In light of the events of the last few days, Rishi Sunak’s first Budget was always going to be dominated by the Government’s fiscal response to the Coronavirus (COVID-19) pandemic that is sweeping the world. Following the Bank of England’s emergency to cut interest rates to 0.25% and with the number of cases rising on a daily basis in the UK, the Chancellor moved to calm the markets, bolster funding for the NHS and provide reassurances to businesses and workers alike with a package of tax holidays, business rate freezes and an extension to statutory sick pay for the self-employed.
For a man who is only 27 days into the job – and central to the Government’s COVID-19 response – Sunak took to the stage with all the swagger and experience of a Chancellor who was delivering his tenth Budget, not his first; reminding us that irrespective of the Coronavirus outbreak, he holds the purse strings on behalf of a powerful Government determined to deliver it manifesto commitments.
After successfully navigating a sombre opening, the Chancellor got into his groove, deploying the Government’s repurposed Brexit catchphrase “Getting it done” on several occasions to cheers on the benches behind him. In addition to the emergency measures for the COVID-19 response, there were big announcements for R&D and education funding, with popular freezes on several of the so-called “sin taxes”.
Many across the industry will be breathing a huge sigh of relief given there will be no further rises in Insurance Premium Tax. However, the OBR has already commented that Sunak’s spending spree will increase the budget deficit by 0.9 per cent of GDP on average over the next five years and will add £125 billion to the public debt by 2024-25 – marking a clear break from the fiscally hawkish nature of his recent predecessors Messrs Hammond and Osborne.
For the IFoA’s Policy and Public Affairs Team there were a number of announcements relevant to our policy priorities. The Chancellor announced a huge package of measures around infrastructure investment - £600bn to be precise – to go towards road, rail, housing and broadband projects. With numerous projects put on hold due to the economic and political uncertainty around Brexit, today’s announcements will be music to many ears.
The decision 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, is an interesting one for us policy wonks. It will allow us to better understand the implications of infrastructure investment from both a resilience perspective, but also how the needs of future generations are discounted – two themes at the heart of the IFoA’s policy work.
Funding for those areas affected by flooding over the past few weeks and months is also welcome news. The Chancellor has set aside an additional £5.2bn to support those communities hit hardest by the bad weather and to repair damaged flood defences. But beyond the immediate response to the flooding, we would like to see a longer term approach to flood prevention.
Defences need to be strengthened and more needs to be done to ensure resilience is improved whilst the Flood Re scheme is in place. Flood Re provides valuable breathing space, but all parties should remember that it is a temporary measure rather than a long term solution and that, as long as high flood risk persists, an affordable market based on risk-reflective pricing is unlikely to be achieved.
The usual speculation around wholesale changes to pension tax relief turned out to be exactly that – speculation. However, aside from the short-term fix around the annual allowance to ease pressure on the NHS, the Chancellor has indicated the Government will consult (again) on reforms to the pensions tax relief framework. The change to the annual allowance is yet another example of Government tinkering around the edges. We welcome the Government’s intention to consult on more fundamental reforms to the pension tax relief system.
MPs will now debate the contents of the Budget over the next few days and the IFoA will be briefing parliamentarians on the finer details. In the meantime, you can read the IFoA’s press reaction to Budget 2020.