Budget 2020: the extraordinary measures that could affect your finances

Brexit, the climate emergency and a little thing called Covid-19, here’s how the Budget could stack up for your wallet

Rishi Sunak poses with the Budget Box ahead of the government’s announcement (AFP)

It was the most extraordinary build up to a Budget in decades.

From surprise resignations to stock market crashes and, just this morning, emergency financial measures, including a cut to a record low-base interest rate, we knew chancellor Rishi Sunak was primed to deliver yet more remarkable announcements in the most eagerly awaited, and much leaked, Budget statement for years.

He didn’t disappoint. This was undoubtedly a coronavirus Budget, but it was also a post-Brexit Budget and a Budget that he promised would help hard-working families keep more of their money.

Sunak has assured us that the government will do “everything we can to keep us healthy and financially secure” and he has certainly splashed the cash, borrowing huge amounts in today’s ultra-low interest rate environment to pay for a raft of measures from emergency sick pay to affordable housing.

As finance experts already begin to look past the immediate future to the impact such a huge list of dramatic funding changes, breaks and cash injections could be storing up for the future, here’s how the announcements might start affecting you from today.

First things first… sick pay

“A fifth of the workforce could be off sick at any one time [with coronavirus] … but life will return to normal,” said Sunak today. “If people fall ill or can’t work, we must support their finances.”

The PM had hinted in PMQs just moments earlier that the chancellor would announce sick pay support for all, including the almost 5 million self-employed facing the prospect of either working and earning, or self-isolating and losing money during the Covid-19 crisis.

In fact, the measures the chancellor announced are still limited.

A dedicated helpline has been set up for small businesses and the self-employed struggling to pay their tax bills. Statutory sick pay for employees of businesses with fewer than 250 staff for up to 14 days will also be refunded by the government – worth £2bn for up to 2 million businesses.

The chancellor has also temporarily removed certain eligibility limits on ESA and universal credit, now available from day one, and offered a £500m hardship fund for local authorities to support the vulnerable in their local area.

But it is still unclear what specific help, if any, will be provided to those who don’t currently qualify for any sick pay due to their employment status or income level in the event that they need to stay at home during the Covid-19 outbreak.

Tax and pay

The Office for Budget Responsibility (OBR) expects half a million more people to be in work by 2025, Sunak said today and by 2024, the national living wage will be two-thirds of median earnings he claimed.

Meanwhile, the chancellor announced an increase in the national insurance threshold to £9,500 a year from April, which, though met with approval by his own party, will only give Britons an extra £100 a year.

“Realistically, there’s not very much you can do with an extra £8 a month in the bank – this won’t, for many, even cover the annual increases on mobile phone, broadband or TV contracts,” said Andy Barr, a personal finance specialist at Alertr. “The government is of course continuing to increase the living wage, and it’s going up again in three weeks’ time, but this only applies for those being paid hourly.”

Mortgages and housing

A stamp duty surcharge at 2 per cent for non-UK residents from 2021 will bring UK tax treatment in line with the way non-domiciled owners are treated by other developed nations. The change is unlikely to have a significant impact on the housing market as overseas investors represent a tiny proportion of home owners in the UK.

Meanwhile, the announcements earlier this week that the UK’s major lenders would be easing up the rules around mortgage repayments and charges for those hit, economically at least, by Covid-19, may well have a greater impact on personal cash flow than the emergency interest rate cut to just 0.25 per cent revealed hours before today’s Budget.

Though the process and proof required for reclaiming missed debt payment charges and applying for mortgage payment holidays is yet to be made clear, it could make all the difference for those struggling to make ends meet as the health crisis continues.

With millions of home owners already locked into historically low rates of interest through fixed-rate mortgages, the rate cut is only likely to impact those on variable rates or lenders’ infamously expensive standard variable rates who are now looking for new fixed rate deals.

