Rishi Sunak’s First Budget: What can we expect?

When Rishi Sunak had breakfast on 13 February, he may have been hoping for a promotion, but he probably didn’t expect to go to lunch having just been appointed as Chancellor of the Exchequer. Less than a month later, he’s putting the final touches on the first Budget of the Johnson Government. First Budgets are nerve-wracking; Sunak has some big additional challenges, constraints and unknowns.

The Emergency Budget

The Budget is rapidly becoming an Emergency Budget to fund the Government’s response to the Coronavirus. We are writing this a week out from the Budget, but it’s possible that the main focus of the event will be to keep the economy from entering a slowdown.

In addition to providing contingency money for the NHS and other affected public services, the Chancellor could also fund measures aimed at helping businesses and consumption in the short-term. Monetary policy measures could be provided by the Bank of England in the next week, or indeed following the Budget.

The focus on the Coronavirus and the possibility of a large stimulus in the Budget is likely to displace other planned measures.

Other constraints

Still in its first 100 days, the Johnson Government has been clear about its agenda: Get Brexit done, invest in infrastructure and level up the country and it has started to follow through on its election manifesto. The Budget is expected to be a continuation of this focus on delivery, with a key theme being the Government repaying the trust placed by Northern voters in ‘red wall’ seats in the Conservative Party.

Leaving COVID-19 to one side, one of Sunak’s main challenges as Chancellor is that since the General Election, Government Ministers have announced a lot of the big-ticket manifesto pledges as you can see from the graphic below (click to view).

Timeline announcements

While the UK left the European Union on 31 January, the transition period is still in place and trade talks only got underway earlier this week. November’s Budget statement will provide a better opportunity for Government to announce funding measures to soften the shift to the UK’s new trading relationship with the EU from 1 January 2021. At this point, the UK Government will hopefully have a clear idea as to what this new relationship constitutes.

With these limitations above in mind, we look at what measures, unrelated to the Coronavirus, we think might be worth keeping an ear out for when the Chancellor stands up at the Despatch Box next Wednesday.

Measures beyond COVID-19

The Government will likely look to outline energy efficiency measures as part of its commitment to delivering Net Zero by 2050, especially in view of COP26 being held in November. There are renewed suggestions the Chancellor will scrap the fuel duty freeze or the rebate on red diesel. It would be a brave Chancellor to act now given the accusation that these changes could exacerbate output and consumption fears caused by the Coronavirus.

The sharpest contrast between Sunak’s Budget and what was expected of his predecessor’s is expected to be around borrowing to fund and deliver infrastructure and ‘level’ up the North. Historically, hawkish Tories who usually denounce increased borrowing now believe it is a sensible move for the Government to take advantage of the cheaper rate of borrowing and build things to create jobs and boost economic growth.

The Chancellor will also face calls from Tory MPs and business groups to outline further support for high streets and reform of business rates. The manifesto committed to a fundamental review of the rates system, but anxious MPs whose local shopping hubs are hollowing out will be hoping for something more concrete and a clear timeframe for reform.

We may hear more details on raising the National Insurance threshold for employees and a more specific timeline outlining the Government’s intentions to raise the national minimum wage to £10.50 by 2024.

Things which aren’t universally expected could include the publication of the Williams Review and outlining the next steps to reform rail delivery, as well as action on housing like levying an added surcharge on foreign property investors buying UK homes. Sunak could also commit more funding over and above the £2.6bn pledged for flood defences in the next two years. And following the collapse of Flybe, the Government will over the next week, and perhaps in the Budget, signal what it can do to support regional aviation connectivity.

So… what does this all mean? The extent to which Rishi Sunak’s first Budget is one of his own making or a financial statement that centres largely on the response to the Coronavirus will become clear this coming week. What is clear is that alongside a focus on the COVID-19, the Budget will show the Government is getting on with the job of delivering the Conservative Party manifesto.

We’ll be providing more detailed analysis following the Budget next week. To ensure you receive our detailed Budget analysis on the day, sign up here.