Your Thoughts: The UK Autumn Budget and the Nation’s Expectations
From diesel tax penalties and calls to rule out a further rise in insurance premium tax, to housing ambitions and planning laws, UK Chancellor Philip Hammond has faced a lot of pressure this week, ahead of the announcement due tomorrow. Below Finance Monthly has heard from a number of source in the industry on what […]
From diesel tax penalties and calls to rule out a further rise in insurance premium tax, to housing ambitions and planning laws, UK Chancellor Philip Hammond has faced a lot of pressure this week, ahead of the announcement due tomorrow.
Below Finance Monthly has heard from a number of source in the industry on what they expect, predict and would like to see come from the announcement, in this week’s Your Thoughts.
Adam Chester, Head of Economics, Lloyds Bank Commercial Banking:
Tomorrow’s budget will have to strike a difficult balance. Improvements to the public finances had given some room to ease policy, but that will be squeezed when the Office for Budget Responsibility revises down its growth forecasts on Wednesday.
The commitment to reducing the so-called structural budget deficit to below two% of national income by 2020-21, gives us a framework to assess how much room there is for any giveaways.
At the March Budget, the structural deficit was forecast to undershoot the two% target by £26bn. It’s now set to fall £6-8bn short of the March forecast, mainly due to stronger-than-expected tax receipts.
However, the OBR warned it will dial down its productivity forecasts, and we estimate a 0.4% downward revision would increase the structural budget deficit by around £15-£20bn.
On top of this, new funds are being sought for areas including Northern Ireland, public sector pay and the NHS, which would likely mean breaching the two% cap.
However, we suspect any available wiggle room would be used to fund a modest fiscal giveaway in order to keep borrowing and debt projections on track.
Matthew Walters, Head of Consultancy & Data Services, LeasePlan UK:
Fleets have been subjected to a lot of change in 2017. April saw the introduction of a new Vehicle Excise Duty system and new rules for Optional Remuneration Arrangements. July saw the publication of the Air Quality Plan, with its promise of Clean Air Zones around the country. And now it’s the turn of the Chancellor’s first Autumn Budget.
This Budget cannot add to the uncertainty facing fleets and motorists. In fact, it should provide clarity. The Chancellor must take the opportunity to reveal the rates of Fuel Duty for next year, as well as the rates of Company Car Tax for 2021-22 – and preferably beyond.
We’d like to see the Chancellor maintaining the freeze on Fuel Duty rates for another year – or perhaps even cutting them for the first time since 2011.
In addition, the UK Government is working hard to encourage the uptake of Ultra Low Emission Vehicles (ULEVs). We will have to see what incentives the Chancellor has up his sleeve.
Stephen Ward, Director of strategy, the Council for Licensed Conveyancers (CLC):
An Englishman’s home may be his castle, but purchasing that castle, family home or two bed flat is an archaic process that needs to be updated. The conveyancing market has never been in more need of attention and next Wednesday’s autumn budget presents Philip Hammond with a real opportunity to let the genie out of the lamp and demonstrate a real commitment to innovation in the property transfer process. We have three wishes for next week, namely:
- The allocation of a small fund to drive R&D for wholly new approaches that the private sector can then deliver and export in finding solutions for improving the availability and comparability of information on price and service for consumers;
- Incentives for conveyancing providers to invest in new IT to provide better, more secure transactions;
- Help for the industry in preparing for outcome of DCLG work on improving the conveyancing process that will deliver solutions we can export.
James Hender, Partner, Saffery Champness:
Stagnating productivity means that any rabbits which the Chancellor wishes to pull out of his budget hat are not looking too healthy. OBR forecasts have eaten into the £26bn headroom the Chancellor thought he had, and though the expectation may be that Mr Hammond will spend to win some political capital, any tax gift will come at a price, and is likely to be subsidised at someone else’s expense.
The government is arguably stuck between a rock and a hard place on corporation tax. A fine balance will need to be struck between ensuring the UK demonstrates that it is open for global business, and being publicly seen to tackle any perception of big business not paying its way.
In this climate, the 2020 commitment to 17% Corporation Tax may be looked at again, and we can certainly expect rhetoric, if not concrete action, to further reinforce the government’s position in taking a central role on international tax transparency and anti-avoidance.
On appealing to younger voters: This is perhaps one of the most politically-charged Budgets of recent years, with many predicting that the Chancellor will use the occasion to try and appeal to a younger generation of votes. If Phillip Hammond is as bold as some have called for him to be, the implications of this political move on taxpayers could be significant.
