The Budget takes place against the backdrop of the global outbreak of COVID-19. The fundamentals of the UK economy are strong and the government is well prepared to protect people’s health and support their economic security throughout this period of temporary economic disruption. The Budget sets out a plan to support public services, individuals and businesses that may be affected by COVID-19.
While the economy continues to face challenges, the government’s careful management of the public finances means that it is able to support the economy in the short term, while investing in the future. The Budget announces investments in the roads, railways and digital networks that will underpin growth over the coming decade, as well as the world-class hospitals, schools, colleges and police forces that people rely on every day.
The Budget supports the government’s ambition for a fair and sustainable tax system that helps people and families with the cost of living, funds the first class public services they expect and creates an environment for business to succeed. The government will build on this across the Parliament, creating a tax system fit for the challenges and opportunities of the 21st century.
The Budget also sets out a plan to invest in research and development (R&D) and cutting-edge technologies. It provides support for people in every nation and region of the UK to gain the skills that they will need as the economy evolves, so that the nation can seize the opportunities of the next decade and fulfil its potential.
In the year that the UK hosts the COP26 UN climate summit, the Budget takes steps to decarbonise the economy and protect the UK’s natural habitats, ensuring that every part of the UK economy is ready for the challenges of decarbonisation, and ready to capitalise on the opportunities to become leaders in the green markets of the future.
This is the first Budget of a new government, the first of a new decade, and the first since the UK’s departure from the European Union (EU). It is a Budget that lays the foundations of the UK’s future prosperity and delivers on the government’s promises to the British people.
The UK economy has many strengths. It has a globally competitive tax system, it is home to many highly innovative firms, has a world-beating science and research base, and has sound, independent macroeconomic institutions. Employment growth remains strong – the employment rate reached a record high in the three months to December 2019 – and earnings growth remains above inflation.
The recent COVID-19 outbreak is creating short-term uncertainty. The Office for Budget Responsibility’s (OBR) economy and fiscal forecast does not reflect the now global spread of COVID-19 nor an outbreak in the UK. The OBR notes that the spread and impact of a COVID-19 outbreak clearly represents a downside risk to the forecast, but the scale is highly uncertain and the economic impact is likely to be temporary.
Looking further ahead, the UK also faces challenges in the medium to long term. Productivity remains low compared to other countries and unevenly distributed across the country. And, in common with other advanced economies, the transition to a net zero emissions economy by 2050 will require radical changes in every sector. The Budget lays the foundations to address these challenges.
Outlook for the public finances
Over the past decade, the government has taken action to restore the public finances to health, reducing the deficit by four fifths. This, and the historically low cost of borrowing, mean that the government can support the economy in the short term, while providing significantly more investment in public services and infrastructure to support growth in the long term.
The Budget launches the Comprehensive Spending Review 2020 (CSR), setting out the overall level of public spending within which the CSR will be delivered. The CSR will conclude in July and will set out detailed spending plans for public services and investment, covering resource budgets for three years from 2021-22 to 2023-24 and capital budgets up to 2024-25.
The CSR will prioritise improving public services, levelling up economic opportunity across all nations and regions, strengthening the UK’s place in the world and supporting the government’s ambitions to reach net zero carbon emissions by 2050. It will focus on linking departments’ spending proposals to the real-world outcomes they seek to achieve, and delivering value for money for taxpayers.
The policy changes set out in the Budget, including the spending totals that have been set for the CSR, have been delivered while ensuring the current budget is in surplus, public sector net investment does not exceed 3% of GDP and debt is kept under control.
HM Treasury will review the fiscal framework ahead of Autumn Budget 2020 to ensure it remains appropriate for the macroeconomic context, while ensuring the sustainability of the public finances.
Responding to COVID-19
Public safety is the government’s top priority in its response to COVID-19 and it is taking firm and comprehensive action, consistent with the best scientific evidence.
As well as being focused on safety and the public health response to the outbreak, the government recognises that people will be concerned about the effect it will have on their livelihood, and business will be concerned about reduced demand, potential disruptions to supply chains and export markets, and to their workforce during this temporary period.
The Budget announces a £12 billion plan to provide support for public services, individuals and businesses, whose finances are affected by COVID-19. This includes a £5 billion COVID-19 response fund to ensure the NHS and other public services receive the funding they need to respond to the outbreak as the situation develops, and recover and return to normal afterwards.
For individuals it includes extending Statutory Sick Pay (SSP) for those advised to self-isolate, and those caring for others who self-isolate, and support through the welfare system for those who cannot claim SSP, as well as a hardship fund.
Finally, the government will support businesses that experience increased costs or disruptions to their cashflow. This includes expanded Business Rates reliefs, a Coronavirus Business Interruption Loan Scheme to support up to a further £1 billion lending to SMEs, a £2.2 billion grant scheme for small businesses, and a dedicated helpline for those who need a deferral period on their tax liabilities.
Tackling COVID-19 is a global challenge, and to complement our domestic response the Budget sets out steps the UK is taking to lead a swift and effective global response to deal with the impacts of the virus.
The measures set out in the Budget to support health and other public services, protect people and families and support businesses will be reflected in the public finances at Autumn Budget 2020.
