Writer’s note: Apologies for the delay in putting this blog together – but under the circumstances, I’m sure you’ll understand.

This was never going to be any normal budget.

So before I can do my usual of explaining what the Budget in 2020 – plus the subsequent spending announcements made in light of COVID-19 (Coronavirus), some background is important (and slightly geeky).

For those who just want to understand “what does it mean to me”, you might want to skip this next section. It’s going to be geeky.

Political Context

The 2019 General Election

The Conservatives won the 2019 General Election with a huge unexpected majority, including winning over some very traditional Labour heartlands. Mr Johnson even acknowledged that himself in an early speech after winning the election:

“…your hand may have quivered over the ballot paper before you put your cross in the Conservative box, and you may intend to return to Labour next time round.

If that is the case, I am humbled that you have put your trust in me and you have put your trust in us.

I, and we, will never take your support for granted. I will make it my mission to work night and day, to work flat-out to prove you right in voting for me this time, and to earn your support in the future.”

Boris Johnson, 13 December 2019 (Source: BBC News).

There are many reasons potentially for this. Brexit was clearly a dominant issue, with Boris Johnson pledging to “Get Brexit Done“, and the results in some Labour heartlands would suggest that this was a key factor. The Labour Party also appeared weak as a political force in this election, with the debate still going on as to why this was.

In any case, the Chancellor, Sajid Javid had to meet the spending commitments pledged by the party in the election campaign. As Mr Johnson’s speech suggested, it felt that the Labour heartlands in particular needed investment, to deliver the change promised to them during the election, to also lay the groundwork for the next election in five years’ time. Clearly if this result was ever to be replicated, the investment would need to commence as soon as possible.

I would also conjecture that there would also be pressure to spend the “Brexit dividend” and the Regions would need – and in fact demand – the investment made in the “forgotten” areas of the UK (especially the North, where despite promises, the “Northern Powerhouse” had yet to receive tangible investment).

For the past decade, the Conservatives – especially under former Chancellor George Osbourne – has built their reputation on “eliminating the deficit” and to reduce public spending. Conservative mantra is to – be it’s definition – conservative. That does not mean it enshrews pubic spending (in some years, it’s invested quite heavily) but it tends to not to use investment as a tool to stimulate the economy. So against this context, the 2020 Budget promised to be a different tone for the new decade.

Only Sajid Javid never got to make it…

Sajid Javid’s Resignation

Sajid Javid spectacularly and unexpectedly resigned, four weeks before he was due to present his Budget. He was replaced by the Rishi Sunak; an appointment questioned since he was made a junior minister at the Ministry for Housing, Communities and Local Government by Theresa May in January 2018, but in fact he had been promoted to Chief Secretary to the Treasury last July when Boris Johnson became prime minister.

It was always likely Mr Sunak wanted to put his own stamp on his first Budget. How much so, we can never be sure, as by this point Covid-19 (Coronavirus) was beginning to impact the UK and therefore restrain some of what Mr Sunak might have had planned.

Reports are Mr Javid had planned a reduction in Income Tax, reducing the basic rate from 20% to 18% and eventually down to 15%. It’s difficult to underplay how significant of an announcement this would have been – it fits in with the Conservative philosophy of reduced tax, but instead of going to business, would have meant many ordinary UK workers would have felt the tangible benefit. It would have been a very welcome announcement – now it looks like to recoup all the spending (rightly) necessitated by Coronavirus, if anything tax rates may well need to rise in the future.


“Cases of Covid-19 first emerged in late 2019, when a mysterious illness was reported in Wuhan, China. The cause of the disease was soon confirmed as a new kind of coronavirus, and the infection has since spread to many countries around the world and become a pandemic.

On 11 February the World Health Organization announced that the official name would be covid-19, a shortened version of coronavirus disease 2019. The WHO refers to the specific virus that causes this disease as the covid-19 virus.”

The New Scientist, retrieved 28 March 2020 (Source: New Scientist).

