Budget 2020: Michael Izza reflects on ‘extraordinary’ Budget11 March 2020: ICAEW chief executive Michael Izza believes Rishi Sunak’s first Budget as Chancellor was a remarkable one, delivered in volatile times, but the longer-term goal of improving public infrastructure on a fiscally sustainable footing is a very different challenge.
11 March 2020: ICAEW chief executive Michael Izza believes Rishi Sunak’s first Budget as Chancellor was a remarkable one, delivered in volatile times, but the longer-term goal of improving public infrastructure on a fiscally sustainable footing is a very different challenge.
In a nutshell, today’s Budget was one of the most extraordinary in recent memory. It marked a significant swing in economic policy, from austerity coming to an end, to a rate of borrow-and-spend that nobody would have imagined possible from a Conservative government.
It also marked a shift in more immediate priorities, from preparing for a post-Brexit Britain, to dealing with the challenges of Covid-19.
The dramatic increases in public spending will be welcomed by many, but there was little detail on where exactly the money will come from. The answer of course is that it will be borrowed.
This Government has previously been clear of its intentions to take advantage of historically low interest rates – which have today been lowered further – to borrow to invest. Logical perhaps, but current projections already have overall debt standing at £2tn by 2025. It is also worth noting that the OBR forecasts for growth announced by the Chancellor were locked down some two weeks ago. Since that time, Covid-19 has begun to have a significant impact which will continue to grow.
Investment and business support
The majority of investment is in infrastructure – the largest such capital investment in 65 years – and a ‘levelling up’ of the UK’s regions with London and the South East.
Most notably, this falls between roads, rail, broadband – and indeed potholes.
There was reassurance for small businesses in the wake of Covid-19: exempting firms in the retail, leisure and hospitality sectors with a rateable value below £51,000 from business rates is enormously helpful, and the support for statutory employee sick pay and wider business interruption is also greatly welcome.
The creation of a new £1bn ‘Coronavirus Business Interruption Loan Scheme’ – to be delivered via The British Business Bank and with more favourable terms and conditions than the current Enterprise Finance Guarantee scheme – will be helpful for SMEs, but will not solve the fundamental problems of reduced customer demand and supply chain deficiencies.
A change to Entrepreneurs’ Relief had also been widely trailed, but the announced cut in the level from £10m to £1m will be unpopular with many business owners and potentially leaves the relief open for abolition at some point in the near future.
Other than a rise in the threshold for National Insurance contributions, there were no notable announcements on taxation. Given the current economic and health uncertainty, it seems sensible not to ‘rock the boat’ in this respect.
Delivering on our sustainability and climate change commitments was one of ICAEW’s priorities for this Budget. The introduction of a plastic packaging tax and the per-tonne charge for products with less than 30% recyclable material are sensible ways of pushing business to work that bit harder to meet their responsibilities.
I also commend the general scrapping of the red diesel subsidy, although the number of sectors exempt from this decision means that the environmental benefits may not be as substantial as at first glance.
Additionally, both the introduction of the plastic packaging tax and scrapping of the red diesel subsidy will not be fully implemented for two years. Businesses do need time to prepare and adjust, but the scale of our climate emergency requires measures to be implemented at pace.
This was a remarkable Budget, delivered in volatile times. Total additional borrowing of £96.6bn has been forecast over the next three to four years to pay for the spending commitments announced today.
The short-term objective of providing reassurance over the Covid-19 crisis seems to have been achieved.
The longer-term goal of improving public infrastructure, on a fiscally sustainable footing, is a very different challenge. The scale of this Chancellor’s plans certainly matches the rhetoric of the Conservatives’ election campaign; whether we have the skills and competencies to efficiently execute this level of investment remains to be seen.
To find out more about ICAEW's response to the Budget, please visit our Budget 2020 hub.
Latest Budget news from Insights:
ICAEW letter to the ChancellorOn 20 February ICAEW CEO Michael Izza wrote to the Chancellor of the Exchequer.
