BUDGET 2020 GUIDE FOR SOCIAL ENTERPRISES - Social Enterprise UK

BUDGET
2020
GUIDE FOR SOCIAL
ENTERPRISES

SOCIAL ENTERPRISE UK

One minute summary
This was very much the "Coronavirus" Budget for the Chancellor, with measures to
bridge the economy over any potential instability caused by the virus. On the levelling up
agenda, there was a focus on physical infrastructure such as roads and bridges
alongside increased public investment. Bar the Coronavirus funding and infrastructure
investment, this was very much a "business as usual" budget.

Key measures - Coronavirus
  Statutory Sick Pay - eligibility will be extended to include any individual who is
  unable to work due to the need to self-isolate and people caring for those within the
  same household who display symptoms. For any business with under 250
  employees, the government will cover the full cost of this for up to 14 days per
  employee.
  £500m Hardship Fund - a £500m hardship fund has been created for local
  authorities to spend to support economically vulnerable people and households
  affected by the COVID-19.
  Business Rate Relief -
      Business Rate Relief for Retail businesses will be increased to 50% in 2020-21.
      Small business Rate Relief is being increased from 50% to 100% in 2020-21.
      Pubs with a rateable value lower than £100,000 will receive a one-off £5,000
      discount on the business rates.
  Small Business £3,000 Grant Fund - all businesses that are eligible for small
  business rate relief will be able to get £3,000.
  Time to Pay - the government will create a bespoke "Time to Pay" arrangement for
  all businesses unable to pay taxes due to financial distress caused by COVID-19.
  This will give a time limited period for businesses to be able to pay their taxes.
  Coronavirus Business Interruption Loan Scheme - the government is providing
  loan guarantees to banks to enable them to give businesses short-term bridging
  loans to cope with instability caused by the virus.

Key measures - Budget 2020
  National Living Wage to reach £10.50 by 2024 - up from £8.72 at present.
  Employer National Insurance Allowance increased from £3,000 to £4,000.
  Full review of Business Rate Relief to report in Autumn 2020.
  NI Holiday for businesses that employ veterans.
  New Plastic Packaging Tax charged at £200 per tonne of plastic packaging with less than 30%
  recycled plastic on all production and importation.
  £130m increase in start-up loans funding.
  £200m increase in funding for British Business Bank to help businesses scale up.
  £5bn increase in British Business Export Guarantees.
  Fuel duty and alcohol duties frozen.
  Lifetime threshold for Entrepenuers' Tax Relief reduced from £10m to £1m.
  Fuel Duty frozen for 2020-21.
  VAT on tampons abolished.
  New "Reforming Regulation Initiative" to look at reducing regulations on business.
  New Credit Union legislation to increase the range of products they can provide.

UK Economy: 2020-2024
As part of the Budget, the government releases its latest economic forecasts. These are
useful guides for businesses about how the economy may adapt in the future. Here are
the key figures and SEUK analysis.

Key economic Statistics
  Economic Growth remains weak - GDP growth per year will hover between 1.1% in 2020
  to 1.4% in 2024. This is likely to be lower in 2020 due to COVID-19.
  Real household disposable income growth will be weak - disposable income after taxes
  and social contributions will increase between 1.1%-1.4% during the next four years. This
  compares to growth of 2.4% in 2018.
  Employment to remain high - employment levels will remain over 33m during the next four
  years with average earnings due to increase by around 3.5% per year over the next four
  years.
  Inflation - inflation will increase over the coming two years from 1.4% in 2020 to 2.1% in
  2022 before stabilising around 2%.
  Productivity remains weak - UK productivity growth will remain at around 1% per year
  compared with the pre-financial crisis trend of 2%. This will reduce the room for potential
  wage increases in future years.

   Fundamental weaknesses
   remain in UK economy
    Despite all the talk of a "Boris Bounce" following the Election and Withdrawal vote, the latest
    statistics from the ONS and Office for Budget Responsibility have showed a weak economic picture
    for the UK - even excluding the Coronavirus.

    The economy will grow by just 1.1% in 2020 (excluding any negative impacts of COVID-19) and just
    1.4% in 2024. This is not an economy going "gangbusters" as the Prime Minister wants.

    The reasons for this as multiple but broadly speaking, the lack of UK productivity growth is the
    obvious culprit. Despite massive cuts in corporation tax and various schemes, the UK's productivity
    remains lower than other comparable countries. The UK government's infrastructure investment
    programme will boost productivity, but only by 2.5% - and that is only if every other government
    agrees to spend the same amount of money indefinitely.

    Obviously at Social Enterprise UK, we think that this indicates the need to rethink business as usual
    to look at the structure of businesses. Why are businesses not investing? Why are they not taking
    steps to upskill their staff? Why are they not developing new products and services? These are the
    real barriers to productivity growth, not extending the A303 (however good that may be).

    For social enterprises, the next four years are not going to be easy. Putting the short term pressure
    of COVID-19 to one side (as no one can predict what it means), low growth and low income growth
    means that trading will remain competitive and tough. After a decade of austerity, it may be that
    social enterprises that work with the public sector that may conditions slightly easier.

