The first Budget from the new Conservative majority government will be set to a backdrop of historic political events and an international health crisis that is strangling economic growth. So, will Wednesday’s Spring Statement go down in history as ‘the coronavirus Budget’, ‘the Brexit Budget’ or ‘the Boris Johnson Budget’? Upon reflection, it will probably be remembered for the influence all three has on its contents.

Newly appointed Chancellor, Rishi Sunak, will deliver the highly anticipated financial statement on Wednesday, following the shock resignation of his predecessor Sajid Javid last month. Has the Conservatives landslide election triumph provided Mr Sunak, who has only had four weeks in the job to prepare for the big day, with the platform he needs to implement a radical reform of taxes and public spending? Or will the coronavirus outbreak and post-Brexit uncertainty combine to derail his party’s plans?

In this article, we explore what cross-border businesses could expect from the first Budget in more than 40 years as a non-EU member state.

Protecting businesses against coronavirus

While it isn’t clear if the Budget will include provisions for a coronavirus fund, the Chancellor is expected to at least outline the economic impact so far. Looking further ahead, the outbreak came too late to be formally included in the Office for Budget Responsibility (OBR) forecasts. Despite this, the independent body should include commentary around the virus’s potential to damage the economic outlook and how long it might last.

In addition to providing the NHS with additional resources to combat the unfolding outbreak, Mr Sunak has said his team is working on ‘targeted’ measures to inoculate businesses from the virus. He has promised to give smaller businesses ‘short-term’ support to ride out the crisis, by providing a ‘bridge through a temporary period of difficulty so that they can emerge on the other side’. This includes ensuring they have time to pay bills and avoid facing bankruptcy due to a temporary downturn in business, at a time when the epidemic is chocking global supply chains.

Speaking after a recent COBRA meeting, Mr Sunak said: “We are well prepared for this global threat and, as the wider economic picture becomes clearer, we stand ready to announce further support where needed.”

Taxation

Mr Sunak is determined to stay true to his party’s election promises by acting on commitments made in the Conservatives manifesto, despite the challenging economic context. This wouldn’t be politics, however, without the odd false promise. For example, the Chancellor is set to scrap the planned cut to corporation tax from 19 per cent to 17 per cent that was promised by the previous regime; a move that is expected to raise £6billion for investment in the NHS. The tax, which has already been cut from 28 per cent to 19 per cent by the Conservatives since 2010, is one of the lowest levels in the Organisation for Economic Co-operation and Development – of which there are 36 member countries.

Mr Johnson, who announced the plan before the general election, promised that a majority Conservative government would still support UK businesses by “reducing the burden” of taxes on them, offering a package of measures worth £1bn. The plan includes a fundamental review of business rates, a cut in employers’ national insurance contributions and a 1 per cent increase in tax relief on buying and leasing new business premises. We don’t have to wait long to find out if the Conservatives will be true to their word.

How will the pound react?

The 2020 Budget was billed as a big bucks curtain-raiser to Boris Johnson’s term at the country’s helm, which would provide a fiscal boost to the economy, and therefore the pound. But will the rapid spread of the coronavirus and its subsequent impact on economic growth turn it into a disaster relief statement instead?

If the chancellor sticks to the fiscal rules set out in the Conservative manifesto, which was built on a promise to end austerity, the pound is likely to find some much-needed support. The party used its declaration of intentions to state that it would not borrow to fund day-to-day spending and would reduce debt within five years’.

However, if the coronavirus forces Mr Sunak to reassess his plans and limit his ambitions, the repercussions could be significant. The OBR was expected to significantly downgrade Britain’s growth prospects prior to the coronavirus hit, as disappointing global growth and Brexit uncertainty held back activity. So, it’s no surprise the outlook is even worse now.

Take the US for example; the Federal Reserve recently slashed interest rates to between 1% and 1.25% in an unscheduled move. This was the first time it has cut rates at an emergency meeting since the global financial crisis in 2008 to shield the economy from the coronavirus. The dollar subsequently plummeted in value and is on high alert for signs of further cuts. Expectations that the Bank of England will follow suit have been mounting and could be given more fuel by the contents of the Budget statement. This move could weigh on the pound, driving up the cost of importing and exporting goods to and from the UK, as well as making international payments.

By utilising effective FX products and tools such as a Forward Contract, you can secure a favourable exchange rate to help prevent the volatile value of GBP, or other currencies, from affecting the cost of your business international payments. FX providers can provide these services, along with competitive exchange rates, to help you maximise your profits by reducing the cost of your international payments.

RationalFX is one of Europe’s leading foreign exchange providers, helping businesses and individuals to save time and money on their international currency transfers. We have helped over 5,000 companies, from SMEs to multinational organisations, to mitigate against exchange rate fluctuations and market risk. Working closely with your team, we create tailored FX currency strategies to meet all your cross-border payment needs, providing you with the most cost-effective corporate pay solutions. 

Speak to a currency specialist to find out how much you can save on your currency transfers and secure your exchange rate before the Budget Announcement. Call (+44) 020 7220 8182, email [email protected], or open a free account with us.