Bright Blue’s response to the Budget 2020

Commenting on the Budget, Ryan Shorthouse, director of Bright Blue, said:

“This Budget confirmed that the Conservative Government’s fiscal approach this decade will be dramatically different to the one pursued in the last decade. Theresa May wanted an end to fiscal austerity – talking radically, but delivering modestly. It will be her successor, to borrow a phrase, that gets this done.   

“The Government should be applauded for introducing bold financial measures to support people and businesses during the coronavirus crisis. But, especially since this additional spending has not been taken into account in OBR assessments and the Treasury are reviewing the fiscal framework, it is very unclear at the moment what precisely the UK’s future fiscal trajectory is. 

“If, as seems likely considering growth forecasts, borrowing increases substantially to fund both new capital and current spending, future generations of taxpayers will face a bigger bill. The Conservative Party should not shy away from stressing the economic and moral need for, and their commitment to, fiscal discipline.

“To fund this significant increase in public spending, it is almost inevitable that some taxes will have to rise. The Government shied away from making the tough decisions on taxation today – a missed opportunity, considering now is when this Government’s political capital is likely to be highest during this parliament. It is right to reduce taxation on employment, both on the National Insurance paid by employees and employers, but freezing Fuel Duty yet again was a serious mistake – for environmental, fiscal and political reasons.

“Climate change is another profoundly serious problem our country and the rest of the world faces, requiring stronger incentives and investment. If we are to meet our net zero emissions target by 2050, this decade really is crucial to facilitating deeper decarbonisation. Though some welcome ideas were announced, it is still not enough, especially for tricky sectors such as heating and transport.”

The 2020 Budget adopted the following Bright Blue policies:

• Raising the primary threshold for the payment of Class 1 employees’ National Insurance.
• Funding the trial of a ‘one family, one judge’ system, where victims of domestic violence are only asked to relate their ordeal to one judge throughout the process in the courts. 
• A new fund to support innovative approaches to tackling fly-tipping.
  

Public spending

• The Government is reviewing the fiscal framework ahead of the Autumn Budget.
• The Government has announced £30 billion of extra spending in 2020-21,  including £12 billion specifically targeted at coronavirus measures.

Commenting, Sam Robinson, researcher at Bright Blue said:

“This Budget clearly signalled the new Government’s intention to loosen the purse strings, partly driven by the need to deliver its levelling up agenda, partly by the need to mitigate the impact of coronavirus.

“A substantial shift in centre-right thinking is evident, with increased emphasis on spending and borrowing even as the Government pursues a broadly tax-cutting agenda. And the Chancellor is now reviewing the fiscal framework. The credibility of fiscal rules are being tested to breaking point.

“The Conservatives must not stray from an emphasis on sound public finances. Debt today means a higher tax burden on tomorrow’s workers.

“To show it is serious about fiscal discipline and intergenerational equity, the Government should introduce a new rule – draft legislation should be accompanied by Intergenerational Impact Assessments to quantify its impact on future taxpayers.”

Taxation

• The Government is raising the threshold at which employees and the self-employed start paying National Insurance contributions to £9,500.
• The Government is placing a freeze on duties for beer, spirits, wine and cider.
• The Government is increasing the business rates retail discount to 100% for 2020-21 in response to the coronavirus outbreak. The relief is also being expanded to include the hospitality and leisure sectors.
• The Government is reducing the Entrepreneurs’ Relief lifetime limit from £10 million to £1 million.

Commenting, Sam Robinson, researcher at Bright Blue said:

“Increasing the National Insurance employee contributions threshold is a welcome intervention that rightly eases the tax burden on work, as Bright Blue has advocated. This should be built upon by simplifying the way we tax income and outlining a strategic approach to taxing work less and externalities, such as pollution, more. Given the sluggish growth forecasts, some taxes will need to rise sooner or later to fund increased capital and especially current spending. The Government cannot maintain a purely tax-cutting agenda indefinitely.”

“The raft of business rate discounts the Government is offering this year is a welcome response to the coronavirus outbreak. This will provide much-needed, targeted support to complement the economy-wide support already kickstarted by the Bank of England.”

“It is good to see the Chancellor taking a long term view of business taxation. A review of the complicated business rates system is long overdue, and it is time the Government looked seriously at alternatives.”

“The Chancellor is right to highlight the shortcomings of Entrepreneurs’ Relief, and right to take a measured approach to reforming it. The Government should also take a proactive approach to reviewing tax reliefs more broadly. Subjecting tax reliefs to a five year sunset clause, after which they would cease, would be a good starting point.”

Pensions

• The Government is launching a call for evidence on pension tax administration.
• The Government is increasing the two tapered annual allowance thresholds for pensions by £90,000 each.

Commenting, Sam Robinson, researcher at Bright Blue, said:

“The Government has missed an opportunity to radically reform the expensive and poorly targeted system of pension tax reliefs. It should introduce a single rate of pension tax relief, which would be fairer, simpler and less costly to the Exchequer.

