Press release

11 Mar 2020

EY reaction to UK Budget 2020

As Chancellor Rishi Sunak announced the UK’s 2020 Spring Budget this afternoon, our team in EY Northern Ireland shared their reactions to the measures

Michael Hall, Managing Partner and Head of Tax, EY Northern Ireland comments on today’s announcement:

“The first budget of a new Parliament is often known as an Emergency Budget, designed to deliver the policies of the manifesto quickly and to deliver on the promised made to the electorate. This Budget might well be an Emergency Budget, but perhaps not in relation to the “Emergency” that the Chancellor was predicting when he took office just a month ago.

The economic forecast of the Office for Budget Responsibility was somewhat overtaken by events such as the spread of Covid-19, the oil price wars, the share price fall and the Bank of England’s ½ percentage point cut on the morning of the Budget itself.

The first part of the Budget focused on response to the Covid-19 outbreak. The spend highlighted has the potential to have a positive impact across NI, but the question remains open as to how all proposed spending will be funded and whether many of the spending measures will be replicated locally, as the Executive may make different choices.

The Chancellor also announced an increase of £210M to the Executive’s Budget. Northern Ireland will be able to choose its own priorities as to how to spend the extra funding. Although it will fall short of the levels hoped for by many Ministers it does provide much needed additional spending capacity.

Within the remainder of the budget there was a host of commitments focussed on boosting long term growth and it was rounded off with a commitment to increase day to day Government spending.

On the whole, today’s Budget was focused on investing in the health of the nation – not just that of its people but also that of its businesses. Focused on public services, regional levelling up and increases for lower earners it was perhaps more NI friendly than might have been expected from a Conservative government.”

Neil Gibson, Chief Economist, EY Ireland, reacts to the Budget:

“It was a Budget of two halves, the first half was understandably concerned with the Covid-19 outbreak and the second half was the Budget that the new Chancellor planned to give prior to the outbreak.

Under a theme of ‘getting it done’ there were a long list of commitments focussed predominantly on boosting long term growth. Infrastructure, R&D and skills all received attention and the Budget ended with a commitment to increased day to day Government spending.

Northern Ireland will be able to choose its own priorities as to how to spend the extra funding. Although it will fall short of the levels hoped for by many Ministers it does provide much needed additional spending capacity.”

 

Rob Heron, Partner Sponsor, EY Entrepreneur of the Year Programme in Northern Ireland

Entrepreneurs’ Relief

“The Chancellor in his speech quoted criticisms of the Entrepreneur’s Relief (ER), noting concerns that ER was only encouraging one in ten entrepreneurs to start up. However, the original aim of the relief was instead to encourage those successful entrepreneurs to stay in the UK and pay tax on their success, and then to reinvest and continue to contribute to the UK’s growth. 

Perhaps in light of this, the Chancellor chose to return the reliefs limit back to the £1m, the limit when it was introduced in 2008. This will be a help to many entrepreneurs but, in today’s environment, this may not be effective in seeking to retain the more successful and risks discouraging entrepreneurs to grow businesses in NI.

“We have seen through the EY Entrepreneur Of The Year programme, the majority of our island’s entrepreneurs are serial founders. Reducing entrepreneurs’ relief will hurt them and a more encouraging move may have been to impose the £1 million limit per investment rather than per life.

“The Chancellor will be hoping that removal of this allowance for the most successful will not encourage them to leave the UK thereby paying no tax, hence losing the 10% they would otherwise have paid and costing the Exchequer rather than filling the coffers.”

 

Ian Edwards, Tax Partner, EY Northern Ireland

R&D tax relief

“The increase in R&D tax relief will certainly help large business get it done but what about SME businesses who will surely be frustrated that more help was not provided. Big spending investment promises for R&D in general will be welcomed by business but how much of this will be directed to Northern Ireland.”

 

Karen Martin, Tax Director, EY Northern Ireland

New tax on plastic packaging

“The Chancellor has confirmed the introduction of a new tax on plastic packaging which uses insufficient recycled content, taking effect from April 2022. This will provide a clear economic incentive for businesses to use recycled material in plastic packaging. Given the strong public interest in action in this area and the level of engagement with the recent consultation this is as expected.”

 

David Reaney, Tax Director, EY Northern Ireland

VAT on sanitary products

“The removal of VAT on women’s sanitary products is a welcome change and a first example of the UK changing the application of reduced rates and VAT exemptions after the Brexit transition period.”

 

Nick Small, Tax Director, EY Northern Ireland

Structures and Buildings Allowances

“The increase of Structures and Buildings Allowances from 2% from 3% was widely anticipated and Rishi Sunak, hasn’t disappointed. Property investors will now get tax relief on their bricks and mortar over 33 years rather than the previous 50 years.”

 

Sherena Deveney, Head of Private Client Services, EY Northern Ireland

Personal Tax

“Outside of Coronavirus plans, this Budget has focused on supporting the lower income workforce, and small businesses.  A proposed increase in the National Minimum Wage, and an increase in the NIC threshold to £9,500.  This, together with the increase in the personal allowance and basic tax band so that an individual can earn £50,000 before higher rate taxes are due, demonstrates a commitment to increasing the net income of the nation’s biggest pool of workers.  For the lowest paid workers, they will be £5,200 better off than in 2010, again demonstrating a commitment to fair wages for the lower paid.

Entrepreneurs’ Relief

“On the flip side, the more wealthy have also seen some changes.  As anticipated, Entrepreneurs’ Relief has had some focus.  It sees a reduction in the lifetime limit from £10m to £1m.  It was considered a very generous relief but at a cost of £2bn, and a small remit of the wealthiest able to benefit from the full lifetime limit, it was expected to be reduced or completely abolished as its benefactors were mostly the wealthiest business owners.  The reduction is significant but will still benefit a significant number of smaller businesses.”

Inheritance Tax

“Pre-Budget, it was anticipated that inheritance tax (IHT) would be under the microscope, and that perhaps consultation on IHT reliefs such as Business Relief and Agricultural Property Relief may also be announced.  It was therefore a welcome surprise not to see this on the agenda, although we should not be surprised for this subject to come into focus at some point. 

Given the reliefs are often essential for the continuance of business following the death of a proprietor, we would hope that such consultations would not result in complete removal of these valuable reliefs.  Northern Ireland has a significant farming industry and removal of these reliefs could be detrimental to the continued success of many generational businesses.”

-ENDS-

To arrange an interview or get further comment from any of the team, please contact Orla Grant on orla.grant@ie.ey.com or +353 86 3656005 or Eimear Rigby on eimear.rigby@ie.ey.com or +353 87 4399529.