 weeks were down by 50%.

A “critical crunch point” was coming on 1 April, Nicholls added, when businesses will have to pay PAYE, VAT and quarterly rent bills. “This is a very short cashflow crisis and these are good businesses that would otherwise survive. We’re saying to the Treasury, give us time to pay and breathing space to get through this crisis.”

The Chancellor faces two main challenges. First, he needs to ensure funds are available to underwrite the health service response to the virus and then he needs to mitigate the longer-term impact on the economy and businesses.

Economic impacts

The effects on the economy will be much harder for the Chancellor to anticipate. The Office of Budget Responsibility forecasts are prepared in February, before the impacts of the virus started to filter through. As UK Hospitality highlighted, any economic optimism has evapourated within the space of a week, leaving economists to assess how deep any resulting recession will be – and what it will do to the government’s ambitious spending plans.

As is already evident, the pandemic has become a convenient smokescreen for the underlying impacts of leaving the European Union. Whether the downward forces are deeper and long-term or short-term effects of the health emergency, the Chancellor may move away from long-established spending rules to balance the current budget over the next three years and keep net borrowing below 3% of GDP.

According to the Institute of Fiscal Studies, he will have to do this to honour many of the spending pledges set out in the Conservative manifesto and in more recent ministerial commitments.

Among the coronavirus measures being floated around Whitehall by lobby groups and off-the-record sources are:

  • A business protection fund to let small and medium employers claim for costs arising from the coronavirus outbreak. Boris Johnson has already announced that emergency legislation to deal with coronavirus will allow for the payment of Statutory Sick Pay from the first day of illness rather than after four days.
  • Extending payment deadlines for small businesses on their VAT, payroll and corporation tax liabilities, as requested by UK Hospitality. According to Avalara’s vice president of global indirect tax, several other countries including China have introduced concessions to deal with the crisis. The UK offered payment holidays during the 2001 foot-and-mouth disease outbreak, he added.
  • Easing pension tax relief restrictions to stave off the departure of NHS doctors who exceed their pension contribution annual allowance and incur pension allowance charges.


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