The Covid-19 Coronavirus was beginning at the start of March to have an impact, with people flying in from abroad being asked to self-isolate. Coronavirus had been declared a “Global Health Emergency” but not yet a pandemic; the situation in countries like Italy was grave and it was clear. The UK government had to start planning for the oncoming situation, which included the Treasury.

While the nature of the emergency would radically change within days – only 12 days after the Budget the Prime Minister announced radical curbs to everyday life – it was clear some support would need to be written into the Budget. And indeed the initial tone of the speech was very different to any recent Budget made.

The Bank of England Base Rate & the future of UK Banking

On the day of the Budget announcement, the Bank of England dropped it’s base rate from 0.75% to 0.25%, it’s lowest in history. With the Stock Markets around the world suffering their biggest falls since the 2008 financial crisis,  the Bank of England had to be seen to intervene. The lower rates were an attempt to stablise the markets, at the cost of savers rates in the UK banking sector; indeed, the Chancellor referred to it in his Budget speech:

“The Governor set out this morning the actions that the Bank will take to help UK businesses and households bridge across the likely economic disruption:

A 50 basis point reduction to interest rates, to support business and consumer confidence…”

Rishi Sunak, 11 March 2020 (Source: GOV.UK).

Alas it wasn’t enough, and a further cut necessitated nearly a week later as the markets “bordering on disorderly”.

There’s a science to this: As gilts (effectively Government IOU notes) are sold, the price drops and the yield – the effective interest rate compared to the price – rises. What that means is the cost of borrowing to private investors as well as to the government rises – just when the Bank of England wants it to fall and the government is about to borrow huge sums.

But this comes at a potentially devastating cost. The UK banking industry (including Building Societies) makes money simplistically by borrowing money from savers, paying them an interest rate as a thank you, then lending money out to loans and mortgages, changing them an interest rate for the privilege. Again simplistically:

Interest charged on loans – interest paid out in savings = profit.

When interest rates are high, there’s a big difference between the two. Once upon a time mortgage rates were 6.5% and savings rates 4-5%, leaving 1.5 – 2% profit. With interest rates at virtual 0, the difference between mortgage rates and savings rates are becoming increasingly squeezed.

The net effect? I think (and I stress this is solely my opinion) that at least one UK bank will be “on the edge” before too long, with the only way out a forced merger. If we can get through this period of historically low exchange rates with our financials services in a similar shape to how they were before, I will be amazed.

I must stress at this point all UK banks & building societies are subject to stress tests to ensure they can survive all manner of scenarios – in addition up to £65,000 is covered by the UK Financial Services Compensation scheme. I merely mention this from an academic point of view; I do wonder how much shock the UK banks & building societies can endure in reality to this scenario. All will depend on how long these historically low rates remain.

The Budget Announcement

“I want to get straight to the issue most on everyone’s mind– coronavirus COVID19.

I know how worried people are.

Worried about their health, the health of their loved ones, their jobs, their income, their businesses, their financial security.

And I know they get even more worried when they turn on their TVs and hear talk of markets collapsing and recessions coming.

People want to know what’s happening, and what can be done to fix it.

What everyone needs to know is that we are doing everything we can to keep this country, and our people, healthy and financially secure.

…My RHF the PM, alongside officials and scientists, is leading the work on the public health response.

Today, I want to set out our economic response so we bring stability and security.

Rishi Sunak, 11 March 2020 (Source: GOV.UK).

I honestly cannot remember a speech to the House of Commons – and indeed, the mood of MPs in the Chamber at the time, being as sombre as this. Budget announcements tend to be raucous occasions – Chancellors get their moment in the spotlight and tend to want to show (depending on their political standpoint) willing to invest in the country, economic prudence, and/or pulling a political rabbit out of the hat to attract headlines and reward members of the public with investment or putting more pounds in their pockets. (How effective that ends up being is of course, a matter of personal and political debate).