“With questions around the retirement age, the future of auto-enrolment and the impact of pension freedoms becoming increasingly urgent, it is time the Government set up a new Pensions Commission to forge a new consensus on pensions policy and provide a long-term, strategic direction for reform.”

Welfare

• The Government is temporarily changing rules around Statutory Sick Pay (SSP), relaxing eligibility to extend it to individuals who have been advised to self-isolate and who are caring for individuals affected by coronavirus, lowering requirements on medical evidence required to no longer require a fit note from the GP and confirming that SSP would be paid from the first day of sickness absence.
• The Government is also temporarily paying ‘new style’ Employment and Support Allowance from the first day of sickness.
• The Government is temporarily relaxing Minimum Income Floor requirements for self-employed Universal Credit claimants and will not require new Universal Credit claimants to attend a jobcentre for the duration of the outbreak.
• The Government will provide local authorities a £500 million Hardship Fund to provide support for economically vulnerable people and households, particularly through council tax relief.
• The Government is increasing working age benefits by 1.7% from April 2020, ending the benefit freeze that began in 2016.
• The Government is reducing the maximum rate of deductions from Universal Credit awards from 30% to 25% and is giving claimants up to 24 months to repay advances and removing the three-year sanction length for Universal Credit claimants.
• The Government will delay the reduction of the Universal Credit surplus earnings threshold until April 2021.
• The Government will consult on the design of a new in-work entitlement for employees with unpaid caring responsibilities.

Commenting, Anvar Sarygulov, senior researcher at Bright Blue, said:

“Considering the extraordinary circumstances we are facing, the rapid action on strengthening the safety net is welcome to ensure that all workers, particularly those on very low incomes, have to suffer less financially.

“The temporary relaxation of the Minimum Income Floor for self-employed Universal Credit claimants is welcome, considering that many of them are likely to face disruption in their personal enterprises. But while the coronavirus outbreak is an extraordinary occurrence, self-employed workers also frequently face volatile incomes in normal times, and the Government should consider providing temporary exemptions from the Minimum Income Floor for individual claimants when their businesses face difficulties after the outbreak ends.

“The Government has made a number of small but positive changes to Universal Credit that should help claimants to better claim and manage on Universal Credit. However, there is still plenty of room for improvement, and the Government should consider further changes to improve the caseload of the workcoaches, the availability of disability and mental health specialist advisors, and the ability of claimants to make choices about how often and to where they are paid their Universal Credit award. Providing an upfront payment in the form of a helping hand grant to new claimants of Universal Credit will help them to deal with the five-week wait and beyond more effectively than the current system.

“The consultation on a new in-work entitlement for working unpaid carers is welcome, and overdue. Many unpaid carers face significant challenges in terms of work, health and household finances while providing an immensely valuable service, and there is very significant scope for improving how the welfare system helps them.”

Housing and homelessness

• The Government is increasing housing investment by £10.9 billion to pursue the commitment of building one million new homes by the end of the Parliament and reaching an annual building average of 300,000 by the mid-2020s.
• The Government is providing £9.5 billion for the continuation of the Affordable Homes Programme.
• The Government is cutting rates for investment in social housing by 1% for local authorities and is providing access to an extra £1.2 billion worth of discounted loans for local infrastructure projects.
• The Government is providing an additional £1 billion to remove unsafe cladding in residential high-rise buildings.
• The Government is providing an additional £144 million for support services and £262 million for substance misuse treatment services for rough sleepers.

Commenting, Anvar Sarygulov, senior researcher at Bright Blue, said:

“Once again, the Government is committing to an ambitious target on housebuilding and though there are positive signs that it could be reached, particularly with the new investment, the Government cannot rely only on increasing supply to tackle the unaffordability of housing in many places in the UK.

“Housebuilding in Britain has tended to reach significant numbers only when governments committed to building a significant number of social homes, and the Government will have to deliver them if they are serious about building a million homes over the course of this Parliament. While making it cheaper for local authorities to borrow for social housing projects is welcomed, this is a tepid measure to address the significant shortage of social housing.

“The Government is correct in continuing the Affordable Homes Programme. It is vital that the Government operates this by encouraging new affordable homes to be built in significant numbers, rather than simply helping buyers by making homes cheaper or making it easier to access credit.”

Domestic abuse

• The Government has pledged £5 million to begin a trial of domestic abuse courts in England and Wales, allowing criminal and family matters to be considered together.
• The Government is putting £10 million into innovative new approaches to preventing domestic abuse.

Commenting, Phoebe Arslanagić-Wakefield, researcher at Bright Blue said:

“Currently, victims of domestic violence who are married or have children must face a judge in court twice; in family court during divorce proceedings, and in a criminal court during criminal proceedings. 

“Bright Blue has called for a trial of a ‘one family, one judge’ system, wherein victims of domestic abuse are only asked to relate their ordeal to one judge, once. It is excellent to see the Government recognise the unnecessary trauma visited upon domestic abuse victims under the present system, and fund a trial of domestic abuse courts allowing criminal and family matters to be considered together.”

“Domestic violence and abuse remain a significant and grave issue for the UK, with domestic violence killings reaching a five-year high in 2019. It is only right that the Government is investing in prevention programmes.”

