news Summer 2020
+ How will we pay for Covid-19? It is fair to say that the government has provided unprecedented financial support to help businesses and individuals cope with the pandemic. Critics may argue that some sections of society have missed out – the self-employed earning over £50,000 have received little or no support for example – but over 6.3million furloughed employees received 80 per cent of their salaries. The Treasury has stated that the cost of its coronavirus support had already reached £158.7billion even before the new measures announced this month which are expected to add a further £30billion. This leaves many of us to question how the government will recoup the billions of pounds Coronavirus has cost the economy. The answer could affect our daily lives for years to come and possibly the next generation too. According to the Office for Budget Responsibility (OBR), spending will increase by £88billion in the next year while tax receipts will fall by £130billion. This would be the highest budget deficit since World War II. In fact, the OBR’s figures were based on a three-month lockdown with economic activity returning to pre-pandemic levels straight away. In reality, this was widely optimistic with many businesses, retailers and leisure facilities still unable to open fully while social distancing measures remain in place. The economic impact of Covid-19 has so far resulted in the UK’s debt-to-GDP ratio breaking the 100 per cent mark for the first time since 1963. Medical Family Finance News Summer 2020
With such a large hole to fill, we expected Rishi Sunak’s first summer statement – a mini post-pandemic Budget at the start of July – to include several measures to claw back some of the government expenditure. Instead, the Chancellor introduced more schemes to encourage spending and support unemployment. He cut VAT from 20 per cent to 5 per cent for six months for the tourism and hospitality industry — including restaurants, pubs and cafés — at a cost of around £4billion. Next, Mr Sunak detailed a novel “eat out to help out” scheme which gives diners a 50 per cent discount for meals and non-alcoholic drinks in cafés and restaurants on certain weekdays in August. Mr Sunak said the UK economy had shrunk by 25 per cent in just two months – the same amount it grew in the previous 18 years. There had been growing speculation that the Chancellor could implement a ‘wealth tax’ to boost UK finances but as this has yet to be announced, many commentators believe some form of personal levy could be reviewed in the autumn statement later this year. Other possible measures include reducing tax relief on pensions, raising inheritance tax receipts or erasing the triple-lock on pensions which ensures they match inflation. As ever, your team at Medical Family Finance will be keeping an eye on government reforms in the months ahead to ensure we can navigate the best path for you. Your adviser will be considering your options and building these into your overall financial plan. We have been here for you during the difficult times of late and will still be here when the future challenges arise. Please do get in touch if you have any questions or need assistance.