What did Budget 2020 mean for our economy and property market?
THE global and UK economies are in fragile times. A softening economic climate, falling stock prices, oil price collapse, ongoing Brexit negotiations and the most recent outbreak of Covid-19 has made a precarious global backdrop increasingly difficult. Locally, the collapse of FlyBe presents new challenges for ensuring regional connectivity.
Amid these challenges, Chancellor Rishi Sunak, released the economic outlook and government spending plans for the UK.
He rightly acknowledged the most pressing healthcare challenges and the likely ‘temporary disruption' to the economy. On the supply side, almost 20 per cent of workers may need to take time off work and there are observable risks to supply chains for firms connected globally.
From the demand side, there is a credible risk for a reduction in consumer spending as many people - either forcefully or voluntarily, reduce their expenditure.
The Chancellor committed to a £30bn plan to deal with the coronavirus and hinted at additional funding for the NHS if necessary – a ‘whatever it takes' approach. The government further committed to covering the cost of employee's sick pay for up to two weeks in businesses with fewer than 250 employees. Whilst welcome, it's worth noting that statutory sick pay is approximately 20 per cent of average wages in the UK compared to closer to 70 per cent in other European economies.
The threshold for national insurance increased to £9,500, estimating 500,000 people will no longer pay the tax and those that do will save £85 a year on average.
The decade long freeze in fuel duty is set to continue but a move to abolish tax relief on red diesel, albeit not effective for two years' time and with sectoral exemptions. The 5 per cent rate of VAT on sanitary products will be abolished from next year.
The National Living Wage is set to increase by 6.2 per cent to £8.72 per hour. This is positive for workers but will add additional cost to businesses and have a larger impact in Northern Ireland given the regions lower wage profile.
From a property perspective, the government will introduce a 2 per cent stamp duty tax surcharge on non-UK residents buying residential property in England and Northern Ireland from next year. This policy is largely aimed at controlling house price inflation, notably in the most expensive areas in southern England. Any money raised from the surcharge has been committed to address rough sleeping.
Following a growing recognition of the need for investment in infrastructure, the Chancellor announced a £640bn boost for capital spending on roads, rail, broadband, housing and research over the next five years. This will provide a £215m boost to the Stormont block grant in addition to further funding allocations for remaining City and Growth deals.
The economic growth forecasts were produced with the sizeable caveat of development before the coronavirus outbreak and should be viewed with due caution, particularly in the short term. The government state they can be treated as ‘informative' for the medium term. Nevertheless, modest growth of 1.1 per cent is forecast this year and is set to average 1.5 per cent by 2024.
Leaving the Budget aside, radical intervention from the Bank of England saw interest rates cut from 0.75 per cent to 0.25 per cent, the lowest level on record in the Bank's 325-year history.
As economic developments go, recent events are significantly driving change across the world. The next few months are likely to see continued turbulence as the downside risks mount.
:: Jordan Buchanan is chief economist at PropertyPal in Belfast