Michael Marks, CEO, Smoothwall:
After Philip Hammond’s pledge in last year’s Autumn Statement to invest £1.9bn in cybersecurity, we can expect further funding (or at least reference) to this issue as the cybersecurity landscape heats up. Following a year that included the biggest cyberattack on the NHS and the Petya malware attack across the continent, cyber security needs to be an absolute priority for investment; without extra funding and protection, the Government risks undoing a lot of the hard work. So far, the near £2bn cyber windfall doesn’t seem to have had quite the desired impact.
Along with cyber security, I would like to see continued investment in the Enterprise Investment Scheme (EIS). It’s thought that the EIS investment may be reduced from 30% to 20%, thereby reducing entrepreneurial growth, and the UK could suffer consequently in the long term. As a country with a great track record of innovation, reducing investment in this scheme will have a detrimental impact on driving technology and business growth at a time when we need more people to ‘take that step’.
Stuart Weekes, Tax Partner, Crowe Clark Whitehill:
We would welcome a simplification of the rules and the removal of one of the two sets of Patent Box incentive rules as part of tomorrow’s announcements.
Very few companies are taking advantage of Patent Box incentives, which tax the profits from patented products at 10%, a nine-percentage point discount on the current 19% rate of tax. Many companies do not know about this and, for those that do, the complexity of the legislation has been a major barrier to making a claim. Once the UK exits the EU, will the government improve the benefit of the Patent Box, especially as the UK Corporation Tax rate will drop to 17%, making the margin for the Patent Box less attractive than it might otherwise be? Will this prompt a cut in the applicable Patent Box tax rate from 10% to 8%?
Chris Wood, CEO, Develop Training:
The UK Government has recently published an independent review concerning the increasing applications for artificial intelligence (AI). Its recommendations focus largely on the provision and development of training and education in academia and for master-level and PhD students. Support is recommended for organisations such as, and amongst other, the Royal Academy of Engineering, the Alan Turing Institute, and the Engineering and Physical Sciences Research Council. AI is likely however not only to influence academia but, over the next 10-30 years, affect almost all of the current activities we perform at work and at home.
The current skills shortage, felt most keenly in the utilities, construction and engineering sectors is the end-result of under-investment on the part of both government and industry over the last 30-40 years. It is inconceivable, and somewhat terrifying, that this will continue into the mid-21st century particularly against a backdrop of such monumental change. Therefore the 2017 budget should include provision not only for a greater understanding of AI from an academically-driven research perspective but also from that of every individual. Children, school-leavers and those who will be in employment for the next 30-40 years must be educated in how AI is likely to affect their jobs, careers and lives. To achieve this the government would do well to establish a national institute for the promotion, understanding and application of AI for the benefit of all.
Mark Palethorpe, CFO, Cox Powertrain:
There are Government incentives for small innovative businesses like ours, but the Patient Capital Review has promised to address the need to encourage long-term investment in step-change innovation. For some people, the investments required by smaller innovators are just too small to get excited about and, for others, investment levels are too big for the risk. You can get caught out whatever size you are. Results of the Patient Capital Review are expected to be announced as part of the Autumn Budget and we’d like to see more opportunities for investment in innovation. We’d welcome an increase in the cap that exists for tax relief investment schemes like EIS, which has worked really well for us but does limit the amount an individual company can invest.
Nigel Wilcock, Executive Director, the Institute of Economic Development:
For the good of the economy, in tomorrow’s announcement on the UK Autumn Budget we need clarity on the structures and budgets for elements of the Industrial Strategy; clarity on how Structural Funds will be replaced for regions and clarity on local authority funding – how the business rate retention mechanism and re-allocation system will work. Specifically, we are seeking commitments from the Chancellor to transport infrastructure that equalises expenditure per head between regions, greater recognition of the social care costs falling on local authorities and funding for state aid interventions for business. We also recognise that National Insurance contributions from employers need to be looked at – it is an important economic issue that variations in different types of employment contracts are allowing corporations to be avoiding contributions when the economy is at full employment. The tax take of the economy is increasingly disconnected from the level of activity.
Damian Kimmelman, CEO, DueDil:
The abnormally low level of interest rates could be weighing on productivity growth by allowing weak and highly indebted firms to survive for longer than they normally would, by alleviating the burden of servicing their debts. Better information is needed to identify these firms, understand their business and support those with potential.
We have seen the government put their full weight behind opening data initiatives, such as Open Defra, to huge effect. DueDil would like to see the government put their full weight behind Open Banking and ensure that all of the CMA 9 banks (and beyond) open up as much banking data as possible to stimulate innovation in financial services and put the UK at the fore-front of Open Banking globally.