Instead this speech was arguably more – statesmanlike. The tone dictated by current events. Increased spending on the A303 by Stonehenge was not as high a priority on people’s minds as it might otherwise have been.

And indeed, the first 15 minutes or so of his speech was taken up just with measures to tackle the impacts due to Coronavirus. And as we found out on the 20 & 26 March when Mr Sunak was forced to make further announcements even that wasn’t enough.

Still, it is still worth noting that every aspect of this Budget – from the spending pledges, the timings, the tone delivered – is materially different from anything in recent history.

The Budget Speech – 11 March 2020

The initial section of the Budget speech focused on support needed due to Coronavirus. Early on the Chancellor mentioned interventions would be needed for both the supply and demand side of the UK Economy, helping individuals, businesses and public services. Paragraph 1.83 of the Budget Report states:

1.83  The plan includes a range of timely, targeted and temporary measures to deliver support when and where it is needed, at a total cost of £12 billion. The wider Budget policy decisions set out in Table 2.1 represent £18 billion of additional government spending, which will provide support to the economy. Together, the government is taking £30 billion of policy action in 2020-21, equivalent to approximately 1.3% of GDP.

By comparison, the Budget in 2017 was a net spend of £25 billion over 5 years – this is £18 billion of additional spending in one year, rising to £36 billion next year. And again, this is BEFORE the additional support for the employed and the self-employed announced on the 20th and 26th March respectively. The spending this report is suggesting is simply phenomenal.

The scale of the Coronavirus on the Budget is remarkable:

  • £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, with the benefit available from day one, not after a week as now.
  • £500m hardship fund for councils in England to help the most vulnerable in their areas.
  • Firms with fewer than 250 staff will be refunded for sick pay payments for two weeks.
  • Small firms will be able to access “business interruption” loans of up to £1.2m
  • Business rates in England will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
  • £6bn in extra NHS funding over five years to pay for staff recruitment and start of hospital upgrades.

But what is remarkable is the majority of the rest of the content, which is mostly glossed over due to Coronavirus. Some did get some prominence – the 5% VAT on women’s sanitary products, known as the tampon tax, is to be scrapped. Fuel duty was frozen for another year.

But others didn’t get the news that on any other Budget might have made it further up the headlines. A new plastic packaging tax is to come into force from April 2022, where manufacturers & importers whose products have less than 30% recyclable material will be charged £200 per tonne. This is one of those weird taxes that the Treasury will expect to make some income in Year 1 but will reduce as more manufacturers and importers move to recycled plastic. Still, the Treasury is expecting to make around £220 million a year from the measure – although not as much as the move to remove the subsidy on Red Diesel not as much, which is due to make £1.5 billion a year.

With storms Ciara & Dennis making news early in 2020, extra spending on flood defence and mitigation was required, and here the Budget pledges £120m in emergency relief for English communities affected by this winter’s flooding and £200m for flood resilience, with the total investment in flood defences in England to be doubled to £5.2bn over next five years.

The other bigger announcement is in the form of National Insurance changes, increasing the thresholds at which employees and the self-employed start paying National Insurance contributions (NICs) to £9,500 from April, which would take over a million people will be taken out of paying Class 1 and Class 4 NICs entirely. Again potentially a huge change for many, potentially missed among the other announcements.

As usual the BBC publishes a simple summary of the key announcements.

Help for the Employed – 20 March 2020

By the time the 20th March came along, the landscape had changed significantly. The Prime Minister needed to give daily briefings to the press to keep the public informed. Around 4,000 had been diagnosed and 177 people had died. Businesses were already on the verge of making some – or in some cases, their entire workforce – redundant as work was drying up. The travel and hospitality industries were particularly affected.

“Whatever it takes” was Mr Sunak’s phrase during the announcement, where the UK Government effectively became guarantor of last resort for 80% of employees’ wages, an intervention remarkable by any UK political party, especially a Conservative one.

The main component of this is a scheme called the Coronavirus Job Retention Scheme.

What does it mean to me as an employee?

