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Michael Hall

Budget 2020 even more crucial in light of Covid-19 emergency

Michael Hall


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The demise of Flybe has added to the tourism sector's woes

The demise of Flybe has added to the tourism sector's woes

The demise of Flybe has added to the tourism sector's woes

Covid-19 has made Chancellor Rishi Sunak's already difficult job even harder. A mere three weeks into the role he is dealing with a fragile global economy, falling stock prices, tense Brexit negotiations and a crisis that is bringing further pressure on the NHS.

EY's UK forecasts for 2020 have been revised down to 1% from 1.2% previously and they are under constant review given the fluid nature of the situation. For Northern Ireland this is likely to push growth closer to 0.5%, with the sad demise of the important regional airline Flybe adding to the tourism sector's difficulties. The Chancellor may well allude to possible mitigations or support that might be required in the coming weeks and months such as financial aid or sector specific VAT cuts.

A second budget in the autumn could see substantive policy changes as this is when the full extent of the Covid-19 crisis and the outcome of the Brexit negotiations will be known.

Voters are pressing hard for improvements to public services and the clamour for tax cuts is perhaps quieter than at any time in recent memory. There will be commitments to help low earners through an increase in threshold for paying national insurance, very helpful in NI, but elsewhere any cuts or spending increases will require tax increases elsewhere.

The planned cut in UK corporation tax from 19% to 17% is expected to be shelved and an increase in fuel duty is another possible tax increase. This could be more palatable with the sharp fall in oil prices. The Chancellor will not dwell on the UK's economic growth nor list its performance compared to rivals but rather will highlight the strength of the labour market and the record levels of people in work.

Strong job growth in NI remains a slightly unexpected highlight of the last five years and one that has continued throughout the Executive's hiatus. There are indicators that entrepreneurial relief may be reduced, which is causing a degree of concern. EY's Entrepreneur of the Year programme has highlighted companies which are flourishing amid uncertainty in the global economy and are excellent examples of entrepreneurs contributing to communities.

The twin economic worries for the UK Government have been how to boost poor levels of productivity and how to ensure a spread of prosperity outside of London and the South East. Brexit will be highlighted as a potential ability to unleash creativity and innovation as the UK will not be bound by EU regulations.

This will be easier said than done but it will see public policy refocus on several drivers of productivity - namely infrastructure, R&D and skills.

Budget 2020 may seem irrelevant set against the human tragedy of Covid-19 but it is not. A vibrant economy ensures that there is money to respond to crisis, to provide the services our public demand and to support business to generate the taxes that are in such high demand.

Tax cuts are not the focus of budgets any more, it is more about influencing behaviours in citizens and firms and enabling sustainable growth.

With managed expectations, perhaps we can think of the positives of record levels of employment, a restored Executive and a resourceful and dynamic business base that will be severely tested by Covid-19, Brexit and undoubtedly other shocks we cannot predict.

Michael Hall is managing partner and head of tax, EY NI

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