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11 Mar 2020

Budget 2020: date, predictions and rumours

Interest rates have been cut in time with the Budget

The first Budget in more than 18 months is just hours away, and rumours and speculation over what it may include - especially following the latest warnings about the potential costs of coronavirus to the economy - are rife.

This will be the UK's first Budget as a non-EU state in more than four decades - and new Chancellor Rishi Sunak will have been in the post for less than a month.

A Which? Freedom of Information request revealed that 1,618 submissions were made through the Treasury's Budget representations portal - a webpage that allowed individuals and groups to send in proposals for consideration. But will you get what you want?

Here, we take a closer look at who the new Chancellor is and the Budget predictions that could impact your personal finances.

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Interest rates

The Bank of England has cut interest rates as an emergency measure to protect the economy against the coronavirus outbreak.

The Bank's Monetary Policy Committee (MPC) usually meets once a month to set interest rates. The next scheduled meeting was 26 March.

The base rate - the rate at which commercial banks borrow from the Bank of England - was previously 0.75%.The cut should make borrowing cheaper but savers could earn less on their nest eggs.

The MPC voted unanimously to cut rates yesterday. We'll see today if the decision has an impact on the Budget.

Access to cash

The Budget is set to reveal a commitment to create a law that will preserve access to cash. This comes after Which? warned that the free cash system was on the brink of collapse, and rallied thousands of people across the UK to call upon the Chancellor to take action.

Mr Sunak will commit to enshrining cash's protection in law, and the Treasury will begin talks with industry and regulators immediately after the Budget on Wednesday.

Anabel Hoult, Which? CEO, said: 'Which? urged the chancellor to protect cash in this Budget and we are delighted that he has listened to consumers and is ready to legislate to help millions of people who have been hit hard by bank branch and cash machine closures.

'We know that the cash system is at risk of collapse within the next two years, so we look forward to working with the government, regulators and industry to ensure this commitment is swiftly turned into action that protects cash for as long as it is needed.'

In the meantime other cash-related measures could be introduced to help struggling communities.

The Times claims a plan to allow people to take money out at corner shops to help protect access to cash will be announced in the Budget.
Right now you can get cashback in some shops but you usually need to buy something.

The Mail on Sunday says Mr Sunak is drawing up a plan for a wider cashback initiative that would also allow pubs and shops to hand out money in areas with no banks, with banks (rather than the businesses themselves) funding the service.

Which? Money editor Jenny Ross said: 'While industry-led initiatives such as cashback might be part of the solution, these can't fix the issue alone and are not enough to stem the tide of bank branch and cash machine closures in the long run.'

Tampon tax

The Chancellor is set to abolish the 5% rate of VAT leveled on sanitary products - commonly known as the 'tampon tax' - from next January.

According to the Treasury, this will cut each 20-pack of tampons by 7p and each 12-pack of pads by 5p, saving the average woman £40 over her lifetime.

Since 2015, the government has pledged to donate revenue from the tampon tax to charities working with vulnerable women and girls. Campaigners have welcomed the tax's removal, but have urged the government to continue to fund these charities once it has been abolished.

National Insurance

Boris Johnson controversially promised a tax cut for high-earners during his Tory leadership campaign. But those plans were ditched in the run-up to the December general election. Now, the focus is on raising the threshold for National Insurance contributions (NICs) to £9,500 in the next tax year, and eventually to £12,500 over a number of years.

Currently, you have to pay 12% NICs on earnings over £8,632. If the chancellor confirms this election promise, this tax will only be payable on earnings over £9,500.

If you earn £25,000, you'd pay £1,964 in NICs under the current rules. With the increased threshold, you'd pay £1,860 - around £100 less. The Treasury says 31 million taxpayers will benefit from the cut, and that a typical worker will save £104 a year.

Broadband and 4G

Mr Sunak is expected to confirm £5bn investment to bring faster broadband to the nation by 2025.