So what does it actually mean? The key word here is furloughed, which means “to allow or force someone to be absent temporarily from work” (Cambridge Dictionary) In this case, it’s when an employer asks someone not to come into work as there is no work to do – but unlike redundancy, keeping them “on the books” so they can come back to work once normal work resumes.

So if you were furloughed – asked to remain home from work but not fired – the Government will pay 80% of your wages up to a maximum of £2,500. This will be done by paying the money to your employer and your employer paying it to you through their usual payroll.

Employers of course would be able to top up the salary, paying the extra 20% themselves, to allow you to receive your normal wage. How many will be willing or be able to remains to be seen.

From the employer point of view, the Government will also cover 80% of the associated Employer National Insurance contributions and minimum automatic enrollment employer pension contributions on that wage.

Crucially, as this applies to employees in general, this would cover those even on part-time hours, those on agency contracts and those on flexible or zero-hour contracts. Even if you don’t have a steady wage, your employer can either pay you the same pay as you got the same month last year (i.e. in April 2020 pay you what you were paid in April 2019) or an average of the whole of the previous year.

The catch is you have to be furloughed – at home because there’s no job for you to do but not fired. You can do voluntary activities or training, but as soon as you’re doing paid work, then the expectation is your employer pays you your normal wage out of their own pocket.

(Advice for Employees, Advice for Employers. Source – GOV.UK, retrieved 28 March 2020).

Political context

The UK’s social insurance schemes was arguably weaker as compared to other European countries, and Universal Credit continues to be criticised by some. At the same time, companies were threatening to make mass redundancies due to the impact of Coronavirus and the Government were faced with the possibility of a huge influx of claimants and the political and economic ramifications of this. In this context, Rishi Sunak needed a radical mechanism to help employees – and for political reasons preferably not using the Universal Credit mechanism.

Still, to engineer a mass payment scheme by essentially running the PAYE tax system backwards, refunding payments to employers to pass onto employees, is both ingenious (from a political standpoint) and radical. It has the hallmarks of a brand new, interventionist scheme, making the Government look proactive and decisive.

It also has a secondary effect that it sends a message to the Stock Exchange and the money markets that the Government is willing to intervene as necessary, and wasn’t afraid of making tough and difficult calls. In that way, it could be seen as contributing to attempt to stabilise the money markets and a corner of the economy at a time of turbulence.

One cannot overstress how radical this intervention is, especially coming from a Conservative Government on the back of a decade of austerity. As the BBC’s Economics Editor, Faisal Islam, comments:

This move is an incredible intervention for any British government, let alone a Conservative one, but proportionate to the size of the terrible, but temporary, economic impact that could follow the coronavirus shutdowns.

…At 80% cent of wages up to £2,500 a month it is a scheme more generous than some of the high welfare Scandinavian countries. It instantly transforms the social safety net of this nation.

Faisal Islam, retrieved 28 March 2020 (Source: BBC News).

I’m struggling to find any documentation on what the Treasury’s estimated costs of this scheme, on top of VAT and business rate holidays, loan guarantees and welfare support. Suffice to say we as a country will be faced with the costs of paying this back potentially for decades. That’s not to say this isn’t the right thing to do – far from it – but the impact of this decision on the UK economic landscape will be felt for years to come.

Help for the Self Employed – 26 March 2020

Even when the Budget was announced there was criticism – including from myself – that there was little help for the self-employed. References were made about making it easier to claim contributory Employment Support Allowance but this wouldn’t help a good portion of the Self-Employed. Calls grew for there to be some kind of scheme to help the self employed.

Logistical Challenges

To understand why this might not have been announced at the same time, the logistical challenges need to be understood. The following is not meant as a defence of the Government or HMRC, but meant to be a debate as to the challenges involved.

HMRC is not geared up for mass payments. Although it processes tax refunds, this is done on a relatively small scale. HMRC does not, to my knowledge, have a mass payment system in place. Even to facilitate the Coronavirus Job Retention Scheme a whole new system needs to be devised. A means of tracking the amounts of payments made and in relation to who needs to be devised.

