Sometimes it’s important to listen to what isn’t said. What isn’t referred to can sometimes tell the more pertinent story.
When I spoke about this Budget with a friend, they were saying it all seemed positive. Furlough extended, help for the self-employed extended. A corporation tax rise but not for smaller businesses. Restart grant for small & medium sized businesses. £700m for the arts, culture and sports institutions. It appears on first glance to meet Rishi Sunak’s aims of continuing financial support until after the vast majority of the UK has been offered a vaccine and targeted tax increases to begin to pay off the largest debt the UK has had since 1963.
Mr Sunak has also seem to come up with some sensible rules, including that whilst Government borrowing shouldn’t be used to cover spending deficits, borrowing for investment should be encouraged while we’re in a low interest rate scenario (Budget report, page 23), something I’ve argued for in previous blogs: by paying infrastructure projects, it creates jobs and allows people to earn a wage, meaning they go on to purchase stuff and pay taxes, stimulating the economy. This of course only works while we’re in a low interest rate situation where borrowing is cheap, and as long as investors have confidence in how well managed the UK economy is – both factors Mr Sunak called out himself in his speech.
So if all this sounds supportive, why my reticence in my opening paragraph? Well, let’s look for what’s missing.
What do we not see?
Coronavirus, and support to keep the UK economy going through the ongoing shockwave to our society, took up the majority of the Chancellor’s speech This is hardly unexpected; in fact, anything different would have had the opposition and newspapers howling in despair. Indeed all of Mr Sunak’s Budget and Spending Reviews have focused on managing the UK economically through Covid-19 – it’s hard to remember he only became the Chancellor in February 2020. As a result, it’s hard to remember what Budget speeches used to be before Covid-19.
Budget speeches usually reveal a lot about a Government’s plans, and Chancellors use them to as political theatre to highlight their priorities and call out who they want to support. There’s always a balancing act – every pound spent has to be earned by increased taxes, extra borrowing, or decreased spending elsewhere. Personal and party politics has a lot to play and it’s impossible to please everyone, and who benefits and who ends up losing out ends up being the next day’s headlines.
Pre-Covid, the conversations were on how to set the UK up post-Brexit. Rumours were the previous Chancellor Sajid Javid was planning on how to invest in the newly-won former Labour heartlands to “rebalance the economy” and a potential reduction in Income Tax (see my blog on the subject here). There were also ongoing conversations on funding the NHS (especially after the infamous pledge on the red bus), planned reduction of corporation tax, to reform for social care, changes to stamp duty, funding the criminal justice system, and so on.
In the past year, this all took a back seat to Coronavirus, and very rightly so. However this Budget was different – Mr Sunak said so himself right at the start of his speech; he wanted to start building Britain for the future. And whilst now might not be the right time to commit to a huge range of pledges, with the vaccine programme and the re-opening of the UK economy this summer not yet certain, Mr Sunak showed he was ready to make some pledges for the future, including the rise of corporation tax in 2023 and the new mortgage guarantee scheme.
So it was strange in its very absence not to hear about funding of the NHS. Funding for police to tackle crime, maybe even finally investment in our “crumbling” criminal justice system. No reform of business rates (although the amount due in 2021/22 will be reduced). No plans on how to sort out social care, or how the UK will become carbon neutral. No pledges for education specifically, although apprenticeships did get a mention.
All the items we take for granted in hearing about or discussed in a normal budget year conspicuous by it’s absence.
The proposed 1% pay rise for nurses has attracted attention and furious debate, and rightly so after all the NHS has done over the past 12 months and reports of mental ill health among their staff making headlines. If no extra funding could be found, at least provision for extended mental health support could have been made. Mr Sunak is gambling that arguments for fiscal responsibility will win out; I’m not so sure.
Also absent was any mention of the non-domiciled tax status. Non-domiciled tax status, “which is governed by a complex set of rules dating back more than a century, allows some residents who register their permanent home as outside Britain to limit the tax paid on earnings abroad. They can also avoid inheritance tax on property by putting it into an offshore company”. (Quoted from this article). Rising the amount paid here could have helped bring in extra tax income but was curiously absent.
It could be argued that all this will start to come back, maybe as early as the Spending Review in the autumn once we know if the Government Covid-19 roadmap has worked as intended. But that’s missing the point; if we’re rebuilding the economy for the future, some of this should have been up for discussion.
What did we get?
