UK Budget 2020 Checklist - Capital Economics

This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm on Wednesday 11th March and to provide some instant context.

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This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm on Wednesday 11^th March and to provide some instant context. We will send a Rapid Response and a Focus after the speech.

Possible New Measures for 2020/21
Tax Rises	Yield	Spending Rises	Cost
Cancel corporation tax cut	£3.0bn	Additional investment spending	£12.5bn
Abolish “red diesel” subsidy	£2.4bn	Targeted measures to tackle coronavirus	£5.0bn
Abolish entrepreneurs’ capital gains tax relief	£2.3bn	Spending on NHS	£1.2bn
Immigration health surcharge	£0.3bn	Extra flood defences	£0.5bn
Rise in Vehicle Excise Duty	£0.2bn

Main pre-announced measures due to come into effect in 2020/21
Tax Rises	Yield	Tax Cuts	Cost
Freeze income tax personal allowance, higher-rate, inheritance tax and VAT thresholds.	£1.7bn	Increase employee & self-employed NICs threshold to £9,500	£2.0bn
Make larger private-sector firms responsible for determining if contractors are “employed”.	£0.7bn	Expand temporary business rates discount for small retailers	£0.3bn
Introduce digital services tax.	£0.4bn
Restrict NI employment allowance to employers with NICs bill of less than £100k.	£0.3bn

Economic & Fiscal Forecasts						Comments
GDP Growth (%)	2019	2020	2021	2022	2023	Having finalised its economic and fiscal forecasts a few weeks ago, the OBR is unlikely to have factored in any hit to economy activity from the coronavirus outbreak in the UK. Even so, due to the recent weakness in productivity growth, we expect the OBR to revise down its forecast for GDP growth this year and in all future years of its forecast.
Budget 2020	___	___	___	___	___
OBR Mar. 20 (CE est.)*	–	0.9	1.4	1.5	1.5
OBR Mar. 19	–	1.4	1.6	1.6	1.6
Bank of England (Feb.)	–	0.8	1.4	1.7	–
Consensus	–	1.0	1.5	1.7	1.8
Capital Economics***	–	0.7	2.0	1.6	1.5

Current Budget Surplus (+) Deficit (-) (£bn)	19/20	20/21	21/22	22/23	23/24	We think that the OBR will add around £24bn to its estimate of the “current” budget deficit (i.e. excluding investment) in 2022/23. That would mean that the £18.6bn surplus for 2022/23 predicted in the OBR’s restated March 2019 forecast would become a £5.1bn deficit. That would breach the balanced “current” budget target unless the target is changed or postponed.
Budget 2020	___	___	___	___	___
OBR Mar. 20 (CE est.)*	-0.5	-6.1	-6.2	-5.1	-4.0
OBR Mar. 19**	+2.5	+13.3	+15.7	+18.6	+21.1
Capital Economics***	-0.5	-7.2	-6.6	-4.3	-3.1

PSNB ex. (£bn)	19/20	20/21	21/22	22/23	23/24	Downgrades to the OBR’s GDP growth forecasts, in addition to a package of investment spending worth up to £70bn over five years (or around £13bn a year), may well leave the OBR’s public sector net borrowing forecast at about £78bn by 2020/21, well above the £40bn previously predicted.
Budget 2020	___	___	___	___	___
OBR Mar. 20 (CE est.)*	44	78	79	79	79
OBR Mar. 19**	48	40	38	35	33
Capital Economics***	44	76	75	73	72

Net Debt (% of GDP)	19/20	20/21	21/22	22/23	23/24	The OBR is no longer likely to forecast that net debt as a share of GDP is falling, as was the case in March 2019.
Budget 2020	___	___	___	___	___
OBR Mar. 20 (CE est.)*	82	81	79	80	81
OBR Mar. 19**	81	78	74	74	73
Capital Economics***	82	81	78	79	80
* Capital Economics expectation of Budget 2020 forecast. OBR Restated March 2019 forecast published December 2019. * Assumes the UK and the EU agree some kind of fudge that means there is not a big step change in their relationship on 31^st Dec. 2020. Sources: Capital Economics, OBR.

Ruth Gregory, Senior UK Economist, +44 20 7811 3913, ruth.gregory@capitaleconomics.com

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