Roads

• The Government is keeping Fuel Duty frozen.
• The Government is spending £500 million over five years for EV rapid charge points so no one is more than 30 miles from a charger.
• The Government is introducing an exemption for zero emission cars from vehicle excise duty.
• The Government is extending the Plug-in Car Grant fund for 2022-2023.
• The Government has allocated £2.5 billion for fixing potholes.

Commenting, Patrick Hall, researcher at Bright Blue said:

“By maintaining the freeze on fuel duty, the Chancellor has missed an opportunity to clean up Britain’s air and decarbonise our economy. The decade-long freeze on fuel duty has cost the public purse billions and billions already. It would be timely to increase fuel duty, as the fall in global oil prices would give the Government the space to raise fuel duty with a minimal impact on prices at the pump.

“The Chancellor should have lifted the freeze on fuel duty so that motorists of fossil fuelled vehicles fairly pay for the negative externalities they cause, such as poor air quality, and send clear price signals to motorists to support the transition to low carbon vehicles. Indeed, any increase in fuel duty does not need to lead to a higher net tax burden for people on low incomes, if taxation on income from work is at the same time being reduced.

“Range anxiety is a major barrier to electric vehicle uptake. The Chancellor is right to increase spending for the rollout of EV rapid charging stations to reduce EV motorists’ distance from them. But the upfront cost of electric vehicles is the biggest constraint for consumers. The Chancellor’s decision to provide zero emission vehicles with an exemption from vehicle excise duty is welcome, as is the extension of the Plug-in Car Grant. But the Budget was a missed opportunity to scrap VAT on the purchase of electric vehicles.”

Decarbonisation, industry and energy

• The Government is establishing a Carbon Capture and Storage Infrastructure Fund, supported by £800 million.
• The Government is freezing Carbon Price Support at £18 per tonne of CO2 through 2021-22. 

Commenting, Patrick Hall, researcher at Bright Blue said:

“The £800 million investment into a Carbon Capture and Storage Infrastructure Fund is very welcome. CCS is a nascent technology, but it has a vital role in decarbonising our economy, from heavy industry to hydrogen production. CCS must be scaled up and its cost brought down.” 

“The continuation of the Carbon Price Support to at least 2022, when the UK is expected to have left the European Emissions Trading System, is welcome. The UK’s carbon pricing strategy continues to help drive the deeper decarbonisation of our energy grid, whilst delivering a cleaner and cheaper energy system to the benefit of energy consumers and economic growth.”

Plastics

• The Government is introducing a new tax on the manufacture and import of plastic packaging containing less than 30% recycled content at a rate of £200 per tonne from April 2022.

Commenting, Patrick Hall, researcher at Bright Blue said:

“The announcement of a tax rate of £200 per tonne on plastic packaging containing less than 30% recycled content will reduce plastic waste by incentivising an increase in recycling rates, as well as reducing the carbon impact through a decrease in new plastic production. However, the Government could have gone further and increased this threshold to 35% – in line with similar schemes in other European countries.”

“Overall, this Budget lacked ambition in tackling the scourge of plastic waste. Increasing the charge for ‘bags for life’ and imposing a £500 minimum fine for littering are two ways the Government could have stepped up its assault on plastic pollution.”

Natural environment

• The Government is launching a Nature for Climate Fund of £640 million for afforestation and peatland restoration.
• The Government is establishing a Nature Recovery Network Fund of £25 million. 
• The Government has announced a new £2 million fund to support innovative approaches to tackling fly-tipping.

Commenting, Patrick Hall, researcher at Bright Blue said:

“Trees’ ability to sequester carbon, coupled with carbon storage in peatlands, means afforestation and peatland restoration are critical parts of the UK’s strategy to achieve our 2050 net zero target. The Chancellor’s investment in both of these as part of a Nature for Climate Fund is a positive step. The challenge now is to ensure that the correct flora is planted as part of the Government’s afforestation strategy.

“It is welcome that the Budget commits to a Nature Recovery Network in Britain. We now need to see a commitment to a Nature Recovery Network being rolled out into urban areas as well. This would help address dwindling pollinator populations in the UK.

“Fly tipping is a real problem in this country, with significant environmental and fiscal implications. Currently, it is unclear if there is a relationship between the cost of properly disposing of goods at a tip or waste disposal site and an individual’s propensity to fly tip because of this. The Government should direct its £2 million fund for fly tipping into backing a study comparing the cost of fly tipping enforcement and clean up with the cost of running free waste disposal sites.”

Flooding

• The Government is doubling flood defence spending from £2.6 billion to £5.2 billion.

Commenting, Patrick Hall, researcher at Bright Blue said:

“With recent and damaging flooding across the UK, the Government’s announcement that it will double flood defence spending over the next six years is a welcome one. 

“However, the Budget should have been an opportunity to consider a reset for the cut-off point for Flood Re eligibility, given at least 20,000 residential properties are at risk of having no flood insurance because they were built after 2008 and have been built in flood risk areas without flood defences.”

Image: Ministry of Housing, Communities and Local Government