The newly-appointed Chancellor Rishi Sunak has delivered the first budget of the decade with a focus on ‘levelling up’ the UK economy, with the aim of ensuring that everyone has the same chances and opportunities in life, wherever they live. Unsurprisingly, a major focus of budget was the economic response to Coronavirus (COVID-19) with the focus on keeping people healthy and financially stable in the immediate future. The Chancellor set out a three point plan to dealing with the crisis with the Government allocating a £30billion fiscal stimulus to support the NHS, businesses and people through the Coronavirus outbreak.

Emily Hall - Senior Economic AnalystEmily Hall, Senior Economic Analyst at Pegasus Group summarises the main points from his 62-minute speech, looking closely at what he had to say about the housing market, supporting businesses, infrastructure and investment in research and development.

Housing Market

Although the amount of detail is light, the main announcements on housing were:

  • The affordable homes programme will be extended, with a new multi-year settlement of £12billion. This is billed as the largest investment in affordable housing in a decade.
  • To support Local Authorities to invest in communities, the Government are cutting interest rates on lending for social housing by 1.0%.
  • There will be £1.1billion allocated from the Housing Infrastructure Fund to build nearly 70,000 homes in areas of high demand across the country.
  • There will be another £400million to fund housebuilding on brownfield sites.
  • £650million of funding will help rough sleepers into permanent accommodation – a step towards meeting the Government’s promise to end rough sleeping.
  • The new Stamp Duty surcharge for non-UK residents will be introduced at a rate of 2.0% by April 2021.
  • Last year the Government allocated £600million to remove Aluminium Composite Material (ACM) from high rise residential buildings. The chancellor announced a new building safety fund worth £1billion. The new fund will make sure that all unsafe cladding (not just ACM) will be removed from every private and social residential building above 18 meters high although no date for achieving this was referred to.

Help for Businesses

To support businesses in the immediate future during the outbreak of Coronavirus, the Chancellor announced:

  • Smaller businesses and the self-employed will be able to defer tax payments for a period of time.
  • Banks will temporarily offer loans of up to £2.5million for businesses to cover the costs from Coronavirus. This should protect the vast majority of businesses through the worst of the crisis.
  • Businesses in properties with a rateable value of less than £51,000 will have their business rates abolished over the next financial year.
  • Small businesses already benefiting from business rates relief, a £3,000 cash grant per business will be available.

More generally in the budget, the Chancellor announced:

  • There is £130million of new funding available to extend start up loans, £200million for life sciences and £5billion of new export loans for business, as well as additional support for growth hubs.
  • Although entrepreneurs relief has been criticised, it will not be fully abolished. The Chancellor stated that there will be a sensible reform and reduced lifetime limit of the relief (from £10million to £1million pounds).

Infrastructure

For infrastructure in the UK, the following announcements were made:

  • This budgets represents the biggest ever investment in strategic roads and motorway – over £27 billion of funding will pay for work on over 20 connections to ports and airports, over 100 junctions, and over 4,000 miles of road.
  • There is also funding for local road infrastructure with £2.5billion of funding available to fix up to 50million potholes across the country. £500million of this funding will be spent this year.
  • The Government will continue to support rail improvements. Whilst new rail infrastructure projects were announced, the Chancellor confirmed that work on HS2 has begun; there are commitments in place to fund the Manchester to Leeds leg of Northern Powerhouse Rail; and a new station will be built at Cambridge South and the Midlands Rail Hub. There is also funding to make a dozen train stations more accessible.

The National Infrastructure Strategy, which was due to be published alongside the budget, has been delayed as the new chancellor refocuses the document to reflect potentially larger resources available and incorporate the challenge of achieving “net zero” carbon emissions over the 30-year timescale. Publication of the National Infrastructure Strategy is expected to be before May. This document, alongside the Comprehensive Spending Review later this year, will determine the detailed policy on infrastructure.

Investment in Research & Development

The Government’s National Industrial Strategy sets out five ‘Foundations of Productivity’ with the aim to boost productivity and earning power across the country. Under the ‘Ideas’ foundation the strategy outlines the Government’s aim to become one of the world’s most innovative economies by providing the biggest increase in public investment in Research and Development in UK history. In line with this ambition, the Chancellor made the following announcements around Research and Development:

  • The Government is committed to investing in the technologies of the future and investing in ideas. To do this, the Chancellor announced that investment in R&D will increase to £22billion per year. This is the fastest and largest increase in R&D spend ever. The Government aims to make the UK one of the scientific research centres of the world.
  • This funding will help to create the high skill, high wage low carbon jobs of the future, facilitating an increase in peoples’ quality of life even as we cut our emissions.

Other Announcements

Other announcements of note included:

  • There will be a review of the HM Treasury Green Book, that helps officials judge whether a potential investment represents value for taxpayers’ money. The aim is redistribute investment to the North of England as part of a drive to rebalance the regional variation in the economy. For example, before the budget, the Chancellor unveiled plans for a new economic campus in the North of England for 750 staff from the Treasury; the Department for Business, Innovation and Skills; the Department for International Trade and local government. Treasury offices will also be opened in Wales and Northern Ireland, adding to an existing presence in Scotland. The ultimate aim is to move 22,000 civil servants outside Central London.
  • Following the flooding in recent years, the Government pledge to double investment of flood defences over the next 6 years to £5.2 billion. The budget provides funding for 200million to local communities to build flood resilience and an additional £200million towards repairs from recent flooding.
  • Minimum wage levels have already been set, with those aged 25 and over getting £8.72 an hour from April (up by 6.2%). Inheritance tax changes have been happening for some time and are in the pipeline again for 2020-21.
  • People will be allowed to earn more before they have to pay national insurance. This April, it will be frozen at £12,500 before we start paying 20% income tax. Also frozen is the £50,000 threshold at which people start to pay the higher 40% rate of income tax. This means that 500,000 people will no longer have to pay this tax, according to independent economists at the Institute for Fiscal Studies (IFS). Those still paying will save up to £85 a year. The National Insurance threshold for employees and the self-employed will also be raised to £9,500 from April.
  • From April, benefits including job seeker’s allowance, employment and support allowance as well as some types of housing benefit and child benefit will rise in line with the rising cost of living (1.7%). For example, child benefit for the eldest child will go up from £20.70 to £21.05 per week.
  • Fuel duty has been frozen again for the tenth consecutive year. . All alcohol duties will also be frozen.
  • In the next 5 years, 4G coverage will reach 95% of the country.

The Chancellor also confirmed that a comprehensive set of reforms to the planning system will be announced by the Housing Secretary Robert Jenrick tomorrow (12/03) to “bring the planning system into the 21st Century”. Whilst the detail of these reforms will be forthcoming, the aim is to create a simpler planning system and improve the capacity, capability and performance of Local Planning Authorities. The Budget Report confirms that these reforms will include “firm consequences” for those authorities which fail to meet their local housing need and will include a stricter approach taken to the release of land for development and greater government intervention.

Following this, the long-awaited Planning White Paper will be published in the spring whilst ministers continue to explore long-term reforms to the system including “rethinking planning from first principles” to ensure the system provides more certainty to the public, local planning authorities and developers.

To conclude, the Office for Budget Responsibility stated that this budget represents the largest sustained fiscal boost for nearly 30 years. The Chancellor stated that “by investing historic amounts in British innovation and world-class infrastructure, we will rebalance opportunities and lay the foundations for a decade of growth for everybody.”

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