How will the budget support the government’s plan to protect the economy from the worst affects of the coronavirus? Will Covid-19 prevent chancellor Rishi Sunak from spending to “level up” the regions and boost infrastructure spending? Here is our checklist of what to expect:
Coronavirus
Sunak has inherited a tax and borrowing rule from his predecessor Sajid Javid that aims to bring day-to-day spending into balance within three years. He is likely to bend the rule rather than break it, with an emphasis on temporary spending to cover extenuating circumstances.
Under the banner of safeguarding the economy, temporary tax breaks will probably be a major feature of the budget with Sunak expected to lay out mechanisms for companies with less than 100 employees to delay tax payments or benefit from short-term cuts to relieve the pressure from spiralling costs and/or declining sales.
The hospitality industry has already seen falls in forward bookings of as much as 50%, according to UK Hospitality, which has called for a moratorium on paying business rates for three months, incentives to customers such as VAT cuts on holiday bookings and low or interest-free loans to businesses in trouble.
The chancellor is not expected to support VAT cuts, but will offer delays to payments and possibly interest free loans to businesses in trouble.
The government is expected to unveil a compensation scheme for firms with high sick-pay bills, which is likely to be required if more workers were forced to self-isolate. A previous scheme called the “percentage threshold scheme”, which provided support to companies struggling with staff absences, was abolished in 2014.
The health secretary, Matt Hancock, wants the department of work and pensions to go further and offer compensation to the UK’s 7 million self-employed, zero hours and short-term contract workers. But difficulties extending statutory sick pay to other groups means the offer is unlikely to be ready for the budget, if at all.
There will be extra funding for the NHS over and above the £20bn extra promised in 2018, including a £2bn increase in mental health spending that was previously added by 2023-24.
But there is unlikely to be cash to cover borrowings by health trusts that in 2018 had reached £2.8bn. Last year, 10 health trusts, many of them likely to be in the frontline in dealing with coronavirus victims, added another £850m to the debt bill.
Brexit costs
Government departments have already spent more than £4bn on preparations for leaving the EU, according to the National Audit Office.
The spending on staff, external advice and advertising, is expected to continue this year, though on a slightly smaller scale, as Whitehall braces itself for a bruising battle with Brussels over a deal on trade. Sunak is expected to make only a glancing reference to the potential costs of Brexit, which since the referendum, in cash terms, has cost the nation £26bn a year in lost GDP.
Ending austerity?
There will be no extra cash for local authorities and Whitehall departments other than the funds set aside for coping with the coronavirus and previous announcements boosting schools and health budgets.
Net borrowing has come down from 10.2% of GDP in 2009/10 to 1.8% of GDP in 2018-19.
However, higher than expected Whitehall spending since April last year has offset higher VAT and corporation tax receipts, leaving the Treasury with little extra cash for day-to-day spending. Estimates put the chancellor’s headroom at between £5bn and £10bn.
Grenfell Tower
There is expected to be a threefold increase in the £200m set aside to fund the removal of combustible Grenfell-style cladding on tower blocks. Experts have already said £600m won’t be enough, even for those blocks with cladding that conforms to the government’s very strict rules.
Tower blocks with thicker, though equally combustible polystyrene and aluminium cladding are believed to remain outside the scheme.
Flooding
The government has signalled an increase in spending on flood defences after recent storms caused havoc across the country. The current budget of £2.6bn will increase to £5.2bn between 2015 and 2021, giving protection to an extra 336,000 homes in England. More than 2,000 new flood and coastal defence schemes will be built.
National Insurance thresholds
Boris Johnson pledged last year to raise the national insurance threshold to £12,500, before adding that a Tory government would raise the threshold to £9,500 this year, before further gradual increases during the parliament.
The policy would initially be a tax cut of about £85 a year and aim towards a reduction of around £460 for everyone earning more than the current threshold of £8,632.
Pensions
Private pension savings is subsidised by a huge £36bn in lost tax. Until the coronavirus hit, there were hints from the prime minister’s office that a cut in tax relief to better off savers could recoup £10bn of the total. It is possible the reform will be resurrected in the autumn.
The triple lock on state pension – which guarantees that basic state pensions rises in line with either inflation, earnings or at 2.5% (which ever is greater) – is likely safe in Sunak’s hands.
Welfare
Sunak is not expected to tamper with universal credit, the controversial scheme that integrates housing benefit, jobseeker’s allowance, employment and support allowance, income support, working tax credit and child tax credit into a single monthly payment. There could be further transition relief for families moving from the old system.
Motorists
Sunak has toyed with pushing up fuel duty for the first time in 10 years, raising around £800m for the exchequer.
It has also been mooted that the policy will include scrapping the £2.4bn diesel subsidy for users of farming and construction vehicles.
Neither is expected to be included in the budget, though they could both feature in the autumn budget
The Treasury has estimated that planned annual increases in fuel duty between 2011 and 2018 cost the government in revenues £46bn foregone. A continuation of the freeze will cost a further £38bn by 2023, it said, as a switch to electric cars eats into fuel duty revenues.
Analysis by campaign group Greener Journeys shows the decade-long freeze has caused an extra 5 million tonnes of greenhouse gas emissions by encouraging people to abandon public transport in favour of their cars.
Sunak is likely to re-announce a 44% jump in roads and highways investment between 2020 and 2025 put forward by former chancellor Philip Hammond in 2018. The £25.5bn fund for England is scheduled to be spent on motorway improvements and major new roads, with a further £3.5bn earmarked for local routes.
A £2.5bn fund to repair up to 50 million potholes will also be announced. The chancellor will say the fund, amounting to £500m a year over five years, should particularly benefit the south-west, the east of England and the north-west.
Tech tax
The chancellor was expected to announce measures to increase the amount of tax paid by technology companies such as Facebook, Amazon and Google. Sajid Javid said he would go ahead with a 2p tax on large digital company revenues, raising £500m a year, despite opposition from US president Donald Trump. Sunak could opt for a delay to help the UK’s trade negotiations with the US.
Business taxes
The chancellor will scrap the planned cut to corporation tax from 19% to 17, raising £6bn a year. Entrepreneurs’ relief in capital gains tax, which costs the Treasury £2.6bn, will be scaled back or abolished.
The chancellor will unveil further help for high street shops via temporary relief from business rates. This would match an offer to the hospitality industry and possibly the airline industry, which have been hit hard by the virus outbreak.
Small shops have benefited from transition relief in recent years related to a new scheme that forced shops in richer areas to pay more. But with almost all high streets hit by the coronavirus, an across the board cut is expected.
Sunak is also expected to put in place a one-year employer national insurance contributions (Nics) holiday for small businesses to employ armed forces veterans.
Housing
The Treasury is believed to be mulling an extension of the shared ownership and affordable homes programme that runs until 2021. Under consideration is a boost in the funds set aside from £9bn to £12bn.