Budget 2020
The Budget announced a number of measures, reviews and potential changes that could impact
on social enterprises. Here are some of the highlights that SEUK has identified as most relevant
for the sector. Note, that this is not a comprehensive list of all measures that may impact your
business.

Economic development and social value
  Green Book to be reviewed to better reflect "geography" of the UK - HM Treasury is going to
  review the Green Book which influences all public spending decisions. This could change the rules so
  that it is easier to justify spending in parts of the country other than London.
  Public Value Framework to be reviewed - this is the framework that guides departmental spending
  proposals and whether they get approved by HM Treasury. More focus on social and environmental
  outcomes is essential in any review.
  A new HM Treasury "Campus" in the North - 750 civil servants are to be moved to the North
  including officials from BEIS and other departments to help reconnect the government to the regions.
  English Devolution White Paper - due to be published in Summer 2020.
  UK Shared Prosperity Fund - will replaced the previous EU strucutral funds, although no date has
  been given for consultation it will be the same minimum level as the current funds. A decision will be
  made at the Spending Review.

Wages and entitlements
   National Living Wage - increasing to £10.50 by 2024 and a future target of two-thirds of median
   earnings by 2024. This will be a significant increase in the cost of business over the coming years.
   Neonatal Leave and Pay - a new entitlement to leave and pay for employees whose babies spend
   an extended period of time in neonatal care.
   National Insurance Allowance - increased from £3,000 per year to £4,000.
   Carers' Leave - a new entitlement will be designed to provide support for employees with unpaid
   caring responsibilities.
   Veterans NI Holiday - businesses employing a veteran will get a NI holiday for the first year of their
   employment.

Retail and trading
  Business retail rate relief - shops, restaurants, cafes, bar and pubs will now be eligible to a 50%
  business rate relief discount if they have a rateable value under £51,000.

Health and social care
   Nurses - new non-repayable grants of £5,000 and a further £3,000 of financial support with childcare
   responsibilities will be provided to new and existing students on nursing, midwifery and allied health
   courses to help with living costs.
   Learning Disability and Autism Fund - new funding will be committed over three years to help
   speed up discharge of people with learning disabilities and autism into the community from mental
   health inpatient care.

Culture
  Cultural Investment Fund - a £250m fund for culture, heritage, local museums and neighbourhood
  libraries with at least £90m earmarked for outside London.
  Youth Investment Fund - a £500m fund to build new Youth Centres and refurbish existing facilities
  to provide places for at least 800,000 young people.
  Cinemas and Music Venues - retail rate relief discount (see above) to be extended to cinemas and
  music views by 2020-21.

Environment
 Plastic Packaging Tax - a new tax will be introduced on non-recycled plastic packaging from April
 2022.
 Fuel duty frozen - fuel duty rates will continue to be frozen for the tenth year in a row.

Other tax changes
 VAT on tampons - the tax on tampons will be abolished from 1st January 2021.
 VAT on e-publications - will be set at 0% from 1st December 2020.
 VAT on Partial Exemption - proposals on partial exemption will be published in due course.
 Small Brewers' Relief (SBR) - government will publish the result of a review into Small Bewers
 Relief in the spring.

 A lack of clear direction beyond
 infrastructure
  It is customary for new Government's budgets to have a clear theme outlining the government's
  direction of travel. Think of the "March of the Makers" back in 2011 or making Britain "Fit for the
  Future" in 2016. This year's Budget was mostly about delivering on the election promises that the
  Conservatives made in 2019, but given that the Manifesto was already quite light on detail, the
  Budget seems short on overall direction.

  The Budget is just one part of the process. We have a Spending Review at the end of the year which
  will outline how the government will spend its money over the next four years. What is clear is that
  despite all the rhetoric of "levelling up" an overall plan is lacking for how to deliver this agenda. The
  infrastructure programme will help connect areas together but what will stimulate economic activity
  within communities? How are we helping people to set up businesses? How do we encourage
  businesses to invest in the future? How do we make sure that business spreads wealth and
  opportunities across communities rather than a narrow few. The Budget didn't have any answers on
  this.

  Although a lot of policies were announced, most of them (bar investment in the NHS) are quite small.
  so although there is a lot of "spending" - most of it is going on physical infrastructure projects rather
  than day to day spending. What this means is that local government, schools, social security and the
  rest of government will still be operating under quite tight spending constraints. There won't be "cuts"
  but there isn't going to be a loosening of the spending taps either. The only way that this is likely to
  change is if we see higher levels of growth in the economy, which given COVID-19 and Brexit, looks
  unlikely in the short term.

  There is an opportunity for social enterprises to shape the future direction of travel. Clearly, the
  government is short on ideas. It is our job as a sector to provide them and encourage a more radical
  direction. Hopefully by Budget 2021, we will see whether the government is interested in taking a
  more comprehensive course of action which can really help level up the nation.

Want more information or to
 support our policy work?

 Email Andrew O'Brien - Director of External Affairs

    andrew.obrien@socialenterprise.org.uk