Governor Mark Carney called the Bank of England’s (BOE) actions “a big deal” this morning, and it seems that the Chancellor is taking a similar approach given the scale of the fiscal intervention. This marks the end of austerity for sure. A £30bn Coronavirus stimulus package compares to previous stimulus packages following the global financial crisis which totalled c.£42bn across 07/08 and 09/10. The move by the UK government is a major one, and it aims to be practical with immediate effect. While the Chancellor talked about long-term spending on infrastructure, the Governor was also talking about building a “bridge” over this difficult period. It seems clear from the combined actions of the government and the BOE that the real fear is that small and medium businesses struggle to access finance, which could lead to permanent economic damage if allowed to happen. Therefore, this bridge will be built on easy to access funding and low interest rates. As central bankers and governments around the world have seen many times before, what gets given easily is often difficult to take away. With high uncertainty surrounding the effects of the Coronavirus, one cannot blame policymakers for throwing everything at it.
Key measures to address the Coronavirus include:
- £5bn emergency response fund to support the NHS and other public services.
- The “business interruption” loans are a big deal. Small firms will be able to access loans up to £1.2m, with 80% of the value underwritten by the government. Basically a massive blank check for banks to lend with.
- Firms with fewer than 250 employees to be refunded for sick pay payments for two weeks
- Suspension of business rates is a major relief for high street retailers. Already struggling against online giants, they will also welcome another fundamental review in the autumn budget.
Other measures worth noting:
- Extending the affordable homes programme with a £12bn multi-year settlement should continue to drive demand for new housing.
- Increasing the National Insurance Contributions tax threshold from £8,632 to £9,500 – which should save employees around £100 a year.
- Entrepreneurs’ Relief is maintained, but lifetime allowance is reduced from £10m to £1m.
- Conspicuously absent from the speech, but included in the detail, was the introduction of a digital services tax, which may provide more to help brick and mortar retailers. Likely to inflame trade relations with the US, where most tech giants are based, who have been outraged by similar proposals in Europe.
- Stamp duty surcharge for foreign buyers of UK properties to be levied at 2% from April 2021.
- Corporation tax is maintained at 19% while it was expected to be reduced. This therefore provided the government with further ammunition.
Last but by no means least, a potentially large infrastructure package although we clearly lack details here. Around £600bn is said to be spent on a national infrastructure strategy (connectivity, broadband, housing etc) by 2025. There was not much detail on the environment side however.
If you have any questions please contact your usual Brown Shipley adviser.