The UKEF committee has pledged to continue supporting exports and export finance. More interestingly, they have pledged that they will digitalise and standardise the application and on boarding process for businesses applying for export financing. DueDil would like to see the government to fund a competition to build a solution that would support the digitalisation of UKEF, in order to ensure that SMEs can painlessly and efficiently access a market of export financing and to ensure the ongoing success of SMEs following Brexit.
William Newton, President & EMEA MD, WiredScore:
The UK has the largest digital economy of any G20 nation, but it is important that technological skills and innovation continue to be employed across a range of industries. The service sector, for example, currently accounts for the greatest share of hours worked at lower productivity levels in the UK. Therefore, digitising existing processes in this sector presents a massive opportunity to address this productivity concern.
If the Government is to enable increased productivity, it must ensure that the existing generation has the necessary skills to meet the demands of modern industry. We would like to see a policy on business rates incentives for organisations who can prove they are investing in their workforce’s digital skills.
Earlier this year, the Government announced its intention to support business rate reliefs on new 5G Mobile and full fibre broadband in the Telecommunications Infrastructure Bill. This proposal was received favourably by network providers, and we are now witnessing commitments such as that made by Openreach chair Mike McTighe confirming a plan to bring fibre to 10 million premises before Christmas. As such, the impact of business rates incentives has already been shown to be successful in spearheading improvements to the country’s digital infrastructure. We now need to see digital skills getting the same treatment.
Katharine Lindley, Chartered Financial Planner, EQ Investors:
It could be a tricky Budget for the Chancellor with limited legislative time due to ongoing focus on Brexit. But first one of current Parliament so generally Chancellors like to increase taxes and hope people forget by the next general election. However, minority government makes controversial changes difficult:
- As increase in NI failed, doubt he will risk anything major– perhaps consultation on earnings and taxation of different sources, salary, dividends, bonus etc. Looking at tax reform around ‘workers’ rights with Uber/Deliveroo recent cases and growth of self-employed and single person incorporations.
- Re-announce the dividend allowance cut to £2k from April 2018 – risk it is reduced even further or dividends tax rates aligned with income rates.
- Some positive news on housing and releasing land, possibly relief on stamp duty for first time buyers to increase volume of property transactions.
- Possibly further increases on insurance premium tax to gradually align with VAT rate.
- Patient capital review and what happens to VCT/EIS. Providers are raising monies earlier than usually, but recent press has suggested the picture could improve for genuine start-ups. We may see increased restrictions on less risky ventures and more relief for higher risk and longer committed capital.
- Pensions – hopefully very little. A few rumours about raiding tax relief for ‘older people’ and giving an increased break for ‘younger’. Would provide good headlines but extremely difficult/impractical to administer.
- VAT threshold (£85k) for business either reduce or remove the inflation linking
- Business rates some relief on the high increases.
Mark Tighe, CEO, Catax:
The UK’s reputation as a world leader in Research and Development is essential to the welfare of the British economy as the Brexit process gathers pace.
In order for these smaller firms to compete on the world stage they must be innovating – which can be expensive. As it stands, current R&D tax credit legislation allows SMEs to take the risk of developing a new product, service or process – without undue worry over the financial impact if it fails or is never used. This creates a fertile environment for businesses to experiment and grow and supports the economy moving forward.
Mrs May used her speech at the CBI earlier this month to call on business to innovate more. She’s absolutely right to do so. The key now is making sure Philip Hammond follows through and makes sure the Government properly supports the firms that do.
Ed Molyneux, CEO and co-founder, FreeAgent:
Assuming that the VAT threshold is lowered – as some reports are suggesting – a huge number of contractors, freelancers and micro-business owners would be faced with a significant new administrative and financial burden.
It’s very unfair to position freelancers and contractors as not being on a level playing field with those who are employed. These business owners have none of the employment rights or the security that employed workers have and there must be some recognition for that – unless the government wants to slow the growth of this very important part of the UK economy – representing more than 95% of the UK’s 5.5 million businesses.
We would like to see some positive news in the Budget for the micro-business sector; whether it’s new legislation to help them overcome the chronic issue of late payment, easier tax rules to navigate or simply recognition of the recent Taylor Review and the ongoing status of those working in the gig economy. Freelancers and micro-businesses play a huge role in our economy – it’s time the government started supporting them.
