Budget Day — what we got

If you read my preview this morning you would have seen that I predicted that the budget wasn’t going to be the King John taxing budget, Tory backbenchers suspected. I just couldn’t see the Chancellor introducing tax hikes. To me, it was clearly a false flag tactic to let these rumours flow.

This will be seen as a good budget but I must give the health warning, like George Osborne’s disastrous budget’s, it could look brilliant until you read the small print.

Before we dig in. I just want to highlight that I thought Sir Keir delivered the best reply to a budget I’ve seen since Cameron.

I understand he was given more access to what was in than other Leaders but none the less it was a good showing. I personally think the Leader of the Opposition reply to the Chancellor is pointless. It should come the next day when they had time to read the bloody thing, then just replying to the soundbites.

If Sir Keir has any cut though I think it will be that Sunuk had next to nothing about NHS, social or welfare spending.

To be fair to Sunak it is equally true that he is not spending enough and at the same time spending too much. There will always be people/ businesses who won’t get as much support as they need and of course, there is only so much he can spend and borrow of taxpayers money. It’s Sir Keir and Labour’s job to exploit this.

Like many modern budgets, Sunuk had an audience. Remember “alarm clock Britain” or “the squeezed middle”. This budget really was aimed at the “covid-interrupted”.

The self-employed grant and the furlough extension are great. That will help a lot of people. These type of policies are what this budget was about.

New Business Loan

One of the announcements we already know about was the Business Recovery Loan Scheme. I’m proud that along with the guys at Rangewell I was able to contribute to the cross-departmental taskforce who designed this lending program.

The Recovery Loan Scheme is going to be a £25k to £10m loan with the taxpayer guarantees up to 80% of potential losses to the lender. The terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years. There are no PG’s on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.

Firms can apply until 2021 (this might be extended). The Recovery Loan Scheme will replace the Bounce Back Loans, the Large and normal Coronavirus Business Interruption Loan Scheme from April.

One thing I would question is the timing of introducing the Recovery Loan Scheme. Replacing the emergency-loans schemes with this recovery scheme at the end of this month is too soon. We are still in lockdown. Firms are still on the brink. We should look at the recovery measures only when firms can open and trade again.

Economic Data

On the recover, I’m not surprised by the Office of Budget Responsibility forecast of a faster recovery. This is what I said at the end of last year.

If you look at the data from the Office of National Statistics you see a wonky-w recovery. When the UK has tight restrictions, business performance dips. As soon as restrictions are eased, we’ll see a sharp upturn.

All industries saw a dramatic drop in GDP at the start of the pandemic. Some sectors struggled to return to their February 2020 levels, while others saw their output bounce back to their pre-March levels by June 2020. OBR confirm this.

Where the Tax Hike?

This wonky-w recovery is why the Chancellor couldn’t introduce a tax hike on business now. Firms just can’t afford it. I’m sure many small business directors will welcome the delay in the rise in business profit tax until April 2023, this is something I called for via the Bow Group in June. It’s clear that any corporate tax hike now would kill small firms, particularly whilst we are still in lockdown.

The big relief to business owners is that only 10% of the largest companies will pay the full wack of corporation tax. I’m sure we will hear from these big-companies as they will threaten to leave the country again; as they did before the Brexit referendum. This is just big corporations project fear. They won’t be going anywhere as the UK business tax is still lower than other major economies.

The true hint to the Channslor strategy is when he said “Nobody’s take-home pay will be less than it is now as a result of this policy”. It is clear that not only will he be on the side of small businesses but workers and pensioners as well.

The money in people pocket is generally how we judge governments and by not hiking things like Income Tax, VAT and Inheritance Tax will be welcomed by the people of Britain.

It worth again pointing out that there was a lot in this for working publication and independently wealthy pensioners, there was not much on social and welfare spending.

Levelling up against Amazon

Even though big corporations will have to pay more in business profit tax in 2023, we know the mega global corporates like Amazon get away from this. Amazon only paid £290m in UK tax in 2019 while their sales surge to £14bn. There needs to be more done to make sure companies like Amazon pay their fair share.

I found in October that online spending spiked during the first lockdown and remained so. I suspect that the big tech giant will be the guys to capitalises on this.