Funding excellent public services
The people of the UK are rightly proud of its world-class public services. The NHS, schools and police provide the security and support that allow the British people to lead safe, prosperous and healthy lives. The government is committed to providing the funding that public services need and ensuring that excellent services are available in every nation and region of the UK.
Total departmental spending is set to grow twice as fast as the economy over the CSR period. Day-to-day departmental spending is set to grow at the fastest rate over a spending review period since Spending Review 2004.
Within this, the government will increase funding for its number one spending priority: the NHS. Compared to 2018-19, NHS England will receive a cash increase of £34 billion a year by 2024. In addition, the Budget commits over £6 billion of new funding over this Parliament, including to create 50 million more GP surgery appointments per year, ensure there are 50,000 more nurses, and fund wider commitments on hospital car parking and support for people with learning disabilities and autism. The Budget also sets out action to ensure that pensions tax rules do not deter doctors from taking on additional shifts.
The government will invest in the security of everyone in the UK with additional funding for counter-terrorism policing and the UK intelligence community. The government will keep people safe with strengthened community sentences and increased victim support.
Spending Round 2019 committed to a £7.1 billion cash increase in funding for schools by 2022-23. The Budget builds on this by providing £29 million per year by 2023-24 to support primary school PE teaching and help schools make the best use of their sports facilities, as well as £90 million per year to introduce an Arts Premium from September 2021 to help schools provide high-quality arts programmes and extracurricular activities for pupils.
Levelling up and getting Britain building
The government is committed to levelling up across the UK by raising productivity and growth in all nations and regions, creating opportunity for everyone, and addressing disparities in economic and social outcomes.
For too long the UK has under-invested in infrastructure, leaving many people stuck with delays and poor service.
By the end of the parliament, public sector net investment will be triple the average over the last 40 years in real terms. In total, around £640 billion of gross capital investment will be provided for roads, railways, communications, schools, hospitals and power networks across the UK by 2024-25. The government will publish a National Infrastructure Strategy later in the spring, and the CSR will provide full departmental spending plans. The Budget announces:
- the largest ever investment in English strategic roads, with over £27 billion between 2020 and 2025, enough funding to fill in around 50 million potholes across the country, and unprecedented investment in urban transport, with £4.2 billion for five-year, integrated transport settlements for eight city regions on top of £1 billion allocated to shovel-ready transport schemes
- funding for the Shared Rural Network agreement to radically improve mobile coverage in rural areas, and a record £5 billion investment in gigabit broadband rollout in the hardest-to-reach areas of England, Scotland, Wales and Northern Ireland
- record funding of £5.2 billion for flood defences between 2021 and 2027, offering better protection from flooding for 336,000 homes and non-residential properties. Additional funding of £200 million will help communities most at risk of flooding recover faster in cases where they are affected by flood damage
- a £10.9 billion increase in housing investment to support the commitment to build at least 1 million new homes by the end of the Parliament, and an average of 300,000 homes a year by the mid-2020s
- the government will invest £1.5 billion (£1.8 billion including indicative Barnett consequentials) over five years in capital spending to refurbish further education colleges, and has committed to a new £2.5 billion National Skills Fund to improve adult skills (£3 billion including indicative Barnett consequentials). It will also boost science, technology, engineering and maths teaching with capital investment for up to eight new Institutes of Technology and 11 maths schools. The government is committed to giving everyone the opportunity to fulfil their potential, regardless of where they are from.
The government is also taking action to review the Green Book, which sets out how decisions on major investment programmes are appraised in order to make sure that government investment spreads opportunity across the UK.
The Budget reaffirms the government’s commitment to strengthening the ties that bind the Union. As well as taking action that will support people and businesses in every nation of the UK, and targeted support to each nation, it sets out the funding the government will make available through Barnett consequentials for the devolved administrations to fund public services, infrastructure and other priorities.
Supporting people and families
The government is committed to taking action to help with the cost of living for everyone across the UK and ensure that the most vulnerable in society get the support they need.
Alongside the Budget, the government is formally announcing a new, ambitious target for the National Living Wage (NLW) to reach two-thirds of median earnings and be extended to workers aged 21 and over by 2024, provided economic conditions allow. Based on the latest OBR forecast, this means the NLW is expected to be over £10.50 in 2024.
This builds on the 6.2% increase of the NLW to £8.72 an hour that takes effect from this April, meaning the government is on track to meet its current target of 60% of median earnings by 2020. Since the NLW’s introduction in 2016 real wages have grown fastest for the lowest paid full-time workers.
As people earn more, the government is committed to reducing taxes on their wages. The Budget confirms a tax cut for 31 million working people with the increase in the National Insurance contributions (NICs) thresholds for employees and the self-employed, saving the typical employee around £104 and a typical self-employed person around £78 in 2020-21. Taken together with increases to the NLW and to the Personal Allowance, an employee working full-time on the NLW anywhere in the UK will be over £5,200 better off compared to April 2010.
The government is investing a further £9.5 billion in the Affordable Homes Programme which in total will allocate £12.2 billion of grant funding from 2021-22 to support the creation of affordable homes across England.