In a bid to wage further war on the housing crisis, Sunak also announced a not insignificant £9.5bn of extra funds to build more affordable homes. But we know from experience that grand plans don’t always filter through to a real-life boost to accommodation.

“The significant additional funding for affordable housing is to be welcomed and will benefit the country in a multitude of ways,” said Jeremy Raj, national head of residential property at Irwin Mitchell.

“Such pledges have historically proved difficult if not impossible to turn into reality and we will wait to see whether the bricks, construction workers and planning permissions also materialise over the coming years. It is to be hoped that the further announcements from the housing minister will back up these aspirations with practical measures that actually enable more affordable homes to be built.”

Cost of living

Sunak announced that planned increases in alcohol duty would be frozen, as would fuel duty, despite the potential impact on climate change. And finally, the absurd tax on sanitary products has been scrapped.

Within two years we may also find the cost of our plastic packaged food and other items rise after the chancellor announced a plastic packaging tax on anything made up of less than 30 per cent recycled plastic.

Meanwhile, the cost of gas could increase as levies are announced as part of a bid to combat climate change by promoting cleaner sources of energy used in homes and businesses. It remains to be seen how those changes will be passed on to consumers, particularly any cost savings on electricity bills.

Savings and investments

You’d be forgiven for missing a couple of other key changes buried in the fine detail that could make quite a difference to the nation’s savers and investors.

“Parents will see a massive jump in the amount they can put away in a junior Isa each year from next month, with the limit more than doubling from the current £4,368 to £9,000,” said Laura Suter, personal finance analyst at AJ Bell.

“It’s the biggest jump in the allowance since the junior Isa launched in 2011, but with the average subscription per account being less than £1,000 it’s unlikely to be a boost many households will use. The move to hike the junior Isa allowance but keep the main Isa and lifetime Isa rates the same means it only benefits a smaller group of people – making the move cheaper for the government.

“The increase in allowance means a parent starting next month for a newborn child could build a tax-free pot of more than £240,000 by the time their child reaches 18, assuming they put the maximum in each year and it grows by 4 per cent every year after charges.

Elsewhere, the amount you can make each year in capital gains before you pay tax has increased from the current £12,000 to £12,300 from next month, broadly in-line with the CPI measure of inflation.

But there was a big hit to savers hidden in the policy costings, with “the amount that the NS&I [national savings and investments] is targeted to raise being slashed from £10.1bn this tax year to £6bn for 2020-21,” warned Suter. “This means that rates offered by NS&I are likely to become less competitive, meaning that the series of rate cuts savers have already been subjected to are likely to continue next year.”

Small businesses

Entrepreneurs’ relief, created to incentivise start-ups with tax relief on capital gains, was targeted in the Budget as expected, but with the lifetime limit reduced from £10m to £1m instead of abolished all together. But some specialists feel that’s a matter of semantics.

“This change to entrepreneurs’ relief is as good as abolishing it completely and this is a huge mistake,” said Jamie Morrison, head of private client at accountancy firm HW Fisher.

“While a sensible change following proper consultation would be welcomed, this is a step too far.

“By cutting the relief, entrepreneurs will only be able to benefit up to £100,000 during their lifetime. This is not enough to drive support of creativity and entrepreneurship. Businesses need consistency and this budget needs to look beyond the immediate implications of coronavirus to provide a vision beyond the next 12 months.”

Pensions

There is a standard annual allowance on the maximum amount of money someone can contribute to a pension each year. For those on high salaries this is currently tapered or reduced.

Today – in a widely anticipated move – the chancellor revealed the income limit before that tapering kicks in would increase by £90,000.

“The increased threshold limits will be welcomed by many as this should lift all but the highest net worth individuals out of the ‘taper trap’,” said Les Cameron, pensions and tax expert at Prudential UK.

“Having said that, we are still left with a complex piece of pension legislation. Reducing the taper charge to £4,000 will see an increase in the annual allowance charge of £2,700 for those who are fully impacted, in other words those with adjusted income of over £312,000.”