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UK government Budget response to Coronavirus outbreak

  • United Kingdom
  • Tax planning and consultancy - Budget

16-03-2020

Given the development of the COVID-19 situation, it was anticipated that the UK government Budget would have a very different focus than originally expected. Trailed as the showcase fiscal policy event of the new Conservative government, it was always likely that long-term strategic changes would need to be deferred in favour of short-term protective measures against the economic impacts of COVID-19. The recent Coronavirus outbreak has led to inevitable questions about the cost to the UK government as the outbreak continues to create contractual and other legal challenges which are in many ways unprecedented. 

This was Rishi Sunak’s first Budget, having just four weeks to prepare for the task, with the last Budget delivered by Philip Hammond in October 2018. He unveiled a £30bn series of measures (including a £18bn ‘fiscal-loosening’) to address how the UK government will be doing “whatever it takes” to provide support for public services, individuals and businesses, who finances are affected by Covid-19. This included a £5bn COVID-19 response fund ensuring the NHS, public services and businesses are prepared economically over the next few months to tackle the potential view that a fifth of the workforce could be affected.

We have set out below the key responses proposed as temporary actions to provide a bridge to businesses and its employees;

  • £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 Support Allowance
  • The ESA benefit will be available from day one, not after a week as now
  • £500m hardship fund for to be given to local authorities in England to help the most vulnerable in their areas
  • The UK government will meet costs for businesses with fewer than 250 employees by providing statutory sick pay to those off work because of coronavirus
  • A "temporary coronavirus business interruption loan scheme" for banks to offer loans of up to £1.2m to support small and medium-sized businesses
  • Business rates in England will be suspended for a year for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
  • Plans to make it quicker and easier to get benefits for those on zero hours contracts
  • Benefit claimants who have been advised to stay at home will not have to physically attend job centres
  • £40 million of new funding for the National Institute for Health Research and the Department of Health and Social Care to enable further rapid research into COVID-19 and increase the capacity and capability of diagnostic testing and surveillance facilitated by Public Health England

The budget watchdog has warned that the chancellor’s measures across the whole of the budget could add as much as £100bn to public borrowing by 2024. Whilst the Office for Budget Responsibility (OBR) forecast that borrowing could soar to a six year high of £66.7bn in 2021-22.

It had been thought that met with the responsibilities of tackling such disruptive short-term measures, the chancellor could have been expected to defer more substantial proposed changes that would reduce tax revenues, such as the manifesto promise to increase the national insurance contributions threshold to £9,500. This was not the case with most previously mentioned fiscal policies being confirmed and just one tax increase appearing in his Budget.

Looking towards the end of the year, it does seem that the Chancellor has taken a prudent approach at this time of uncertainty by planning another Budget in the Autumn. One would hope by which time there would be more clarity on the impact of COVID-19 and the Conservatives can proceed with material fiscal policy initiatives in a more stable macroeconomic environment. 

For further commentary on the Budget 2020, please visit our hub.

For further commentary on the coronavirus, please visit our hub.