Under the Spotlight – the First Budget of the Decade
Chancellor of the Exchequer, Rishi Sunak, delivered his first Budget on 11 March and unleashed the largest increase in public investment for several generations, in an effort to boost the economy and see the country through the coronavirus crisis.
A dramatic Budget Day began with the Bank of England sanctioning an emergency halfpoint interest rate reduction amid growing concerns about the economic impact of COVID–19. On 19 March, a further cut to 0.1% was announced. Later, Mr Sunak revealed updated GDP projections which, excluding an inevitable but incalculable coronavirus impact, suggested the UK economy would grow by 1.1% in 2020–21, down from a previous forecast of 1.4%.
The Chancellor’s principal change in relation to personal taxation was to increase the National Insurance threshold to £9,500, which will save most workers around £100 annually from April. Income Tax bands, however, including the Personal Allowance above which people start paying tax, and higher-rate thresholds were maintained at current levels.
As previously indicated, the new single-tier State Pension will increase from £168.60 a week to £175.20 in April, while the older basic State Pension will rise from £129.20 to £134.25 per week. Among other pension changes, the Chancellor announced a £90,000 increase in the tapered Annual Allowance thresholds.
Savings and Investments
The main savings-related announcement was a substantial increase in the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limit from £4,368 to £9,000 this April. The ISA (Individual Savings Account) allowance, including the £4,000 Lifetime ISA allowance if used, remains unchanged at £20,000.
Mr Sunak also announced the lifetime limit on gains eligible for Entrepreneurs’ Relief has been reduced from £10m to £1m. This reflects a belief that the concession has not provided a major boost to entrepreneurial activity.
Key Points from the Spring Budget
- Economy predicted to grow by 1.1% in 2020-21, revised down from 1.4% forecast a year ago (this figure does not take into account the impact of COVID–19)
- Growth predicted to rebound to 1.8% in 2021–22, easing back to 1.5% in 2022–23
- Inflation forecast of 1.4% this year, increasing to 1.8% in 2021–2022
Coronavirus and Public Services
- £5bn emergency response fund to support the NHS and other public services in England
- All those advised to self-isolate will be entitled to Statutory Sick Pay, even if they have not presented with symptoms
- Self-employed workers who are not eligible will be able to claim contributory Employment and Support Allowance (available from day one)
- £500m hardship fund for councils in England to help the most vulnerable in their areas
- Firms with fewer than 250 staff will be refunded for sick pay payments for two weeks
- Small firms will be able to access business interruption loans
- Business rates in England will be suspended for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
- £6bn in extra NHS funding over five years to pay for staff recruitment and start of hospital upgrades
Personal Taxation, Wages and Pensions
- Tax paid on the pensions of high earners, including NHS consultants, to be recalculated to address staffing issues
- The two tapered Annual Allowance thresholds for pensions will each be raised by £90,000
- The minimum level to which the Annual Allowance can taper down will reduce from £10,000 to £4,000 from April 2020
- Annual Capital Gains Tax exemption increased to £12,300 from 2020–21
- The Lifetime Allowance for pensions will increase in line with the Consumer Prices Index, to £1,073,100 for 2020–21
- From 11 March 2020 the Lifetime Allowance on gains eligible for Entrepreneurs’ Relief reduced from £10m to £1m.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.
The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.