Spring Budget 2020: a summary
Spring Budget 2020 was presented by the Chancellor of the Exchequer to Parliament on 11 March. Once the Chancellor sat down the Office for Budget Responsibility (OBR) published updated forecasts in its Economic and fiscal outlook.
The Budget comes at a time when concerns are rising about the public health and economic impacts of the coronavirus. The OBR’s forecast figures don’t reflect the latest developments with the virus.
This is the first budget since the UK formally left the EU. The UK is currently in a transition period during which nearly all EU rules will continue to apply. The transition period is set to end after 31 December 2020. A future relationship is being negotiated by the UK and EU for the post-transition period.
Measures to limit the economic impact of coronavirusThe Chancellor announced a series of measures designed to support public services and the economy during the coronavirus outbreak. He described them as: “temporary, timely and targeted.” They can broadly be grouped into three categories and will cost approximately £12 billion in total (subject to take-up):
- Additional NHS funding
- Loans and tax relief for businesses
- Statutory sick pay and changes to benefits
In the morning of the Budget, the Bank of England announced a package of measures in response to the spread of coronavirus. They cut interest rates by 0.5 percentage points. This took the base rate to 0.25%.
Policy announcementsThe Chancellor announced significant increases in government spending. Day-to-day spending is set to be £35 billion higher in 2023/24 than previously planned. The Chancellor plans to increase investment spending from 2.2% of GDP in 2019/20 to 3.0% of GDP in 2024/25.
The Chancellor also announced tax measures, several of which were included in the Conservative manifesto.
The largest tax raising measure was keeping the corporation tax rate at 19%. It was previously due to fall to 17% in April 2020.
The largest tax cut sees the threshold at which employees and the self-employed start to pay NICs on their earnings will increase to £9,500 in April 2020.
The Chancellor has delivered the Budget within the rules for the public finances set out in the Conservative manifesto. These rules may be revisited in a review of the Government's overall policy for managing the public finances. The review will report by Autumn Budget 2020.
OBR forecastsThe OBR published new forecasts for the economy and public finances alongside the Budget.
These are the OBR’s first forecasts since March 2019, although the figures for the public finances were ‘restated’ in December 2019 to take into account major revisions to government borrowing statistics. We use the restated figures in this briefing.
The OBR’s final underlying forecasts closed a couple of weeks before Budget day. At that point, key judgements, including about the economy and the financial markets, were finalised.
Therefore, the very latest developments with the coronavirus, new policy responses to it, and recent developments in the financial markets will not have factored into the forecast.
The charts, tables and discussion below, which summarise the forecasts, should therefore be interpreted with some caution.
The forecasts remain useful for understanding the OBR’s view on developments in the economy and public finances up to a couple of weeks ago (for example the effect of developments in our understanding of the government’s plans for Brexit and the substantial new long-term spending commitments). This includes in particular the OBR’s view on the longer term health of the economy and public finances, which is what we concentrate on below.
The short-term forecasts, in particular for 2020, should however be read with a substantial pinch of salt.