Thursday, 12 March 2020
In the first budget since the 2019 general election, the agricultural sector retained red diesel subsidies, for another year at least, despite them being scrapped for most sectors. This was in line with policies to encourage use of greener energy across the economy
Other environment focussed measures include a plastic packaging tax, to come into force from April 2022, and manufacturers and importers whose products have less than 30% recyclable material will be charged £200 per tonne. This is particularly applicable to food production where plastic packaging is widely used to extend shelf life of product and maintain food safety standards for consumers.
This budget was unusual, not just in that it appears primarily focused on tackling the challenges that the current Coronavirus outbreak may have on the UK economy, but also as it signals a clear departure from previous government policy of fiscal restraint and budgetary cuts.
The impact of Coronavirus was already being felt in global markets back in February as we have discussed before.
However, it has spread rapidly around the globe since then, and the UK seems poised on the brink of moving from the ‘containment’ phase to the ‘delay’ stage in an attempt to slow the spread of the disease thus limiting its impact.
Whatever happens next, it is inevitable that Coronavirus will have a significant effect on the UK economy. Domestic demand for goods and services will be negatively impacted, as people follow advice to stay indoors, work from home and avoid social gatherings.
If the UK follows Italy’s experience of Coronavirus and has to quarantine large areas of the country, then the impact on the UK economy are potentially severe. It is clear that the Bank of England had these consequences in mind when deciding to cut interest rates to 0.25% yesterday morning, in an attempt to mitigate the downturn in demand. In a raft of measures, the Bank also made lending easier and eased the burden on borrowers by extending time to pay loans and mortgages.
On the supply side, government estimates that up to 20% of the UK workforce may be unable to work at any one time. This could have major impact for small and medium sized enterprises, including most farm businesses. In addition, supply chains may face disruption with farmers unable to obtain the goods and services they need to operate effectively as well as facing potential problems supplying product to markets.
In the 2020 budget the chancellor has announced a £30bn stimulus for the economy specifically aimed at minimising the impact of Coronavirus. This included a promise to provide the NHS with ‘whatever it needs’ and a range of other measures including:
- Government will cover the cost of statutory sick pay for businesses with less than 250 employees if their employees have to stay at home because of the illness
- Businesses will be given more flexibility around tax payments with additional time to pay to ease cash flow issues
- A Coronavirus Business Interruption Loan will be made available up to £1.2m to small businesses
- Business rates will be abolished for firms in leisure, retail and hospitality sectors with a rateable value of less than £51,000
In wider measures for the economy, an enormous £175bn of additional spending on UK infrastructure, over and above that promised at the 2019 general election, including more money for the NHS, Education and housing sectors. This brings total spending on infrastructure to around £600bn by 2025.
In addition, emergency food relief of £10m for those communities affected this winter, along with a doubling of spending on flood defences to £5.2 bn over the next five years
So in summary, a very different budget to the ones seen in more recent times, both in its focus and in its ideology, marking a very decisive move away from the years of austerity and fiscal caution.