Britain saw its first budget in 16 months at Wednesday lunchtime, and the first to prepare for a post-Brexit economy.
And while most observers had spent the last few weeks in speculation, more than a few predictions were derailed by a series of events that started with Sajid Javid’s resignation, the rapid development of the coronavirus crisis and the sudden rate cut by the Bank of England to the historic low level of 0.25%
But what exactly has new Chancellor of the Exchequer Rishi Sunak announced?
With the economy already growing at the slowest pace since 2009, according to the Office for Budget Responsibility, a great deal could depend on the measures he introduces.
£30bn to deal with the crisis
Mr Sunak, who was only promoted to the role four weeks ago after Sajid Javid’s resignation, has had to hastily re-write the government’s financial plans to deal with coronavirus.
He stated that the outbreak would have a “significant impact” on the economy.
His budget therefore included a £30bn package to help the economy get through the coronavirus outbreak.
Emergency measures include a £5bn emergency response fund to support the NHS and other public services, help with sick pay for people and businesses, and “business interruption” loans of up to £1.2m for small firms.
The measures have been welcomed as a lifeline for the economy. While they cannot prevent GDP from falling sharply over the next couple of months, together with the Bank of England’s response earlier today, they could improve the prospects for small businesses – and the chances for the UK economy to rebound later in the year.
Stimulating the economy
The Chancellor also looked at ways to stimulate the economy.
Tens of thousands of retail, leisure and hospitality firms will not pay any business rates in the coming year. This would provide both additional help for small businesses hit by the coronavirus slump, and in the longer term, make it easier for bricks and mortar businesses to compete with their online equivalents. He also pledged to review the business rates system later this year.
The environment will benefit from a new £640m “nature for climate fund” to protect natural habitats and provide 30,000 hectares of new trees. There is all also to be a new plastic packaging tax.
There will be substantial investment in nuclear fusion, space and electric vehicles, roads and housing, and a £5 billion for super-fast broadband.
The measures seem designed to help stimulate the digital economy, the motor industry and aerospace sectors – all potential keys to UK prosperity.
Personal taxation and pensions
Although there has been speculation about sweeping changes in tax relief and pensions, few have materialised – although the Chancellor has made changes to the annual pensions allowance taper.
The taper reduces the annual allowance by £1 for every £2 earned by people with income of over £150,000.
The two thresholds which trigger the taper annual allowance (the threshold of £110,000 and the adjusted income £150,000) will be increased by £90,000 each. This means the new threshold trigger will be £200,000 and the adjusted income trigger will be £240,000.
These changes will mean fewer higher earners will be hit by the taper – although the minimum annual allowance will be decreased to £4,000 for those with an adjusted income over £300,000.
At the other end of the earning scale, National Insurance Contributions tax threshold will rise. The current threshold sees employees and the self-employed paying contributions once they earn £8,632 or around £166 a week. From April, they only pay when they start earning £9,500, meaning a saving around £100 a year.
The full, new state pension will go up by 3.9% from £168.60 a week to about £175.20 in April. However, many pensioners still get the older basic state pension, which is also going up by 3.9%, from £129.20 to £134.25 per week. They may also get a Pension Credit top-up.
The changes to tax and increase in state pensions could see many people a little better off thanks to the budget.
What should you do?
When the Chancellor of the Exchequer says that an economic downturn is coming, it might be wise to follow his lead and take action now.
It could be time to reappraise your current holdings, and to look at your tax position if you are affected by the changes to the taper.
At Continuum we have the investment expertise to help you manage your portfolio, your pension arrangements and your tax liabilities. With a Continuum expert on your side, you can draw up your own plans to protect your wealth during the crisis and grow it as the economy recovers.
For the help you need, call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Request a callback
Our services at Continuum are delivered by some of the most qualified advisers in the UK, to create the ultimate client experience.