The policy decisions announced in this Budget for 2021 / 2022 has resulted in an extra £59 billion spend for next year alone. (page 43 of the Budget report).
“The significant support for individuals, businesses and public services set out at Spending Review 2020 (SR20) and the Budget totals £352 billion across this year and next year.”Page 2, Budget Report.
The sheer amount spent and the total size of the UK debt means looking at reassuring the UK can manage it’s commitments is a key priority for the Chancellor of the Exchequer. The increase of corporation tax – if implemented – could raise £47.8bn by April 2026, according to the Budget report, even allowing for smaller businesses to keep paying the current rate.
Personal allowances are also being frozen and not increasing by inflation, which allows Mr Sunak to technically say he hasn’t increased income tax per se but still raise £19.2 billion from income tax by April 2026.
Mr Sunak also called out that any increase in interest rates would be significant for interest repayments, and that more actions will need to be taken. I speculate this will include changing NI & tax for the self-employed and
There’s also discussions on Government department’s day to day spending. The Budget report shows this to be rising to the point that, “outside of the global financial crisis, public spending will be the highest as a share of GDP recorded for over 40 years.” (page 30 of the Budget report). However some newspapers report that the small print suggests a £4bn cut in cash spending. It’s likely that spending will be impacted, with moves from operational spending to capital investment. Investment should be welcomed, but at the moment so is sensible Government spending.
What else was in the Budget
There’s plenty of noble things in the Budget. £19m has been pledged to support victims of domestic abuse and to increase refuges. £10m is going to support veterans with mental health support. And for victims of Thalidomide, with financial support due to expire in 2023, lifetime support has been pledged for survivors.
A new green Government investment gilt will be launched this summer by National Savings & Investments, which will “give all UK savers the opportunity to take part in the collective effort to tackle climate change, benefiting from the innovative reporting standards planned for the green gilt programme.” (page 63 of the Budget Report).
It’s also reassuring to see investment continuing for this and future pandemic threats, with £22 million for new and expanded vaccine studies. (page 68 of the Budget report).
So what’s the verdict?
Dealing with Coronavirus and Covid-19 has been Mr Sunak’s focus since becoming Chancellor of the Exchequer last February; indeed in his Budget speech he said “But one thing has stayed the same. I said I would do whatever it takes; I have done; and I will do so.” With schemes such as furlough extended, self-employed support extended and the reduction in VAT for hospitality & tourism extended, one can’t doubt he has indeed tried to deal with the economic impact of Coronavirus. The furlough scheme has been a hugely welcome innovation, especially when compared to the lacklustre policies of the US. How effective Mr Sunak’s coronavirus policies have been, could they have been more tailored, and is there more that could have been done (including for “the Excluded”) is one that can and should be debated.
As we transition now towards the hopeful post-lockdown and post-pandemic world we get to finally see what Mr Sunak’s vision is as Chancellor of the Exchequer and in enacting Boris Johnson’s vision for the UK. And while some of this will be influenced by living in a post-pandemic world, such as the increase of corporation tax to pay down the Government debt and the continuing investment in vaccine studies, some will be rooted in their fundamentals and ideals of where they want the UK to go and become.
This speech sets out some of that future vision, with the rapid rollout of the new Freeports, the new infrastructure bank, skills training (under the “Help to Grow” banner), and investment in UK towns and cities. Some of this is to be welcomed; others questioned on their efficacy.
For me, this Budget will be represented by all that was absent. I get it; now is not the time for Rishi Sunak to set out a comprehensive mission statement when so much is still uncertain. And as an accountant, we have prudence drummed into us on a regular basis. But at what point does not saying anything cause more unsettlement, more speculation? Mr Sunak warned that corporation tax was going to rise in 2 years to provide certainty to businesses; could promising to review the finances for the NHS or social care, or criminal justice, or education not help to give their staff certainty that they’re not being left out or forgotten? That their day will come, once finances allow? Was there really no wiggle-room in the Budget for a gesture, a pledge, something to show that the public services that helped support us through these very trying 12 months were going to be fairly recognised for their sacrifice and supported?
I fear the silence has been heard loud and clear. And the impact on morale and the dedication of our health workers, carers, teachers, police officers, criminal justice system, social workers has the potential to cause personal, political and economic ramifications months from now, and could define Mr Sunak’s legacy much more acutely than Freeports or furlough.
7 March 2021
Featured image source: inews