Christie & Co response to Spring Budget 2020
Chancellor Rishi Sunak delivered the Spring Budget announcement yesterday, detailing the government’s tax and spending plans for the year ahead.
Following the Bank of England’s announcement yesterday of an emergency cut in interest rates from 0.75% to 0.25% in response to the economic impact of the coronavirus outbreak, Mr Sunak has unveiled a tailored coronavirus response package worth £30 billion which is aimed at supporting the economy through the coronavirus outbreak.
The measures of this response include:
- A £5 billion emergency response fund to support the NHS and other public services
- Business rates will be temporarily abolished for eligible firms in the retail, leisure and hospitality sectors with a rateable value below £51,000, a significant update for the pub sector
- A £3,000 cash grant will be available to firms that are eligible for the small business rate relief
- The introduction of a “temporary business interruption" loan scheme will allow banks to offer loans of up to £1.2 million for small businesses
- Businesses with fewer than 250 staff will be refunded for sick pay payments due to coronavirus for two weeks
- For those who are self-employed: contributory employment and support allowance (ESA) benefits such as sick pay will be available on day one, not after a week
- A Statutory Sick Pay reform which will see sick pay paid from day one rather than day four. This will also be available to all those who choose to self-isolate, even if they don't have symptoms, providing security and support to people who fall ill and can’t work
- A £500 million hardship fund will be provided to local authorities to help vulnerable people
- Removing the minimum income floor in universal credit
Overall Business Updates
With the UK now on the other side of Brexit, it is interesting to see the early effects that this significant political change has had on UK businesses. Yesterday’s Budget revealed optimistic forecasts for economic growth and inflation rates, and positive predictions for employment figures going forward.
Here are some of the key points that will affect the UK business scene in 2020 and beyond:
- Inflation has been forecast at 1.4% in 2020. Positively, this is expected to increase to 1.8% in the year 2021-22
- The economy is predicted to grow by 1.1% in 2020, the 'slowest since 2009', this is not taking the effects of the coronavirus into account. Growth is predicted to rise to 1.8% for the year 2021-22, 1.5% for 2022-23, and 1.3% for 2023-24
- The Office for Budget Responsibility (OBR) expects an extra half a million people to be in work by 2025
- Entrepreneurs' Relief will be reduced but not scrapped as previously feared. The lifetime allowance will change from £10 million to £1 million
- Business rates are to be reviewed later in 2020
- There has been no change to corporation tax
What does the budget mean for the pub sector?
Notably for the pub sector, the Chancellor announced a number of measures that will bring much needed relief for businesses, in response to the forecast effects brought about by coronavirus.
Policies welcomed by the sector include:
- A freeze in duties on beer, cider and wine as well as spirits
- A £3,000 cash grant which will be available to firms that are eligible for the small business rate relief, and a promise of increased availability of loans and financing to get them through the difficult times to come
- The temporary abolishment of business rates for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
The temporary business rate reform in particular will capture an enormous number of small and medium sized pubs, most of which are operated by tied tenants, franchise managers on retail agreements and freehouse owners. Geographically, these pubs are predominantly either rural, community locals, town or village sites. Larger managed pubcos (who were never the target audience for this measure) will be unlikely to reap any benefit from this reform. A key focus for more successful operators of larger sites, corporate managed operators and city centre operators will be the £5,000 reduction in their business rates liability.
The Government reconfirmed their intention to increase the National Living Wage (NLW) to £8.72 in April and then to £10.50 by 2024, increasing the target from 60% of median earnings to 67%. The challenge for operators will be around mitigating increases in labour costs, which are the single biggest operating cost for most hospitality businesses, having been on a meteoric rise since the introduction of the National Minimum Wage since 1999. The threat of a further 28% increase in wage costs for some staff (before the compounding effect of pensions auto enrolment, employers’ NICs and other costs) remains a significant concern.
Although these measures will be welcomed by the sector, the reality is that with 20% of the working age population forecast to be ill at any one time, and many more eager to avoid becoming infected, there could be a very significant impact on top lines if people limit or stop going to the pub. Whether the steps taken by the chancellor are enough to mitigate this challenge is something we will be closely monitoring in the coming months.
Updates for the Petrol Filling Station Market
Among the announcement of £600 billion worth of investment in infrastructure projects, the Chancellor unveiled several plans which are relevant to motorists and the petrol filling station market.
- For the tenth consecutive year since 2010, the government has confirmed a freeze of fuel duties, which means rates will remain at 57.95 pence per litre for petrol, diesel, biodiesel and bioethanol
- Significant investment will be made into electric vehicles and rapid charging hubs, with £500 milion has been set aside to support the roll-out of these hubs which will mean that drivers are never more than 30 miles away from a charging point
- £1 billion is to be invested in green transport solutions
Christie & Co’s clientele span the length and breadth of the UK, so it’s important to appreciate the impact of today’s Budget on different regions throughout the country.
Here is a summary of some of those key points:
- More than £600 billion has been pledged to improve roads, rail, broadband and housing by the middle of 2025, ensuring that the UK is better connected
- An extra £640 million in funding has been pledged for Scotland, £360 million for Wales, and £210 million for Northern Ireland
- The Treasury's Green Book rules are to be reviewed to put regional prosperity at heart of spending decisions
- £1 billion is to be invested into green transport solutions, making for a greener, cleaner and more efficient Britain
- The government have pledged £1 million to promote Scottish food and drink businesses
- There is also a promise to introduce a new civil service hub in the North of England and consequently employ 750 new staff. The Treasury is also to open new offices in both Wales and Scotland