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Budget 2020: A coronavirus special

Budget 2020: A coronavirus special


In his first budget, the chancellor Rishi Sunak announced a series of measures to support the economy in the face of coronavirus over the coming months, as well as lay the foundations for a major programme of infrastructure investment.

Just weeks ago, the plan for the new government was to use the Budget as an agenda-setter for post-Brexit Britain, but the landscape has since shifted dramatically.

The Budget’s focus was firmly on tackling the short-term economic challenges posed by coronavirus, with spending taps turned on to help the NHS, businesses and the population cope with the impact of the virus.

Other changes may have been put on hold for a spending review and second Budget later this year.

Here we look at the main announcements and what they mean for investors, before sharing Guy Foster’s latest thinking on the coronavirus outbreak itself.

Fighting coronavirus

The chancellor unveiled a package of measures worth around £30 billion aimed at doing “whatever it takes” to vaccinate the economy from the threat of coronavirus, while stressing that any disruption would be temporary.

Sunak said the NHS will get “whatever extra resources” it needs to cope with the impact of the virus, setting aside a £5 billion emergency response fund.

Meanwhile, statutory sick pay will be available to employees who are advised to self-isolate to help people affected by the virus, although this will be a substantial income drop for many earners. There will also be a £500m hardship fund for vulnerable people made available.

A series of financial support for businesses were announced. These include refunding smaller businesses with less than 250 employees for sick pay for up to 14 days. Also, banks will offer loans of up to £1.2m to small businesses and the government will cover their losses of up to 80%. Smaller firms in retail, leisure and hospitality will have business rates abolished.

As part of a coordinated response to the virus, the Bank of England announced various measures hours before the Budget, such as extra funding schemes for lending, alongside a cut to interest rates, to support businesses and consumer cashflow. The bank’s base rate was reduced by half a percentage point from 0.75% to 0.25%.

Guy Foster, head of research at Brewin Dolphin, said: “Bold action is required because efforts to prevent the spread of the coronavirus will have a temporary economic consequence, and without offsetting action, temporary challenges can have lasting effects if they are allowed to start a vicious cycle of job losses, loan defaults or both.

“Hence action taken by the Bank of England and government to bridge the economic gap is very welcome.”

The economy

The Office for Budget Responsibility (OBR) has revised down its growth forecasts to 1.1% in 2020 from its March prediction of 1.4%. Yet growth is forecast to rise to 1.8% in 2021, up from 1.6%. However, the spread of coronavirus came too late to be officially included in the forecasts, which could damage the economic outlook.

But Sunak stressed he is committed to improving the UK’s productivity over the long-term and the strength of the fundamentals of the UK’s economy and prospects. “Our economy is robust and public finances are sound,” he stated, with the flexibility to act as needed.

Infrastructure spending

The chancellor used the Budget to pledge a £600 billion boost to public spending on infrastructure and innovation – funding roads, railways, broadband, housing and research – over five years, aimed at “levelling up” economic opportunity across the country.

This brings the highest levels of investment in real terms since 1955. However, details of exactly how the extra money pledged by the chancellor will be spent have been delayed. The Autumn Budget is expected to include further plans for the economy and tackle post-Brexit trade arrangements.


With such an emphasis on coronavirus in the Budget, Guy Foster, Brewin Dolphin’s head of research, shares his latest views on its impact on the markets

When the coronavirus first emerged, it was rapidly acknowledged by serious investors as an extremely pervasive virus. Whilst the prospect of illness, hospitalisation and potential bereavement will be occupying many, investors are characteristically single minded in their focus on economic implications.

Whilst the economic impact of the coronavirus will be significant, it is also likely that it will be largely temporary. This is in contrast to the financial crisis in which falling house prices and high levels of consumer debt left many households unable to return to their previous levels of spending for many years.

It’s important to note here that it is not the virus itself that concerns markets. Although estimates of the mortality rate differ from expert to expert, they are generally around 1% of cases or lower. Of more consequence to investment markets is the disruption to profits caused by the efforts to contain the contagion.

What markets want is to know how significant the earnings hit from these containment measures will be. Unfortunately, we simply can’t know – this is in some respects uncharted territory – which leaves the markets volatile in the face of uncertainty. That volatility will be resolved through the passage of time, but for the time being we need to consider what it is that markets are discounting from their previous valuations.

For example, the UK equity market produces a healthy dividend. Even with the rather tepid growth which the overall index is likely to receive, if you accept the premise that there will be a return to normality once the impact of the coronavirus fades then it looks like markets are pricing based on significant cuts to dividends. In the UK the convention is to maintain dividends unless your long-term ability to meet them has fundamentally changed. Therefore such cuts seems unlikely.

