A new decade, a new government, a very new chancellor (Rishi Sunak) and a new budget. As is always the case with budgets, there was a lot of content, but it will mean different things to different people so here is a quick summary of the key points for anyone interested in business finance.
There is a half-point interest-rate cut
Technically this is outside the budget since interest rates are directly controlled by the Monetary Policy Committee of the Bank of England. On the other hand, since the cut (from 0.75% to 0.25%) was made on the same day, it seems reasonable to include it. Like the Chancellor, the BoE is very concerned about the potential economic effect of the Coronavirus and is aiming to ease the squeeze both on businesses (especially smaller ones) and on individuals.
In theory, reducing the cost of borrowing should make life at least a bit easier for both people and businesses, at least those on products which track the base rate. It’s unclear how long it will take to feed into fixed-rate products. In practice, however, if this lower rate weakens Sterling on the international markets, imports could become more expensive (and the UK less attractive as a destination for international workers), which could hurt consumers and some businesses (although it may benefit others).
On the other hand, since the whole world seems to be suffering the economic effects of the Coronavirus, at least to some degree, perhaps all other currencies will be impacted as well. It’s really impossible to say.
Smaller businesses are getting some help with managing the costs of the Coronavirus
Reporting on the budget seems to have been largely dominated by its Coronavirus-heavy content. This has implications for businesses too. For example, in cases of self-isolation both statutory sick pay and Employment Support Allowance will start from day one rather than day four and day eight respectively. To ease the burden on businesses, firms with fewer than 250 staff will be refunded for sick pay payments for two weeks, i.e. the standard quarantine period. Small firms will be able to access “business interruption” loans of up to £1.2m.
There is some easing of business rates
Although it’s not directly linked to the Coronavirus, it seems very likely that the impact of COVID-19 at the very least influenced the Chancellor’s decision to abolish business rates in England for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000.
It’s certainly a move which ties in with the Chancellor’s clear desire to make life easier for smaller businesses, which are most vulnerable to the impact of the Coronavirus. These three sectors in particular stand out as they are built around people coming together and hence will be especially hard-hit by the current situation. On a similar note, business rate discounts for pubs are to rise from £1,000 to £5,000 this year and duty on alcohol is being frozen, although this will not only benefit pubs.
Entrepreneurs’ Relief will be slashed
Although the Chancellor did not cancel Entrepreneurs’ Relief, he came pretty close. The lifetime allowance will be reduced from £10m to £1m. In other words, he’s eliminated 90% of it.
Predictably this has met with a mixed reaction with some seeing it as the Chancellor reducing the incentive to build small businesses (and essentially ignoring the fact that “entrepreneur” literally means “risk-taker”) and others seeing it as cutting back on what was effectively a benefit for the rich. In practical terms, it will probably take at least a few years before we get a clear picture of what impact this change is really going to have on the business landscape.