2020 Budget - First Thoughts

The 2020 budget is in the books and it's time to sift through the details. In today's article, we'll summarise the main points and give our key takeaways.

Rishi Sunak has delivered the 2020 budget, under the cloud of the coronavirus epidemic. We'll have more articles and analysis in the coming weeks. But here is our initial reaction.

For more updates, please check out our Coronavirus Update page.

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Rishi Opens The Purse Strings

You'd be forgiven for wondering if this was a Tory or a Labour chancellor delivering the speech! Sunak proposed an enormous fiscal stimulus, with public spending set to increase by 2.8%.

This would represent the biggest giveaway for almost thirty years, according to the Office for Budget Responsibility:

Relative to our pre-measures baseline forecast, the Government’s policy decisions increase the budget deficit by 0.9 per cent of GDP on average over the next five years and add £125 billion (4.6 per cent of GDP) to public sector net debt by 2024-25.

The Coronavirus Dominates

As expected, the coronavirus epidemic hung over the budget. The chancellor made two striking announcements:

• The NHS would get "whatever it costs" to deal with the virus
• He has specifically earmarked £30b to deal with the crisis

Some of this money has been set aside to help small businesses. The government will now cover statutory sick pay for small firms. In fact £2b will go towards sick-pay rebates for businesses with less than 250 staff.

The Markets Are Ambivalent

As of mid-afternoon on budget day, the FTSE was barely changed from the opening price. This could mean that traders were ambivalent about the measures announced by Sunak.

Alternatively, it could be that the big takeaways had been anticipated by the City and, therefore, already "baked in" to the price. For example, the day's big decision (the interest rate cut to 0.25%) was announced hours before Sunak's speech.

It could also reflect that coronavirus is dominating the news to such an extent that budget measures are considered of secondary importance.

Small Business News

There were two announcements that will be especially interesting to small and medium sized business owners:

• Corporation Tax remains unchanged at 19%
• Entrepreneur's Relief will be capped at £1m

We came into the budget suspecting that Entrepreneur's Relief might be a target. Critics have long claimed it's simply a tax break for rich people, which doesn't even stimulate investment.

The chancellor chose the middle ground. ER will stay, but the cap has been reduced from £10m to £1m.

VAT News

It seems that every budget there is some headline-grabbing announcement on VAT. Chancellors have to be careful here, as it can often backfire (remember George Osborne's "pasty tax").

Sunak has chosen to abolish VAT on digital books, news, academic journals and audiobooks. He even managed to fit in a jab at the shadow chancellor. He said that the new rules will apply to non-fiction, academic books and: “... works of fiction, like John McDonnell’s Economics for the Many”

If you'd like to discuss anything in this article with one of our tax experts, please get in touch.