2.55pm: Budget entails “significant increases” in spending, says OBR
The OBR has confirmed commentary from many that Rishi Sunak has turned on the spending taps with today’s budget, saying the policies include “‘significant increases in departmental spending plans”.
“As regards current spending, the budget completes the reversal of the cuts to real departmental spending per person undertaken by the coalition government”, the OBR said.
“The turnaround started in the Conservative government’s postelection budget in July 2015, but really took hold with the multi-billion pound NHS settlement in June 2018. The capital spending turnaround is more dramatic still – the coalition government’s early cuts (which had been a feature of the previous Labour government’s March 2010 Budget plans) will have been almost fully reversed this year. Spending is set to be around a third higher at the end of our forecast than in 2010-11”, they added.
The OBR also said rather than aiming to balance the budget, as Sunak’s predecessor Philip Hammond had aimed to do, the chancellor had indicated that the government was “content to borrow significant sums on an ongoing basis” to fund its efforts.
Emphasising the break from previous governments, CMC Markets UK’s Michael Hewson said the spending plans appeared to have “upended decades of Conservative orthodoxy, and in the process shot Labours fox, in terms of a significant fiscal expansion”.
“There are justifiable concerns about how much this is all likely to cost, but with 30 year gilt yields at 0.63% it’s never been cheaper for the government to borrow for long term sustainable infrastructure projects”, Hewson added.
2.02pm: Analyst says government ‘not holding back’
Reacting to the budget, Pantheon’s chief UK economist Samuel Tombs said the chancellor was “not holding back” with his spending pledges.
“Chancellor Sunak’s “temporary, timely and targeted” fiscal response to the Covid-19 outbreak won’t prevent GDP from falling sharply over the next couple of months, but together with the BoE’s response earlier today, it greatly improves the chances that the U.K. economy rebounds in the second half of this year”, Tombs said.
However, while Sunak’s budget may have won him Tory plaudits in the Commons, some are saying the abandonment of a planned cut to corporation tax to 17% from 19% will upset businesses.
“Many may be disappointed that the Chancellor hasn’t let the rate cut go forward for at least one year, given the challenges that will be faced in 2020/21 by businesses, be that from covid-19, Brexit, oil price fluctuations or indeed share price fluctuations”, said Chris Sanger, EY’s Head of Tax Policy.
Edward Moya at OANDA, meanwhile, was more upbeat, saying that the budget was “well received”, particularly for the government’s fiscal response to the coronavirus, saying it represented “a significant commitment” in responding to the outbreak’s potential effects on the economy.
1.50pm: Key takeaways
A quick summary of the key points in Rishi Sunak’s spring budget;
- £30bn in funding to support the economy during the coronavirus outbreak
- The government will cover sick pay costs for companies employing under 250 staff
- OBR growth forecasts for the UK have been updated to 1.4% for 2020 and 1.6% for 2021
- Planned rises in duty on beer, cider and wine have been scrapped while fuel duty remains frozen until 2021
- ‘Tampon tax’ on female hygiene products to be scrapped next year
- Business rates for small shops will be abolished
- £5bn will be committed to fund broadband infrastructure
- £6bn in extra NHS funding
1.40pm: Wrapping up
Closing his budget statement, Sunak says it is “the budget of a government that gets things done”.
He adds that the budget will deliver security but also lay the foundations of prosperity.
And that’s it.
1.36pm: Education, housing and health
Sunak is now talking about education, where he plans to spend £1.5bn over five years to improve further education.
The government is also planning to scrap VAT on digital publications, taking a jibe at shadow Chancellor John McDonnell by dubbing his ‘Economics for the Many’ title as a work of fiction.
Moving on to housing, Sunak announces an extra £12bn for affordable housing, £650mln to help support rough sleepers, and a £1bn fund to help replace flammable cladding on buildings to prevent a repeat of the Grenfell tower fire.
The government is also planning to introduce a stamp duty surcharge on non-UK residents which will come into force in April 2021.
Moving to the NHS, Sunak says the immigration health surcharge, a fee levied on UK visa applications, will rise to £620.
Sunak has also unveiled £6bn in extra NHS spending overall, which he says will help fund 40 new hospitals.
1.25pm: Infrastructure and broadband spending
As part of plans to ‘level up’ the UK, Sunak announces that public investment will rise to its highest levels since 1955, as well as a goal to set up Treasury offices in the UK’s constituent nations and move 22,000 civil servants out of London.
There is also more money for the devolved regions, an extra £640mln for Scotland, £360mln for Wales and £210mln for Northern Ireland.
He also unveils new London-style funding settlements for other UK cities as well as £600bn of investment spending to be available over the course of the current Parliament.
Sunak will also plan to spend £5bn to get gigabit capable broadband to connect up the UK’s hardest to reach areas.
1.15pm: Entrepreneurs tax relief cut to save £6bn, plastic packaging tax unveiled
Sunak has unveiled that entrepreneur tax relief will be reduced from a £10mln lifetime limit to £1mln, although he says that most of the UK’s small businesses will not be affected.
