In a challenging economic climate dominated by uncertainty over coronavirus, the new chancellor took action to protect business – but business rates reforms have been delayed. Retail Economics chief executive Richard Lim examines the detail.
Ongoing structural upheaval, Brexit mayhem… and now this. Against a backdrop of tumbling stock markets and toilet roll tantrums in supermarkets, chancellor Rishi Sunak delivered an aggressive budget centred around a £30bn fiscal stimulus package aimed at limiting the damaging effects of the coronavirus.
The blow to the economy will be inevitable. But just how serious the virus grips the UK is anyone’s guess. Sunak’s package will soften the blow in what the government – and everyone else – hopes will turn out to be a shallow, short-lived disruption. The reality is: no one knows.
He prioritised correctly by protecting employment and businesses – a definite hat tip there. News of support around statutory sick pay available to all those advised to self-isolate from the virus – even with no symptoms – will be a boon for hundreds of thousands of small businesses, which are the lifeblood of our economy. In many ways, retail’s 3 million-strong workforce, of which around half are on the shop floor, are on the front line, with many senior personnel working in public-facing and package-handling roles.
However, Sunak could have delved deeper into our economy’s medical kit to protect the industry. Retailers are hugely dependent on their staff, so disrupted cash flow can be crippling for many. Nevertheless, it will provide much-needed help for the 2 million low-paid workers in the economy, almost 5 million in the gig economy and thousands of self-employed people.
A loan guarantee scheme will be launched for banks’ lending to small businesses on amounts up to £1.2m – a positive measure. Business rates will be scrapped for the next year for retail, hospitality companies, galleries and cinemas with a rateable value of up £51,000 – another positive and great for helping to keep footfall coming across retail and leisure destinations. On top of that, a large number of small businesses that already pay no business rates will now receive a £3,000 cash grant, totalling an estimated £3bn.
Layers of uncertainty
From a consumer perspective, the increase in the threshold for National Insurance contributions from £8,632 to £9,500 – saving employees just over £100 a year – will help boost spending power, particularly for least affluent households that have the highest propensity to spend it. It will also mean around half a million people will pay no tax at all.
The highly anticipated scrapping of the 5% VAT on women’s sanitary products is something that should have happened decades ago. The freeze on fuel duties will help a tad, meaning a saving of £1,200 since 2010, alongside the clinking of glasses to toast the freeze on alcohol duties too – with many probably needing a tipple to calm their nerves through these times.
From the macro perspective, forecasts of economic growth from the Office for Budget Responsibility can largely be discounted, given they don’t account for any impact from the coronavirus. For what it’s worth, they portray the economy slowing to its weakest levels since 2009 with growth of just 1.1% predicted for 2020, down from the 1.4% previously forecast.
“Try overlooking the significance of the Bank of England’s emergency cut to interest rates. You can’t”
A global problem needs a global response. While the budget will deliver emergency aid to limit casualties on the “UK retail battlefield”, much like the financial crisis, a coordinated global response across governments and central banks will be required to truly limit the damage of the virus.
Try overlooking the significance of the Bank of England’s emergency cut to interest rates to just 0.25 per cent. You can’t. It followed the US Federal reserve cut of 0.5 percentage points in an unscheduled meeting, which was proceeded by China, Canada, Australia and Indonesia all slashing their rates.
The latest layer of uncertainty with regards to coronavirus has cast a haze over the direction of the economy, and it will only begin to clear after the virus cases subside. For now, if there’s just one thing everyone can agree on, it’s that these issues transcend party loyalties and the country can unite to overcome the worst of it.
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