One thing the Government could do to help independent retailers is to issue grants of £250 to independent retailers so they can establish an eCommerce webpage. £250 is just under the average annual fee from online retailers’ platforms. This will allow the local shop to compete with mega tech retailers like Amazon.

Government Debt

There are no significant tax raises and no significant cuts in spending. So how is Sunak going to pay for what is the largest peacetime debt?

The consensus there is no need to repay the debt for at least two years. This is why people like myself said before the budget we won’t see a corporation tax increase until 2023.

The current thinking coming out of Her Majesty’s Treasury and the Bank of England is that they will pay off the debt with the supper low-interest rates. The two things which make this strategy work is that the Gilt price (the cost the Government borrows) is still at an all-time low and that the Bank of England base rate is currently 0.1%.

This strategy is a high risk — inflation roulette if you were. Bailey is arguably more hawkish than most Tory backbenchers, so we could see BoE hold rates down, partially as the Fed doesn’t plan on raising rates until 2023.

It could be argued that such a loose monetary policy will continue to fuel the 1% getting richer and the inequality gap getting larger. Remember, not much in this budget on the poorest socially. Expect Labour to jump on this.

https://markets.ft.com/data/bonds/tearsheet/summary?s=GB30YT%3DRR

Infrastructure and Green Jobs

The only real clue the Chancellor gave about Infrastructure spending was that he said they will use low interests rates to borrow more money to spend on infrastructure projects. I wonder how much the Government is borrowing to fund HS2 overspend now?

There wasn’t much on spending outside of Covid. Sunk did mention a few nuggets. Mainly on thing already announced like the £5m investment in Anglesey’s hydrogen hub — which is fantastic news. There was a few bit on the Green Job but nothing new.

On the Green Jobs. It’s being used in tandem with the levelling-up agenda. Now there is a lot of talk about getting green jobs in places like Middleborough, which is great. What I question is how many of these ‘green colour jobs’ are ‘new jobs’ for people who either been unemployed or in low-income employment. How many of these jobs are basically highly skilled engineers, relocating from Aberdeen after switching from oil to green energy?

Are we really levelling-up?

Now, I’m cynical about the whole levelling up agenda. Don’t get me wrong, I like the Levelling-up Fund but what’s different from the Regional Growth Fund, Northern Powerhouse, Midland Ensign? Fundmantly these are all the same thing.

Sunk did announce that the Treasury was going to open an office in Darlington and the new Infrastructure Bank in Leeds. Again good but I do remember Blair moving quite a lot of Civil Service out of London, so this is not new. Even Yes Minister had an episode on moving the Civil Service out of London in the ’80s.

Yes Minister got there first

There needs to be more for the young

I wrote in November that more needs to be done for young people. By November, those businesses that had not permanently ceased trading saw 60% of the workforce working at their normal place of work, but arts and hospitality sectors had the highest proportions of their workforce on furlough. Much of the workforce in these sectors are under 30s.

The Government’s flagship youth employment incentive schemes have not been widely popular with businesses either. In November only 2% of firms intend to or have made use of the Kickstart Job Scheme. The Construction industry adopted the Kickstart Job Scheme more than any other sector, but only by 3% of firms.

Mortgage Guarantee Scheme and Stamp Duty Holiday

I like the mortgage guarantee scheme which is a 5% deposit mortgages for first-time buyers backed by a taxpayer guarantee. With that said. The last time such a scheme has introduced the mortgages weren’t cheap and house price went up.

Stamp duty holiday has been extended — 0% rate up to £500k until the end of June, then 0% rate will be up to £250k till the end of September. Again this will keep house price high and property lawyers overworked.

Worth pointing out again, these messages are very much beneficial to the wealthy and I’m sure Labour will jump on the fact that while we are seeing stamp duty holiday extended we are also seeing a cut for Universal Credit.

Rishi is the true winner

The real winner today is Rishi Sunik himself. It’s hard not to like Sunak. This is why he will be Prime Minister or at least, as a card-carrying Tory member I will vote for him to be the next leader.

Westminster will be talking about his performance at the despatch box and in the news conference but, like most on the nation, I will be watching him live on ITV at prime time as faces questions from Martin Lewis, the Money Saving Expert. This will reach more people than the budget itself and the public will be able to judge the man themselves.

Overall a good budget.

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