Budge It Time For UK
Kitty Miv, Editor
19 March, 2020
Obviously at the moment, it's very difficult to think about anything other than what's going on around the world as a result of the COVID-19 outbreak, with governments internationally putting in place measures to limit the spread of the virus, while events (and often the disease itself), are overtaking the efforts of both lawmakers and commentators.
Needless to say, we're all hoping that things will return to some kind of normality in the not too distant future, although what shape that normality will take remains to be seen. However, it is the job of governments to protect the economic and social futures of their populations, both through crises and in their aftermath, and this is what has been happening around the world, with varying degrees of success.
Last week, we looked at some of the measures being put in place by various countries (namely South Korea, Italy and Vietnam) to mitigate the effects of the outbreaks on their populations, and this week, I will be examining the budget put forward to this end by newly minted UK Chancellor, Rishi Sunak.
Without further ado, then, let's dive straight into Sunak's maiden budget, delivered at least a century ago, on March 11. In it, Sunak pledged to waive business rates on small retailers, to introduce a new tax on plastics, and to remove value-added tax on electronic publications.
The Chancellor announced that any eligible retail, leisure, or hospitality business with a rateable value below GBP51,000 (USD65,670) would, over the coming financial year, pay no business rates, the UK's commercial property tax. Further, he revealed that the government will provide support for businesses struggling with paying their tax dues, by "scaling up" the Time to Pay service.
It also emerged in the budget that the UK Government had decided to reduce the lifetime limit for Entrepreneurs' Relief to GBP1m (USD1.25m) from GBP10m, affecting qualifying disposals on or after March 11, 2020. Entrepreneurs' Relief reduces the amount of capital gains tax paid on disposals of qualifying: businesses; shares in a personal company; or shares from an Enterprise Management Incentive (EMI). Under pre-Budget rules, capital gains tax is paid at 10 percent on claims up to a lifetime limit of GBP10m worth of qualifying gains.
In terms of other, more general, measures, the Budget further revealed that the Employment Allowance would be hiked by a third to GBP4,000, the structures and building allowance will be increased from two percent to three percent, and the research and development expenditure credit would be increased from 12 percent to 13 percent. Sunak confirmed that VAT would be removed on supplies of electronic publications, and on female sanitary products. The Budget additionally announced that funds for anti tax avoidance and evasion efforts would be increased, in a bid to secure extra revenue of GBP4.4bn to fund the National Health Service. Finally, the Budget included a number of environmental tax changes.
However, not for the first time since the inception of this crisis, events overtook planning, and the government found it necessary to issue further advice, (conflicting with its earlier, more laissez-faire stance) which was based on an Imperial College report on the likely pattern of spread of Coronavirus, and which warned that the NHS would likely be overwhelmed many times over by the numbers needing critical care under the 'mitigate' model previously espoused by the government.
As a result of the Imperial College conclusions, PM Boris Johnson made the strong suggestion on Monday 16 that the British public refrain from "unnecessary social contact ", including in pubs, restaurants, clubs and theatres, but stopped short of calling for such venues to be closed, outraging the hospitality industry, which argued that without an official government edict – such as those issued in Italy and France – they would likely be unable to claim on their insurance policies.
In an attempt to placate the irate venue owners and restauranteurs, the Chancellor on Tuesday 17 was obliged to unveil a number of other measures, including an initial GBP330bn in guaranteed loans to assist affected firms in managing their cashflow.
In a speech delivered this week, the Chancellor explained that:
"To ensure that businesses have access to the funds they need, we are providing:
- support for liquidity amongst large firms, with a major new scheme being launched by the Bank of England to help them bridge Coronavirus disruption to their cash flows through loans
- increasing the amount businesses can borrow through the Coronavirus Business Interruption Loan Scheme from GBP1.2 million to GBP5 million, and ensuring businesses can access the first 6 months of that finance interest free, as Government will cover the first 6 months of interest payments
- including new legal powers in the Covid Bill enabling us to offer whatever further financial support we think necessary to businesses."
As initially flagged up in the budget, the government will grant retail, hospitality and leisure businesses in England a – 12 month holiday with regard to business rates, will increase the size of grants that are available to small businesses that are eligible for Small Business Rate Relief from GBP3,000 to GBP10,000, and provide an additional GBP25,000 in grants to retail, hospitality and leisure businesses operating from smaller premises (those where the rateable value is between GBP15,000 and GBP51,000).
Sunak further revealed that mortgage lenders had agreed a three-month payment holiday for affected customers, and stated that:
"Confirmation that government advice to avoid pubs, clubs and theatres etc. is sufficient for businesses to claim on their insurance where they have appropriate business interruption cover for pandemics in place."
However, given that, anecdotally, the majority of businesses do not have designated COVID-19 cover in place (given the relative newness of the disease), the usefulness of this assurance remains to be seen. Perhaps the measures to allow affected businesses to provide takeaway food without the submission of a new planning application may prove to be more so, hopefully preventing such establishments from collapsing as a result of the crisis.
Until next week, then, when I plan to look at the measures – somewhat belatedly, some have argued – put forward by US President Donald Trump, and by the various US state authorities to mitigate the impact of the Coronavirus in the United States, stay safe and well!
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