In this letter, ICAEW's CEO outlines ICAEW’s priorities for the coming years. These include; delivering on our UN Sustainable Development Goal (SDG) commitments, ensuring Professional and Business Services remain globally competitive, and holding businesses to account through strong corporate governance and accountability.
As this Budget is the first for the new Government, it will set the tone for the coming years, and in the letter we have outlined how this decade must be one of transition for the UK economy.
Text of the Chancellor letter:
20th February 2020
Rt Hon Rishi Sunak MP
Chancellor of the Exchequer
1 Horse Guards
SPRING 2020 BUDGET
Congratulations on your appointment as Chancellor of the Exchequer. Ahead of the Budget, I wanted to write to set out ICAEW’s key priorities.
This first Budget from the new Government will set the tone for the coming years. The policies announced on 11 March will be crucial in tackling the big challenges facing our society and laying the foundations for the UK’s global economic success.
As you may know, ICAEW supports over 180,000 chartered accountants and students worldwide, and our members advise over three million companies in the UK, the vast majority of whom are SMEs. Their work underpins growth and investment in every sector of the economy, and they are often the first point of reference for business leaders as they seek new opportunities overseas.
We have entered a decade of transition for the UK economy. During the next 10 years, we will need to deliver on our UN Sustainable Development Goal (SDG) commitments, while ensuring Professional and Business Services remain globally competitive, and continuing to hold businesses to account through strong corporate governance and accountability:
- Deliver our SDG commitments by 2030: Delivering these commitments, especially on climate change, requires us to start now. The sooner we begin, the easier it will be for businesses, particularly SMEs, to absorb the changes. For businesses to reliably track their progress towards the Government’s 2050 net zero target, they must invest in the skills to measure emissions. Government can help by recognizing the focus, patience and up-skilling this will require, encouraging businesses to take this journey and setting a good example by monitoring its own emissions. Chartered Accountants have a vital role to play – applying our skills in measuring, reporting, auditing and assuring data – to achieve these goals.
- Ensure Professional and Business Services remain globally competitive: New trade deals with the European Union and other global partners must include Professional and Business Services (PBS) and issues crucial to them. For example, a full adequacy agreement for personal data, ensuring mobility of professionals through extended arrangements for temporary entry and stay, and mutual recognition of qualifications. This will ensure the sector remains globally competitive and continues to attract investment and income for the UK. Through the PBS Sector Deal we can unlock talent in the UK and win new business globally.
- Hold businesses to account: Society’s expectations of business is changing. As the demand for greater transparency grows, there needs to be an evolution in corporate governance, financial reporting and audit. Government can help by accelerating legislation to set up a new regulator, the Audit, Reporting and Governance Authority and equipping it with the powers proposed by Sir John Kingman. By building on the Government’s three recent reviews, we will ensure the profession is providing assurance on the issues that matter most to stakeholders. Reform of Companies House is also essential to improve the quality of information on public registers and to prevent their exploitation by criminals. We support the reforms proposed by the Department for Business, Energy and Industrial Strategy and urge Treasury to provide funding for them.
Chartered Accountants act as trusted advisers and provide business support to millions of companies in all parts of the country and overseas. During this decade of transition, the accountancy profession will be central in providing the kind of support that businesses will need.
I would welcome an opportunity to discuss our priorities further, and how we might support you.
Michael DM Izza
Chief Executive, ICAEW
T +44 (0)20 7920 8419
Note: ICAEW’s Tax Faculty wrote to the Rt Hon Jesse Norman on tax on 7th February 2020.
Michael Izza Spring Budget 2020 PrioritiesMichael Izza, CEO of ICAEW, sets out the priorities he has sent to the Chancellor of the Exchequer, Rt Hon Rishi Sunak, ahead of the Budget Statement on 11 March.
He argues that this decade of transition for the UK economy involves delivering on our SDG commitments, ensuring Professional and Business Services remain globally competitive, and ensuring that businesses are held to account.