The main challenge though comes with calculations. With people who are employed via Pay As You Earn (e.g. the majority of employed people) your employer has to transmit information to the government on how much you’re paid each month, on or before when you’re actually paid, through something called Real Time Information or RTI. Using this scheme, HMRC can check that when a company is claiming 80% of your pay it’s consistent with the pay details sent in previous months and that employers aren’t trying to siphon extra money from the taxman (and by virtual us as taxpayers).

For the self-employed, HMRC only knows how much has been earned when the annual self-assessment tax return is submitted and payments made. On the occasions where the self-assessment indicates a tax refund is due, the bank details are entered as part of the submission. How to devise a mechanism to give the self-employed some kind of relief from financial hardship caused by the Coronavirus, allow those who can cease trading and stay at home a means of financial support, and ensure there is some kind of auditability and traceability is no small task. Even less coming up with the actual mechanism of actually facilitating the scheme.

The BBC has a further analysis of this in this article.

The answer came in an announcement on the 27th March in the form of the the Coronavirus Self-employment Income Support Scheme.

What does it mean to me as someone self employed?

In nature, it’s the same as the scheme announced for employees; 80% of your monthly profits up to a maximum of £2,500 per month, based on the declared taxable profits from the past 3 years worth of tax returns (or less if only 1 / 2 years are available).

However this only applies where taxable profits are under £50,000. There appears to be no help available for those with taxable profits over this amount, but this is to be confirmed. Also, the majority of your income needs to come from self-employment – again based on data from the tax returns.

(The full eligibility criteria is available on GOV.UK’s dedicated page)

The good news is there’s no claiming needed – HMRC will write to everyone eligible to offer the payment of the grant with a link to a GOV.UK form to complete the details. The intention is to set this up by June with 3 months of pay paid in a lump sum, although Rishi Sunak promised to release the scheme sooner if it’s ready earlier.

The fact that this will not be ready to June has caused a backlash, to which Rishi Sunak has said changes to Universal Credit rules plus deferring self-assessment tax payments to January 2021 would help in the short term.

Political context

One thing the Chancellor did announce though, in exchange for all this help is that the disparity between taxes for employed and self-employed might have to end.

I must be honest and point out that in devising this scheme – in response to many calls for support – it is now much harder to justify the inconsistent contributions between people of different employment statuses.

If we all want to benefit equally from state support, we must all pay in equally in future.

Rishi Sunak, 26 March 2020 (Source: GOV.UK).

Quite what this entails is not yet clear, but the suspicion is a change to the National Insurance contributions paid by the self-employed verses the employed would be overhauled. How – or if – this fits into the often-mooted plan to overhaul National Insurance rates and combine with income tax to form a single, simplified, tax regime is not clear, but it might give the Treasury the momentum to complete a plan that it’s so far failed to enact for many years.

If so, it would be one tangible consequence of the economics & politics of the Coronavirus pandemic.

Even so, if the Coronavirus Job Retention Scheme was interventionist, then this was even more so. Mr Sunak claimed “What we have done will, I believe, stand as one of the most significant economic interventions at any point in the history of the British state, and by any government, anywhere in the world.” (Source – GOV.UK). Clearly it’s a scheme unlike any the UK economy has ever seen. The ramifications of this for future benefit for the self-employed remains to be seen, but it will be far harder for any future Government, should employment support ever be needed again, to exclude the self-employed. Rishi Sunak has set a new precedent here.

Budget 2020: Hidden Nuggets

As regular readers of this blog (Editor’s note: is there any??) will know, I always like to find the hidden nuggets and stories from the Budget tucked away in the Budget Report that might not have made the news headlines but represents points of interest, either for good or for worse. Since Coronavirus announcements took precedence in the news I’d argue most of the Budget announcements could constitute “Hidden Nuggets”, but still let’s take a look at some of the more interesting or relevant points from the Budget Report.