This will firm up a Conservative election pledge which the government hopes will benefit over five million homes and businesses.

The Treasury says gigabit broadband - 40 times faster than standard superfast broadband - will roll out to the hardest-to-reach 20% of the country.

At the 2019 General Election, Which? called for any future government to improve online connectivity across the UK.

4G for all

Along with broadband improvements, the Chancellor is set to announce a £1bndeal with phone networks to increase 4G coverage.

The biggest improvements are expected to come in Northern Ireland, Scotland and Wales. The Treasury says the deal will provide extra coverage to 280,000 premises.

Mr Sunak said: 'We are committed to levelling up across every region and nation in the UK and that is why we are making the largest ever public investment into broadband.

'This investment delivers on our promises to the British people, boosting growth and prosperity across the country.'

Coronavirus measures

According to The Guardian, a Number 10 source said that the Budget would 'prioritise economic security' in the face of the growing threat from the coronavirus.

This could mean some major announcements are postponed to a future Budget or Autumn Statement.

The exact coronavirus-related measures that the Budget will include are unclear, but according to the BBC, Rishi Sunak has 'ordered Treasury officials to work up plans to support the public health response, businesses and the economy in his Budget on 11 March'.

Government plans released today say that in a worst-case scenario, up to a fifth of the UK workforce could be absent from work at any one time.

The knock-on effect of this might mean police only focusing on serious crimes; the military supporting the emergency services; some non-urgent hospital care being delayed; recently retired doctors and nurses being called back to work; schools closing; and public gatherings being cancelled.

Prior to the most recent plans being announced, the Chancellor said: 'We understand that people across the country are worried, but I assure you that we are taking firm action to support your families, your businesses and the public services on which you rely.

'We are well prepared for this global threat and, as the wider economic picture becomes clearer, we stand ready to announce further support where needed.'

Find out more:

Entrepreneurs' relief

Former Chancellor Sajid Javid was expected to cut entrepreneurs' relief - a tax break that allows company owners to pay less capital gains tax when selling their businesses.

The current system has been criticised for benefiting wealthy businesses owners and failing to achieve its stated aim of encouraging business investment.

Rather than remove entrepreneurs' relief altogether, Mr Javid was expected to recalibrate it, perhaps so it was only aimed at small businesses.

Since Mr Sunak was appointed, rumours have circulated that he intends to go further than this by cutting entrepreneurs' relief altogether.

IR35 for private sector

The government has already confirmed it will roll out changes to off-payroll working rules known as IR35 in time for the next tax year.

IR35 was introduced to make sure people working as employees via personal services companies (PSCs) are taxed similarly to other employees.

Up to 170,000 individuals are likely to be affected across 60,000 organisations.

The government says the change won't affect genuine freelancers - just people who would be classed as employees if the PSC didn't exist.

While this policy has already been announced, we might see it confirmed in the Budget, possibly with more detail.

Inheritance tax

A cross-party group of MPs has called for a large cut to inheritance tax, and a shake-up to the way it works.

At the heart of these proposals is a plan to cut inheritance tax to 10%, down from its current rate of 40%. A number of tax-free allowances would also be dropped.

Currently, gifts between family members are tax-free if gifted seven years before the giver dies. The group is calling for this rule to be scrapped in an effort to stop owners of larger estates avoiding taxes by giving away their wealth and surviving seven years. There would also be a £30,000 cap on cash gifts over a lifetime.

It's unclear exactly how many people these changes would affect. Currently, only 5% of estates pay inheritance tax.

Mr Javid did not comment on these proposals himself, but the Treasury did say it would consider the group's findings. We'll find out on Budget day just how seriously it took them.

Mansion tax

Prime Minister Boris Johnson and that Sajid Javid were considering collecting a 'mansion tax' from homeowners with larger properties, sources told The Telegraph.

There's little detail on how it would actually be implemented, but the revelation has met resistance from Conservative MPs who would usually oppose this kind of policy.