With the extra cash, Sunak says the government will increase the employment allowance for small businesses and hike its investment in research & development.
The freeze on fuel duty is also set to continue until 2021, potentially staving off anger from some Tory backbenchers.
Looking to the climate, from April 2022 energy levy’s for electricity will be frozen while the one for gas will be raised. The chancellor has also unveiled plans for a new plastic packaging tax.
1.06pm: Tampon tax and spirits duty increase scrapped, NI threshold raised
The chancellor is now moving to the rest of the budget, which he says is within the government’s fiscal rules.
Sunak also touches on forecasts from the Office for Budget Responsibility (OBR), which he says has estimated inflation of 1.4% this year, rising to 1.8% next year.
After touting the UK’s economic “strengths” in terms of employment, wages etc, Sunak says the budget “is of a government that gets things done”.
He reveals that he will be increasing the NI threshold from £8,632 to £9,500, equivalent of a £100+ tax cut for regular employees.
He also says from January next year VAT on women’s hygiene products, the so-called ‘tampon tax’, will be abolished, and has cancelled a planned increase on duty for alcoholic spirits.
Sunak adds that he is also freezing duty on other alcoholic products and increasing the business rate discount for pubs to £5,000.
12.55pm: £30bn fiscal stimulus
Summarising the coronavirus response, Sunk says the government’s measures will account for a £30bn commitment to tackle the outbreak.
He has also announced that retail, leisure and hospitality businesses with a rateable value below £51,000 will have business rates abolished for the coming year, which will cost around £1bn.
There will also be a £3,000 cash grant for small businesses to weather the storm.
12.46pm: Sunak warns of “significant impact” of coronavirus in the UK
The chancellor says that the UK should expect a “tough period” for the economy as the outbreak continues, as he begins to set out the government’s strategy to deal with the economic impact.
Sunak says the government will set out a plan.
The government will provide any additional resources needed to the NHS to contain the outbreak, “whether it is millions or billions of pounds”
The government will support a “strong” social safety net, referencing the government’s previous announcement to provide day 1 sick pay, while also adding that sick pay will be available to those who self-isolate
To support those who do not qualify for statutory sick pay, the chancellor says the government will make it easier to access benefits, is temporarily removing the income floor on Universal Credit, and is removing the requirement to physically attend job centres to claim
A £500mln hardship fund for local authorities to support vulnerable people
That’s a £1bn commitment in total.
Sunak also announces that the government that it will refund sick pay paid out by small and medium sized businesses for up to 14 days.
12.38pm: Chancellor takes to the despatch box
Sunak has kicked off his budget speech by addressing the coronavirus outbreak, saying everyone in the UK “is worried about their health”.
He says the government is doing “everything [they] can” to contain the virus, and that the UK will “get through this together”.
He adds that the budget also delivers on changes voted for in December’s general election.
“It is a budget that delivers on our promises to the British people”, he says.
12.25pm: Budget about to begin
Sunak is to take to the stage shortly following the conclusion of Prime Minister’s Questions (PMQs).
11.50am: Coronavirus plans and investment predicted
Chancellor of the Exchequer Rishi Sunak is due to address the House of Commons at 12.30pm today with the details of the first Spring budget of Boris Johnson’s government.
While the budget had originally been due to focus on the Tory campaign promises of ‘levelling up’ the UK’s deprived regions in the North through large infrastructure investment, Sunk’s spending plans have been thrown into doubt by the coronavirus outbreak, which has already rattled markets and led to an emergency interest rate cut this morning to 0.25% from 0.75% from Bank of England.
What we know, and what to expect
Sunak is predicted to unveil a package of around £5bn to combat the effects of the outbreak on the UK’s economy, including things such as extra cash for the NHS, extra sick pay for staff and tax credits to help support businesses.
Expectations of support are likely to have been lifted by statements following a cabinet meeting this morning when Sunak said the UK will be “one of the best-placed economies in the world” to manage the outbreak.
Across other areas, the chancellor is expected to unveil higher spending plans and a true break with the austerity agenda that has characterised previous Tory spending policies, with new fiscal rules allowing capital spending of up to 3% of GDP, around £20bn extra, per year.
This cash is expected to be allocated toward things such as flood defences, rail, roads and broadband, with northern regions being the prime beneficiaries.
Other areas to focus on will be corporation tax, where a planned cut to 17% from 19% has been scrapped, an increase in the National Insurance contribution threshold to £9,500 from £8,632 from April, a possible review of entrepreneur and pension tax relief, and potentially new council tax bands targeting ‘mansion’ properties.
Another potential move, one of the more controversial, will be the ending of a freeze on fuel duty, in place since 2010. A thaw will provide more cash to the Treasury but may also anger some Tory MPs who have previously resisted ending the policy to protect motorist’s wallets.
Stay tuned for updates on everything the Chancellor has to say when he delivers his speech at 12.30pm.