What does it mean for your personal finances?
The government has delivered on the national insurance promise made in the Conservative manifesto, with Rishi Sunak announcing plans to raise the tax threshold from £8,632 to £9,500. The changes are set to be introduced in four weeks’ time and will benefit both employed and self-employed workers. According to the Institute for Fiscal Studies, the changes mean 500,000 people will no longer have to pay national insurance at all, while those whose do will save up to £85 a year on average.
If you run a retail, hospitality or leisure business, there’s more good news: the chancellor has said retailers with a rateable value of under £51,000 will not pay any business rates in the coming year. According to Sunak, the tax holiday is worth more than £1bn and will apply to shops, cinemas, cafes and hotels. If you’re worried about the impact of the coronavirus on your business, there is reassurance in the form of a £3,000 cash grant available to companies eligible for small business rates relief.
More generally, it is important to note a change to interest rates announced alongside the budget on Wednesday. The Bank of England has slashed interest rates from 0.75% to 0.25% in an emergency move aimed at bolstering the economy in response to the coronavirus. The cut takes bank borrowing costs back down to the lowest level in history and is designed to stimulate the economy. It may also reduce the mortgage bill of homeowners who have a variable-rate mortgage, where the interest rate tracks the Bank of England's base rate. Others will need to wait and see how their home loan provider responds. The rate cut is also expected to hit savers and pensioners, with banks likely to reduce their already low savings rates as a result.
What else was announced?
Among the spending promises was £600bn worth of investment in infrastructure, which will be spent on improving the UK’s roads, rail, broadband and housing by mid-2025. “If the country needs it, we will build it,” the chancellor said. There is some good news for drivers, as the government has confirmed fuel duty will remain frozen – promising savings of about £40 annually for someone doing 10,000 miles a year. For those looking to go green, a £500m funding pot has been set aside to help grow the UK's rapid charging network for electric vehicles over the next five years.
Elsewhere, duties on beer, wine and cider are all being frozen, and pubs have won an extra boost with a £5,000 business rate discount this year. In a victory for campaigners, the 0.5% VAT rate on women's sanitary products – the so-called tampon tax – is also set to be abolished. People will be able to put more into tax-free savings for children, as the allowance for Junior ISAs and Child Trust Funds is set to be increased from £4,368 to £9,000 next month, with a typical saving of around £1,000.
Has it addressed climate change?
Sunak said the budget would begin shifting the UK towards a low-carbon economy, but its expansive road-building programme and continued freeze on fuel duty mean it has received a lukewarm response from environmental groups. Among the positive news is the chancellor’s promise to introduce a new tax on plastic packaging that will come into force from April 2022. After this point, the government will charge £200 per tonne on packaging with less than 30% recycled content. Sunak also announced plans for the planting of 30,000 trees as part of a new £640m ‘nature for climate fund’ aimed at protecting natural habitats.
For those recently hit by storms Dennis, Ciara and Jorge, the chancellor has provided some reassurance with the promise to double investment in flood defences to £5.2bn over the next five years. Emergency relief worth £120m has also been set aside to help English communities hit by flooding this winter, while £200m will be spent on improving flood resilience.
What about housing?
Addressing MPs on Wednesday, the chancellor described affordable housing as the government’s “second priority” and said almost £1.1bn would be set aside from the Housing Infrastructure Fund for the building of 70,000 new homes in high-demand areas. However, with estimates putting the number of new homes needed in England as high as 345,000 each year, the promised figure seems unsubstantial. Besides this, £9.5bn is to be added to the Affordable Homes Programme for the building of affordable properties in England, and £650m will go towards funding permanent accommodation for rough sleepers. In a vital gesture to those still living in unsafe housing, a Grenfell building safety fund worth £1bn has also been unveiled. It will focus on removing all combustible cladding from every private and social residential building above 18 metres high.
How is it tackling the coronavirus?
Over the last few weeks, it became increasingly clear that this budget would need to address one unexpected topic: Covid-19. The chancellor kicked off his speech with a dedicated response to the virus, telling MPs: “I want to get straight to the issue most on everyone’s mind – coronavirus.” Sunak said £5bn would be allocated to an emergency response fund to provide the NHS and other public services with "whatever extra resources" they need. For businesses with fewer than 250 employees, the cost of providing statutory sick pay to any employee off sick for up to 14 days will be met by the government in full. Sick pay will also be paid to those choosing to self-isolate – even if they don’t have symptoms – and small companies will be able to access ‘business interruption’ loans of up to £1.2m. All in all, the chancellor’s promises amount to a £30bn package for tackling the virus and its economic impact.
And has the government stuck to its manifesto promises?
The budget was originally due to be published in November but was postponed by former chancellor Sajid Javid due to Brexit disruption and the calling of December’s general election. While the latest plans signal significant spending increases, Sunak said the budget was within the fiscal rules set out in the Conservatives' election manifesto, with government borrowing set to rise from 2.1% this year to 2.8% in 2021-22 before returning to 2.2% in the following years. Importantly, the government has stuck by its promises not to raise income tax, national insurance or VAT. However, several of its election manifesto pledges do appear to have been overlooked. The £14bn campaign promise to provide £5,000 for every secondary school pupil by 2020-21 and £4,000 for every primary school pupil by 2021-22 is noticeably absent, as is the manifesto’s commitment to spending an extra £1bn a year on social care from April 2020. It is likely the spending promises have been derailed by the more glaring threat posed by Covid-19.
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