Budget 2020: the true colours of a political lens
Chancellor Rishi Sunak MP has confirmed that the Budget will take place on 11 March. There had been speculation that the date could be delayed owing to his recent appointment during the government re-shuffle last month - which was arguably the main headline of the Cabinet moves.
Sunak has promised that his first Budget will deliver on promises made to the British people in the General Election, “levelling up and unleashing the country’s potential.” There is no doubt that the Budget will be the first explication of the government’s domestic policy. While the Queen’s Speech provided a nod to the future, the measures in the Budget have the potential to re-shape the country now and in months to come.
The Conservative Party’s election victory was partly built on a shift to the left on economics. That means the Chancellor will be under pressure to spend money and turn on the government’s taps - and fast. This is made even more acute by new Conservative Party voters in areas like the North of England and the West Midlands who will look to the Budget for immediate spending to relieve local pressures as promised.
It would, therefore, be risky to assume policy decisions made by previous Conservative governments will remain as they are. There are clear guiding principles for this government – policy making will be skewed in favour of people from lower income families, employees over employers and targeted at the so-called ‘Red Wall’ of new Conservative constituencies.
So, who might be the winners and losers?
Potential losers include higher rate taxpayers, the self-employed and priorities outside this government’s stated core priority areas – health, crime and education.
On tax and the self-employed, changes could well appear in order to support the message of economic rebalancing away from the south east. Increases in tax are likely to be aimed at personal tax rises and not business tax rises, which is not surprising given the desire to help support employees and small business owners. Scaling back entrepreneur’s relief is also an attractive proposition for raising revenue, the relief currently costing the Exchequer £3.4 billion a year.
On public spending, the Prime Minister has identified three core priority areas – education, health and crime. Big decisions in defence, foreign affairs and international aid might instead be focussed on more heavily in the government’s “overhaul of its approach to foreign policy” announced last week. There is set to be a clear move towards the reallocation of funding towards ‘core’ departments, but this risks leaving other departments facing cuts of up to 15-20%.
With International Women’s Day on March 8 and media stories on the gender balance of the Cabinet, potential winners include women – anticipating that HM Treasury will be under pressure to announce a policy that specifically benefits women. The timing of the day will amplify female-led campaigns on issues such as the state pension and the War Widow’s Pension, giving them greater leverage for influence and placing pressure on the government.
Looking ahead to COP26
We can expect the narrative around Britain becoming climate-neutral by 2050 to get louder and the package of measures to become increasingly ambitious.
Indeed, ahead of COP26, HM Treasury is rumoured to be considering subsidies to reach the UK’s net zero carbon target faster. These include schemes to share the cost of upgrading homes, extending and/or increasing subsidies of £3,500 on new electric vehicles, incentives for households to phase out gas boilers and introduce solar panels and making schools, hospital and social housing more energy efficient.
In support of those rumours, the government has already made further decarbonisation announcements. As well as launching the Department for Transport’s consultation on ending the sale of new petrol, diesel and hybrid cars and vans on 20 February, the government have also announced plans to phase out the use of coal and wet wood as household fuels between 2021 and 2023.
Such measures are highly attractive to bring preparations for COP26 back on track and demonstrate that environmental spending is pivotal to UK growth strategy.
On transport, the government has already announced its approval of the controversial High-Speed Railway 2 project – no doubt in support of the message to rebalance the UK economy. It is unclear if updated costs will be reflected in the Budget spreadsheet of up to £106 billion. If so, this will have significant impact on the budget for wider government spending.
With regard to wider infrastructure, the new National Infrastructure Strategy will be published alongside the Budget and the Chancellor is expected to invest up to £100 billion. And with the promise to increase NHS spending to £33.9 billion (cash terms) a year by 2023/24, the Budget will reflect a 3.1% increase on current health services.
What does this mean for business?
Business must accept the potential shift away from the status quo. Talking about the human impact of change (in positive terms) is where business will gain traction with attempts to influence policy making. Business will need to show that it understands what needs to happen for the country and is aligned around that agenda. In turn, decision making seems increasingly political rather than business focused – decisions will be made through the lens of helping win the next general election and how they will aide Britain’s post-Brexit future.
There appears to be an increased reticence from the centre of government towards large business and the ‘traditional’ business lobby groups. Businesses will also have to show they have accepted the Brexit result and are taking action to make Britain’s future a successful one. Measures that will gain in prominence will be about developing our capability ‘in house’ – especially in research and development and innovation. Anyone who can demonstrate they will help Britain ‘lead the pack’ in a range of areas will see a more welcome reception.
Looking forward, business or commercial representations will need to be seen through a political lens or reflect high awareness of current political circumstances.