Rufus Ballaster of Carter Lemon Camerons LLP (solicitors in London) comments on Budget Day 11th March 2020
Even before Rishi Sunak got to his feet for his first Budget Speech as Chancellor of the Exchequer for the United Kingdom, Budget Day had a big financial story: The Bank of England made an immediate emergency cut in Base Rate (back to 0.25%, its lowest level ever and only once previously used as a reaction to the Global Financial Crisis) and announced a swathe of measures aimed at helping UK businesses cope with cashflow problems which are inevitable given COVID19’s impact on the local and the international economy.
Those measures are welcome and are sensible. However important it may be for UK businesses and investors (and international entities with a UK presence or appetite) to avoid panic and to try to see the virus issue in context, anyone suggesting that everything is as normal and no-one need do anything particular in light of COVID19’s impact to date and potential impact in the short to medium term future is taking an irrational risk. So BoE measures and particular aspects of the UK Budget are entirely appropriate and important and should help to support the UK trading through this difficult period as best it can.
This comment is written with an international audience in mind and it may help if I offer some feedback on life in London currently. Our statistics of actual infection are not yet at a crisis point but we have the experience of first China then the rest of SE Asia and both more ‘on our doorstep’ and more recent of Italy. There is a very real risk that Britain is only weeks behind that curve.
We may, like Singapore, cope amazingly well and get back to life as normal more quickly than people fear; we may, like Italy, have to face a period when places in which humans are in close proximity to one another must close, most of the population must try to minimise leaving home and yet as much business activity as possible should continue “as normal”.
Thus far, the UK is planning and testing; among many businesses Carter Lemon Camerons LLP is about to test a 75%+ work from home day and once we learn the lessons of that we will attempt a 100% work from home day – we expect all clients’ work to be successfully progressed on those working days due to measures we have already in place but it is sensible to test them voluntarily rather than to have them in place only in case this becomes mandatory.
If Britain is relatively unaffected in terms of infections and fatalities from COVID19 we in London and beyond will be delighted – though we will still be sad for the few here and the many around the world who are personally impacted or who know or are related to people who suffer and even die from COVID19. Should the UK be relatively unaffected by the virus, there are still major economic downsides from which it will take a considerable time to recover: with troubled times, of course, come opportunities and we look forward to our clients concluding that the time is ripe to invest and look for the returns which will come once life gets ‘back to normal’.
And so to the Budget itself. Here are the headlines:
Stamp Duty Land Tax
The internet is awash with predictions of more SDLT (especially for non-UK based buyers) and less SDLT (especially for UK based first time buyers); we do not see new reliefs but the 2% surcharge for foreigners buying residential property appears on page 93 of the Red Book, to start 01st April 2021!
A major change was widely expected – in this Budget change to come in “the Autumn Statement” is announced with no detail. That reform is needed is acknowledged, which retailers and service industries will welcome but there is much scope for more delay dither and failure to progress a topic which has been kicked into the long grass far too often in my view.
Income Tax and National Insurance
National Insurance (a form of disguised income tax here in the UK) is having its threshold raised to £9,500 next month as widely predicted – this is said to be worth £104 per person per year. No other changes were announced in taxes on individuals’ income.
As there were no announcements one assumes there will be no new changes in this key tax area. The rate will remain at 19% therefore which is globally very competitive.
IHT was widely predicted to be due to face major reform – a reduction in complex reliefs in return for a reduction in the 40% rate has been called for by serious groups of politicians and reformers but no such announcements were made in the speech. We must await proposals as a result of ongoing consultations in this arena.
‘Duties’ (fuel, alcohol etc) and green policies
Alcohol duties are staying the same – they normally rise! A ‘rabbit out of the hat’ announcement also is of a £5,000 discount on business rates per pub under a scheme previously only offering a £1,000 value. Fuel duties are also to stay the same which will be a joy to drivers but will upset environmentalists as the UK is supposed to be committed to decarbonising and a key way to do this is with price mechanisms. The Chancellor went on to rebuild green credentials by announcing a roll out of rapid charging hubs for electric vehicles, a plastic packaging tax, an increase in gas duty but freezing in electricity and the abolition – in two years’ time – of a cheap fuel scheme aimed at certain fuel heavy users “offroad” but with exceptions for rail and agriculture. We don’t know how that will go down yet! Finally the 0.5% special VAT rate on sanitary products (the so called Tampon Tax) is to be ended so finally a campaign to reform taxation of what most women need most months has been successful.
Capital Gains Tax
Another wide prediction which led to some pre budget activity in the small business sector here was for Entrepreneur Relief to go – it has survived but the lifetime allowance of £10M of gain to be taxed at that 10% special rate has been cut dramatically to £1M.
Spending Plans – normal
£6bn of extra to the national health service is a strong headline – including 40 new hospitals. Inevitably questions will arise as to whether it is ‘enough’ though: He says that is “the biggest cash increase in public services since the Second World War”. (taken from the BBC News Website)
Spending Plans – Capital Investment
As expected, major spending on infrastructure is announced (the biggest number of the day – £600bn by mid 2025) including new forests, improved telecoms and broadband and pothole road filling (dressed up as capital spending – when it might be thought something to be in the annual spending rounds). Again we see some Big Number comments as one would expect (for example £5bn on broadband for inaccessible parts of the country). A £12bn figure is mentioned for housing but we await details on how long a period that would cover and how accessible it will be.
Comment/ supplements on Bank of England measures introduced today
The Chancellor started with comments on COVID19 its likely impact on the economy, the BoE measures and added more of the Treasury’s own initiatives (extra resources for our health system, help coping with the inevitable rise in sick pay claims, widening entitlement to sick pay, two forms of support for very small businesses – a £3,000 grant and suspension of business rates for many such businesses – arts, retail and leisure mostly: he says all this amounts to a £30bn COVID19 related stimulus to the British economy – his first Big Number of the Speech).
It has to be hoped that today is a good day for stability and for growth. Such are the fanfare headlines offered by or on behalf of the Treasury. As ever, time will tell but I for one am pleased to be in London and to be among many level headed people who are determined to support staff, clients, contacts and fellow business people in order to make the very best of what is a serious global issue. We may not have wanted to need to take the actions we are – whether we work for the State, for a Regulator, in the public sector (health, education etc.), or business large medium or small – but by being responsible and not giving in to the temptation to panic, we can all do our part and we deserve as a result to do better than might have been expected!
Rufus Ballaster, Partner for Carter Lemon Camerons LLP Solicitors