The government is also helping people with the cost of living by freezing fuel duty for the tenth consecutive year, freezing all alcohol duties, applying a zero rate of VAT to e-publications, abolishing the tampon tax, and making it easier for parents of up to 500,000 school-age children to access Tax-Free Childcare.
The Budget confirms the end of the benefits freeze and continues the rollout of Universal Credit to support the most vulnerable in society, with extra help for parents of sick or premature babies, carers and victims of domestic violence.
The government will invest an additional £1 billion to remove unsafe cladding from residential buildings above 18 metres to ensure people feel safe in their homes.
The Budget also includes action to reduce rough sleeping, providing £643 million for accommodation and support services to help people off the streets.
From the largest UK-headquartered multinationals to the smallest family-owned firm, businesses are the lifeblood of the UK economy. They have created 3 million new jobs since 2010, giving more people the chance to succeed in life and provide for their families.
The UK is one of the best places in the world to do business and the most attractive country for inward investment in Europe. The government is committed to unleashing businesses’ potential, and the Budget supports the development of the high-tech, high-skill jobs of the future.
The government wants to ensure that the United Kingdom continues to be attractive to investment and remains a dynamic environment to start and grow a business. To cut the cost of taking on staff the government is increasing the NICs Employment Allowance to £4,000, benefiting 510,000 businesses. At 19% the UK’s Corporation Tax rate remains the lowest in the G7 and G20. The government is reforming Entrepreneurs’ Relief, while continuing to support the vast majority of entrepreneurs and increasing tax incentives for businesses investing in structures and buildings, and R&D.
The Budget also announces the launch of a fundamental review of business rates, due to report in the autumn.
The Budget will help businesses to take advantage of opportunities for the UK outside the EU, for example through new financial support for British exporters and by investing in additional business support for SMEs through Growth Hubs. The government will also extend the Start-Up Loans Programme to ensure would-be entrepreneurs can access the finance they need.
To ensure that the UK remains a dynamic and competitive regulatory environment, the government is launching a Reforming Regulation Initiative to collect ideas for regulatory reform, as well as implementing the recommendations of the Furman Review of digital competition, publishing further detail on the Financial Services Bill which will ensure that the UK maintains its world-leading regulatory standards and openess to international markets.
Investing in innovation
The UK’s success in the global economy will be rooted in innovation and cutting-edge technology. By driving technological change, the government will create the high quality, highly paid jobs of the future, the Budget sets out plans to increase public R&D investment to £22 billion per year by 2024-25. The government will invest that money in the people, ideas and industries that will cement the UK’s world-leading position in science and technologies ranging from nuclear fusion to electric vehicles and life sciences.
This landmark investment is the largest and fastest ever expansion in support of researchers and innovative businesses, taking direct support for R&D to 0.8% of GDP and placing the UK among the top quarter of OECD nations – ahead of the USA, Japan, France and China.
Achieving the government’s ambitions on R&D will require investment from the private sector. To boost that investment the government will increase the rate of R&D tax credits and consult on widening the definition of qualifying expenditure to include data and cloud computing.
In life sciences, the government will provide the British Business Bank with additional resources to launch a dedicated £200 million investment programme which is expected to enable £600 million of investment, helping to ensure the UK remains a world leader in life sciences innovation.
Growing a greener economy
The UK has already cut carbon emissions by more than any other G7 country and in 2019 was the first major economy to legislate for a target of net zero greenhouse gas emissions by 2050. As the UK prepares to host this year’s COP26 UN climate summit, the Budget announces a range of policies to reduce emissions, ensure our environment is protected and resilient to climate change, and generate green economic opportunities across the nations and regions of the UK.
Increasing the UK’s use of clean energy is a vital part of reducing carbon emissions and putting the nation at the forefront of new innovative industries. The Budget announces a Carbon Capture and Storage (CCS) Infrastructure Fund to establish CCS in at least two UK sites, one by the mid-2020s, a second by 2030. To encourage more environmentally-friendly ways of heating homes and other buildings, the government will also introduce a Green Gas Levy to help fund the use of greener fuels, increase the Climate Change Levy that businesses pay on gas, and reopen and extend the Climate Change Agreement scheme by two years.
Road transport is responsible for 91% of domestic transport emissions, and around a fifth of overall UK emissions. To support drivers to move away from polluting vehicles, the Budget announces investment in electric vehicle charging infrastructure, which will ensure that drivers are never more than 30 miles from a rapid charging station, provides £532 million for consumer incentives for ultra-low emission vehicles, and reduces taxes on zero emission vehicles.
In addition, the government will promote air quality improvement by removing the entitlement to use red diesel except for agriculture, fish farming, rail and non-commercial heating. The government will tackle air pollution by providing £304 million to help local authorities reduce nitrogen dioxide emissions and improve air quality.
The government will also invest in the natural environment, planting enough trees to cover an area the size of Birmingham, restoring peatlands, and providing more funding to protect the UK’s unique plants and animals. The government will also go further to tackle the scourge of plastic waste by introducing a Plastic Packaging Tax, as well as providing further funding to encourage producers to make their packaging more recyclable.