Underpinning UK dividend yields is a large amount of oil and gas profitability. With a price war having broken out in the oil market on Monday it is tempting to be bearish about this sector. Oil prices are low at the moment because with OPEC no longer functioning properly, oil supply exceeds demand. However, as time passes oil supply naturally declines and the current low prices will discourage producers from maintaining it. Therefore, the market will come back into balance in due course with every chance of current dividends being maintained.

There can be no question that the coronavirus is very serious. However, it is also true that it will prove to be a temporary phenomenon and as such should only have a modest lasting impact on financial markets.


The chancellor made several announcements that could affect you when the new 2020/21 tax year begins on 6 April. Here, we consider those that may be most significant.

National Insurance

As expected, the chancellor confirmed the Conservative’s manifesto commitment to introduce a tax cut for workers in the form of an increase to the National Insurance Contribution (NIC) threshold.

The NIC threshold will rise to £9,500 in the 2020/21 tax year (from £8,632 in 2019/20), which works out as a saving of around £100 per year for a typical worker, according to government figures. The Conservative party has pledged to eventually increase the NIC threshold to £12,500.

Tapered annual allowance

Hundreds of thousands of higher earners received a tax boost on their pension contributions as a result of a change aimed at easing the workforce pressure on the NHS.

At present, the annual allowance on pension contributions is £40,000, but this may start to reduce to £10,000 for those earning more than £110,000, depending on your so-called “adjusted income”, which includes pension contributions.

The chancellor unveiled plans to raise the point at which the tapered annual allowance kicks in by £90,000 to £200,000 next month.

However, the minimum annual allowance will be reduced from £10,000 to £4,000 at the same time, which will impact on those with total income over £300,000. The government said this will take 98% of consultants out of the taper entirely.

Entrepreneurs tax relief

The Treasury pressed ahead with reforms to entrepreneurs’ relief, stating that three-quarters of the relief goes to just 5,000 individuals.

The chancellor reduced the lifetime limit on the relief from £10m to £1m. At present, this relief halves the amount of capital gains tax (CGT) that entrepreneurs must pay on selling their business.

Junior ISAs

Parents saving for their children’s futures will be able to put away twice as much into Junior Individual Savings Accounts (JISAs) from 6 April 2020.

The government raised the limit in the Budget significantly, although the chancellor did not mention it in his speech. Parents (or grandparents) will be able to save up to £9,000 a year into JISAs, compared to the current limit of £4,368, the biggest increase in the allowance since JISAs were introduced in 2011.

The main ISA limit for 2020/21 remains at £20,000.

Property tax

Another election pledge confirmed was a 2% stamp duty surcharge for overseas homebuyers from April 2021, which includes expats wanting to move back home. This will be charged on top of other stamp duty charges, including the 3% surcharge on second homes and buy-to-let properties.

Other things of note

Inheritance tax

Everyone is entitled to pass on assets of up to £325,000 on their death, free from IHT. This may be boosted by the residence nil-rate band, for passing on a property to a direct descendant – this will rise to £175,000 per person for the 2020/21 tax year, up from £150,000.

This means a married couple with children will be able to pass on a maximum of £1m in total without having to pay IHT – two lots of £325,000 (£650,000) and two lots of £175,000 (£350,000).

Pensions tax relief

Despite suggestions that radical reforms to this tax incentive might be in the offing, the chancellor chose to leave current rates and allowances in place.

However, this might be a temporary decision on an issue that could be revisited in a future Budget.

Lifetime allowance

The amount you can save into a pension over your lifetime will rise to £1,073,100 in 2020/21 (from £1,055,000 for the 2019/20 tax year). Breaching this limit could see you facing a hefty tax charge of up to 55% on the excess.

Landlord tax relief

Since April 2017, mortgage interest rate relief on investment properties has been gradually phased out. Landlords used to be able to claim tax relief on 100% of mortgage interest costs at their marginal rate, only paying the difference between their expenses and profit.

In the 2019/20 tax year landlords are only able to claim relief at their marginal rate on 25% of mortgage interest costs with the remainder qualifying for basic rate tax relief. From April 2020, you will not be able to deduct any mortgage expenses from rental income to reduce your tax bill. Instead, you’ll receive a tax-credit, based on 20% of your mortgage interest payments.

If you own a buy-to-let property, these changes may make it a less-appealing investment.





The value of investments and any income from them can fall and you may get back less than you invested. Past performance is not a guide to future performance and performance is shown before charges which will reduce the illustrated performance. The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances, therefore you should not rely on this information without seeking professional advice from a qualified tax adviser. The opinions expressed in this publication are not necessarily the views held throughout Brewin Dolphin.

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