Emergency Interest Rate Cut; Budget at a Glance

The Bank of England announced an emergency cut in interest rates ahead of today’s budget to prop up the economy amid the coronavirus outbreak.

Rates were cut from 0.75% to 0.25%, back down to the lowest level in history; the Bank also said it would free up billions of pounds of extra lending power to help banks support firms.

Mark Carney, the outgoing governor of the Bank of England, said policymakers had seen a ‘sharp fall in trading conditions’, including spending on non-essential goods.

‘The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary,’ he said.

He said the Bank’s co-ordinated action on Budget day was designed to have ‘maximum impact’, and stressed that whilst the economic damage caused by the coronavirus remained unclear, the UK economy could shrink in the coming months.

‘help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary’

Other nations were experiencing a ‘similar shift’, he said, and that early evidence from China suggested that the world’s second largest economy was on course to contract in the first quarter.

‘I would emphasise the direction is clear, though the orders of magnitude are still to be determined.’

The Bank’s last emergency rate cut was in October 2008, although Mr Carney said the virus was unlikely to inflict the damage seen during the financial crisis, saying: ‘There is no reason for it to be as bad as 2008 if we act as we have, and if there is that targeted support.’

Later, Chancellor Rishi Sunak delivered his first Budget in the House of Commons, announcing the government’s tax and spending plans for the year ahead.

Mr Sunak warned of a ‘significant’ but temporary disruption to the UK economy but vowed: ‘We will get through this together’ as he unveiled a £30bn package to boost the economy. The budget at a glance:

Coronavirus and public services

• £5bn emergency fund to support the NHS and other public services in England
• Those advised to self-isolate entitled to statutory sick pay, even if they have not presented with symptoms
• Self-employed not eligible will be able to claim contributory Employment Support Allowance
• The ESA benefit available from day one, not after a week as now
• £500m hardship fund for councils to help the most vulnerable
• Firms with fewer than 250 staff refunded for sick pay payments for two weeks
• Small firms able to access “business interruption” loans of up to £1.2m
• Business rates in England will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
• £6bn extra NHS funding over five years to pay for staff recruitment and start of hospital upgrades

Personal taxation, wages and pensions

• Tax threshold for National Insurance Contributions will rise from £8,632 to £9,500, taking 500,000 employees out of the tax altogether
• Those earning more than £9,500 will be, on average, £85 a year better off
• 5% VAT on women’s sanitary products, the tampon tax, to be scrapped
• No change to income tax, national insurance or VAT
• Tax paid on pensions of high earners, including NHS consultants, recalculated to address staffing issues

Alcohol, tobacco and fuel

• Fuel duty frozen for the 10th consecutive year
• Duties on spirits, beer, cider and wine to be frozen
• Tobacco taxes continue to rise by RPI + 2%
• Adds 27 p to a pack of 20 cigarettes and 14 p to a packet of cigars
• Business rate discounts for pubs to rise from £1,000 to £5,000

Business, digital and science

• High Street business rates to be reviewed later this year
• Firms eligible for small business rates relief will get £3,000 cash grant
• Entrepreneurs’ Relief retained, but lifetime allowance reduced from £10m to £1m
• £5bn to be spent on super fast broadband into the hardest-to-reach places
• Science Institute in Weybridge, Surrey to get a £1.4bn funding boost
• Extra £900m for research into nuclear fusion, space and electric vehicles
• VAT on digital publications, including newspapers, e-books and academic journals scrapped

Environment and energy

• Plastic packaging tax from April 2022
• Manufacturers and importers whose products have less than 30% recyclable material charged £200 per tonne
• Subsidies for fuel used in off-road vehicles – known as red diesel – scrapped “for most sectors”
• Red diesel subsidies remain for farmers and rail operators
• £120m emergency relief for English communities affected by  flooding and £200m for flood resilience
• Total investment in flood defences in England doubled to £5.2bn over next five years
• £640m “nature for climate fund” to protect natural habitats in England, including 30,000 hectares of new trees

Transport, infrastructure and housing

• £600bn to be spent on roads, rail, broadband and housing by the middle of 2025
• £27bn for motorways and other arterial roads, including new tunnel for the A303 near Stonehenge
• £2.5bn available to fix potholes and resurface roads in England over five years
• Further education colleges get £1.5bn to upgrade their buildings
• £650m package to tackle homelessness; extra 6,000 places for rough sleepers
• Stamp duty surcharge for foreign buyers of properties in England and Northern Ireland levied at 2% from April 2021
• £1bn fund to remove all unsafe combustible cladding from all public and private housing higher than 18 m

The state of the economy and public finances

• Economy predicted to grow by 1.1% this year, revised down from 1.4% a year ago
• The figure does not take into account the impact of coronavirus and would be the slowest growth since 2009
• Growth predicted to be 1.8% in 2021-22, 1.5% in 2022-23 and 1.3% in 2023-24
• Inflation forecast of 1.4% this year, increasing to 1.8% in 2021-2022
• Government to borrow £14.6bn more this year than previously forecast, equivalent to 2.1% of GDP
• Total additional borrowing of £96.6bn forecast by 2023-2024 to pay for spending commitments
• Debt as a percentage of GDP forecast to be lower at end of current Parliament than now

Nations and regions

• Extra £640m for Scotland, £360m for Wales, and £210m for Northern Ireland.
• Treasury to open offices in Wales and Scotland and civil service hub in the North of England, employing 750 staff
• £1.8bn devolution deal for West Yorkshire, with elected mayor for region
• Universities outside the SE to get bulk of extra £400m R&D funding
• £800m for carbon capture and storage clusters, creating 6,000 new jobs in Teesside, Humberside, Merseyside and Scotland