It's thought that the tax was being considered as a way to raise funds for an expected increase in public spending.

The Telegraph later reported that the Boris Johnson has shelved these plans after backlash from Conservative MPs and party members.

Pension tax relief

Reforms to pension tax relief are also being considered as a money-raising measure, the Financial Times reports.

Currently, workers receive pension tax relief at the rate they pay income tax. So basic-rate taxpayers receive 20% pension tax relief and higher-rate taxpayers 40%.

The potential new plan would see a flat pension tax relief rate of 20%, meaning higher earners' pensions would be affected.

Pension tracking

Which? has been campaigning for the government to introduce a pensions dashboard for many years. The dashboard would help people keep track of their retirement savings by displaying all of their pension pots, including the state pension, in one place online.

In 2016, the Treasury promised a pensions dashboard by 2019. While that target has been missed,December's Queen's Speech announced the return of the Pensions Schemes Bill, which is set to deliver on the promise.

Expect the new chancellor to touch on this during the Budget, with the possibility of a new timeline being introduced.

Housing

In the Queen's Speech, the queen announced her government would 'take steps to support homeownership, including by making homes available at a discount for local first-time buyers'.

The Conservatives have pledged to give at least a 30% discount to this group of aspiring homeowners, but the lack of detail so far has raised questions over how this plan will work.

It's so far unclear whether the discount will apply to the private market, housing association properties, or council homes. And the definition of a 'local' buyer is, at this stage, ambiguous.

If Mr Sunak firms up this plan, dubbed the First Homes scheme, it might replace Help to Buy, which will end in 2023.

Social care

The social care crisis is one of the key issues facing the UK, with costs often running into the hundreds of thousands for people suffering from dementia, according to the Alzheimer's Society.

The Conservatives' last attempt to tackle social care - branded a 'dementia tax' - is thought to have cost them a majority at the 2017 election.

The Queen's Speech said the government will 'seek a cross-party consensus' on social care reform and ensure no one will have to sell their home to pay for social care. The Budget is the chancellor's opportunity to allocate funding to this process.

Tuition fees

The government-commissioned student finance review, published in May 2019, suggested cutting fees to £7,500 and extending the loan repayment period from 30 years to 40 years. While the lower annual figure may sound like good news for students, a longer repayment period means debts would be written off 10 years later than they are under the current system.

Despite this, the government has been quiet on student finance, with no focus on it during the election campaign or Queen's Speech. But a surprise announcement during the Budget isn't impossible.

Transport

To save Flybe from the brink of collapse, the government deferred some air passenger duty (APD) payments for the regional airline. Since then, other airlines have complained and suggested they too should benefit from similar treatment.

If APD was to be reduced, the knock-on effect could be cheaper flights. But green campaigners have warned that this would contradict the government's pledge to tackle climate change.

Transport secretary Grant Shapps also recently announced £10m of funding for electric vehicle charge points on residential streets. The new chancellor may confirm this in the Budget.

It's estimated that this will mean 3,600 more charge points around the country, which would help people without off-street parking spaces to charge their cars overnight.

Who is Rishi Sunak?

Rishi Sunak was elected MP for Richmond (Yorks) in 2015.

His rapid rise up the ranks saw him appointed chief secretary to the Treasury when Boris Johnson became prime minister in July 2019, and now Chancellor of the Exchequer just six months later. He was the under-secretary of state for local government before that.

Mr Sunak is far less experienced than his predecessor, Sajid Javid. Although he had the right to attend cabinet meetings, as chief Treasury secretary he was not technically a full cabinet minister.

In contrast, Sajid Javid served as culture secretary, business secretary, housing secretary and home secretary before being appointed chancellor.

According to TheyWorkForYou, Mr Sunak votes the same way as other Conservative MPs on the majority of issues.

After initial speculation that the Budget could be delayed, Mr Sunak confirmed in a tweet that he would stick to the original 11 March date.