Last week’s spending review by Chancellor Rishi Sunak made for some pretty gloomy listening, no matter how expected it was. The main focus was, naturally, coronavirus and its economic consequences, and the pandemic was also the reason that the spending review covered only one year rather than the usual four. Sunak emphasised heavily the fact that the government is putting everything into steering the country through the crisis, and is providing £280 billion to make this happen.
Spending review headlines
The big news was that the economy is set to contract by 11.3% in 2020 – this is the largest fall for three centuries. However, it is forecast to grow by 5.5% next year, and by 6.6% in 2022, with output returning to pre-pandemic levels by the fourth quarter of that year, hence Sunak’s much quoted line that the UK’s “economic emergency has only just begun”.
Other key economic points included:
- Unemployment is set to reach 7.5% in spring 2021 (that’s 2.6 million in real terms)
- Borrowing will hit £394 billion in 2020, which is around 19% of the GDP – the highest ever in peacetime
- UK debt will be the equivalent of 91.9% of GDP in 2020, and will be 97.5% by 2025/26
The knock-on effect of all this is that in 2025, the economy will be around 3% smaller than predicted in the March Budget forecast. And all that doesn’t include Brexit. If the UK fails to agree a trade deal with the EU before the transition period ends, then the Office for Budget Responsibility estimates the economy could shrink a further 2.1% on top of any COVID impact.
Gloomy for sure… And we haven’t even mentioned IR35 yet.
What was said about IR35?
Surprisingly little, actually. In fact, IR35 only warranted a mention in a table in the spending review documents, where it was pointed out that delaying IR35 by one year until April 2021 had cost £740 million.
However, with Sunak mentioning that it will take around two years to get back to pre-crisis output, it’s safe to assume that there will be no further delays and that the IR35 legislative reforms will go ahead in April 2021 as planned as the government will want to use it as a way of recouping losses. This is especially compounded by the public sector pay freeze announced as part of the review, which have proved unpopular with large swathes of the public.
With the government pointing out that they need to make “tough decisions” in the wake of the pandemic, they are unlikely to grant a reprieve to the private sector when 1.3 million public sector workers will see their pay frozen.
Andy Vessey, Head of Tax at Kingsbridge, also had some insight on the spending review and what it could mean for IR35.
“Page 13 of the Spending Review reveals that the postponement of the off-payroll rules for the private sector by one year is predicted to cost the Treasury £1.09BN. £405M is expected to be raised in 2021/22 when the rules are set to be implemented. Unfortunately, for those that might still be hoping for a further delay in the off-payroll rules these figures tell a different story.”
“There is a black hole in the Treasury coffers that needs filling and the PAYE and NIC that the off-payroll rules will generate is going to help raise much needed revenue particularly if the Chancellor is going to put off introducing any major tax changes until a little later during the course of this government.”
Was it all doom and gloom?
Amazingly, the spending review wasn’t entirely gloom-ridden, with some glimpses of light at the end of the tunnel and possibilities for contractors.
The Chancellor announced a £4.6 billion package designed to help people back to work. This is made up of:
- £2.6 billion for the Restart scheme, designed to help people who have been out of work for 12 months or more by providing them with regular, intensive support that’s been tailored to their circumstances
- £1.6 billion for the Kickstart scheme, to subsidise jobs for young people
- £375 million skills package, including £138 million to deliver the Lifetime Skills Guarantee
While not specifically aimed at contractors, this ‘back to work’ package will be of help to contractors struggling in the aftermath of the pandemic.
Even more positively, the much vaunted £4 billion “levelling up fund” is largely ringfenced for upgrading local infrastructure such as highways. Funds like this for projects like these will undoubtedly mean jobs will be created for at least some contractors.
In a similar vein, a new UK infrastructure bank is also to be established in the North of England. Although based in the North, it will operate nationally and will be in place by Spring 2021, hoping to attract private investors to back infrastructure projects and replacing funding that has traditionally come from the European Investment Bank.
This investment will be good news for contractors working in planning, engineering and other sectors linked to infrastructure.
There’s no doubt in anyone’s mind that it’s been a tough year, and that there continues to be tough times ahead. However, it’ll be a relief to many that support is out there, and investment is coming and that that investment will begin to create opportunities for contractors.
It’s worth being aware, though, that the market is bound to be competitive, so if you’ve let your business insurance slide while work has been slow, now is the time to make sure it’s up to date and all ready to go in order to put yourself at the head of the pack.
Keeping your insurance live will also mean it can respond to any previous work. Give the Kingsbridge team a call on 01242 808740 to make sure you have everything you need.