Bearing in mind one of the original key aims of this budget was investment, the Budget doesn’t disappoint – £21.7 billion of new investment over the next 4 years on “Delivering investment commitments including on transport, health, justice, education, R&D” plus other spending commitments on housing, skills and gigabit broadband.

The original, pre-Coronavirus plan was to publish a “…landmark National Infrastructure Strategy later in the spring which will set out plans for a once in a generation transformation of the UK’s economic infrastructure.”

Naturally I suspect this will be delayed.

Transport gets substantial investment, including:

  • Dualling the A66 Trans-Pennine and upgrading the A46 Newark bypass, addressing congestion on these key routes in the North East and the Midlands.
  • Improving the M60 Simister Island in Manchester to tackle delays.
  • Building the Lower Thames Crossing.
  • Building a new, high-quality dual carriageway and a two-mile tunnel in the South West to speed up journeys on the A303, and to remove traffic from the iconic setting of Stonehenge.
  • Midlands Rail Hub – investing £20 million to develop the Midlands Rail Hub, progressing plans for a major programme of improvements to rail services between the regions’ cities.
  • £50 million to improve accessibility at 12 stations, including Newtown in Powys, Beeston in Nottinghamshire, Eaglescliffe in County Durham, and Walkden in Greater Manchester.


“From September 2020, all new and existing students on nursing, midwifery and allied health courses in England will benefit from additional non-repayable maintenance grants to help with living costs. Students will receive at least £5,000 a year, with up to £3,000 further financial support available for eligible students with childcare responsibilities, as well as those studying in regions and specialisms where Trusts find it difficult to recruit nurses.”

The Environment

Carbon Capture & Storage is referenced, with the aim of building at least one CCS power station by 2030, and development of the technology.

£500 million is also pledged for electric car recharging points. Little is referenced to hydrogen cars (a previous Government investment aim) except by reference of car tax discounts.

Criticism naturally arose with such prominence on road building as to how this reconciles with the Government aim of being carbon neutral by 2030.

The Treasury is on the move

To try and ensure the Treasury develops a culture of “looking beyond London”, the Treasury will establish a new “economic decision-making policy campus” in the north of England, Northern Ireland and Wales, adding to its existing presence in Scotland.This is likely in response to criticism that it’s investment decisions in the past tended to favour London and the South East rather than taking a UK centric view. It remains to be seen if establishing new offices will help the Treasury adapt it’s culture, or if it will end up slowing down decision making and introduce conflict and competition within Treasury processes and culture.


  • The aim to apply a zero rate of VAT to e-publications from 1 December 2020, “…to make it clear that e-books, e-newspapers, e-magazines and academic e-journals there are entitled to the same VAT treatment as their physical counterparts.”
  • An evaluation on the Making Tax Digital scheme, and from April 2021 large businesses will be required to notify HMRC when they take a tax position which HMRC is likely to challenge.
  • Keeping Corporation Tax at 19%, and not reducing it to 17% as previously planned, is estimated to bring in an additional £6 billion per year.

A Summary

This is without doubt the longest blog post I’ve ever written on a Budget, and it reflects my original claim that this Budget was always destined to be one to rewrite all the rules; the impacts of Covid-19 (Coronavirus) means that the political and economic impact (never mind the impact to society) will be felt for years, maybe even decades. Despite all the analysis done above, in reality everything remains unknown. This is one of those moments in history where the Chancellor of the Exchequer is not in the driving seat of economic events and the future direction of economic policy, philosophy and financial realities. However he has staked a reputation of not being afraid to be bold and interventionist when required.

How much of this Budget survives to be enacted remains to be seen. The attitude of the Chancellor though is quite refreshing. That is not to say there isn’t some legitimate criticisms of some of his policies. However barely 2 months into the job and he’s facing one of the toughest challenges in post-war history.

He’s made a promising start. How he deals with the realities when all is said and done will determine his legacy and UK society for decades.

No pressure Rishi.

Michael Hardy
28 March 2020