Steven Tebbutt, Tax Director, MHA MacIntyre Hudson:
There’s a growing expectation that Entrepreneurs’ Relief will be attacked as part of the Autumn Budget 2017, which will prove an unpopular move with business owners and aspiring entrepreneurs. Such a change might appeal however to younger generations who feel that wealthy business owners shouldn’t benefit from such a generous tax saving measure.
The Government has already introduced “anti-phoenixing” rules to combat business owners abusing the relief by extracting profits through liquidation, only to resume the same business, sometimes multiple times or even ad infinitum. However, there remains a number of planning opportunities which the Government could still look to limit or close.
For example, it would be relatively simple for the Government to amend the legislation so that qualifying conditions have to be met for, say, five years, rather than the current one year which generally applies. This would immediately make it more difficult to structure disposals in advance of a sale to secure Entrepreneurs’ Relief, as business owners looking to sell would have far less opportunity for eleventh hour planning. Such a change would help ensure that only business owners meeting the conditions over a substantial period qualify for relief.
Robert Gordon, CEO, Hitachi Capital UK:
We know that clean air is on the agenda, as we have seen the Government proactively move towards legislation aimed at tackling the UK’s pollution problem, therefore we fully expect that tomorrow’s announcement will include some form of punitive measure towards diesel vehicles.
Growing uncertainty from consumers around the future of diesel vehicles has already fuelled a rapid decline in the market, with October sales falling by nearly a third compared to last year and any additional deterrent could prove to be decisive, in encouraging a phasing out of diesel vehicles altogether.
If this happens, the Government must be prepared to outline how it plans to fund the infrastructure improvements required, to give businesses and consumers the confidence to make the transition to vehicles powered by alternative fuels at a faster pace than we have seen to date.
Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University:
The Chancellor is expected to follow an Office of Tax Simplification (OTS) recommendation to reduce the VAT threshold, currently £85.000, possibly as low as £25,000. This must look tempting since it could bring up to £2 billion into the government coffers, sucking 1.5 million business minnows into the VAT system. Depending on whether traders can pass the tax on to customers and who their customers are, this extra tax will be paid partly by firms and partly by households through higher charges for their plumbers, builders, taxis and hairdressers.
Quite apart from paying the tax, HMRC has estimated the cost per business of dealing with the VAT admin is £675 a year. Moreover, if there is no change to the exemption level for Making Tax Digital, currently set at the VAT threshold, from April 2019 those small businesses will also suddenly find themselves sucked into mandatory quarterly digital accounting.
By extending the VAT base, cutting the threshold narrowly skates around the Conservative Manifesto promise not to raise the level of VAT. And, no doubt, it will be dressed up as a tax avoidance measure aimed at traders operating in the informal economy. But make no mistake: this will be a stealthy and substantial tax rise.
Martin Ewings, Director of Specialist Markets, Experis:
As we await the Chancellor’s Autumn Budget with anticipation, the focus must be on driving growth in key areas and ensuring the long-term economic prospects of a post-Brexit Britain. Increased infrastructure spending is expected to be one of the pillars of the budget, injecting regions around the country with much-needed jobs and investment. But we must have the skills in place if the nation is to deliver on such projects, both now and in decades to come. The recent announcement of £21m to boost regional tech hubs around the country is a positive step, but more needs to be done if we are to close the ever-widening skills gap.
Digital investment will be an important component of this, and new technologies could hold the key. Philip Hammond is poised to focus on AI (£75m investment), electric cars (£440m investment) and 5G (£160m investment), while also pledging £76m to improving digital and construction skills more widely. With so many different priorities, it’s important not to lose sight of nurturing future talent. The Cyber Discovery programme is a great example of what needs to be done. The £20m government initiative, announced on Saturday, will aim to encourage and inspire 15-18-year-olds to enter the cyber security industry via a comprehensive curriculum. There will be three million unfilled jobs in cyber-security by 2021, but investing in programmes like this could go a long way to help ministers and businesses plug the UK skills gap, both now and in the future.
Craig Harman, Tax Specialist, Perrys Chartered Accountants:
Following the introduction of the help to buy ISA, first time buyers could once again be one of the winners from the budget as the chancellor is expected to announce changes to Stamp Duty Land Tax. This could include either a reduction in the rate for first time buyers or even a ‘holiday’ period providing a complete exemption for those able to benefit. It has even been suggested that there could be a fundamental overhaul by making the seller liable for Stamp Duty instead of the purchaser. This would benefit any individuals moving to a more valuable property as the liability would be based on the lower value of their current home.
Tax relief on pensions has been a bit of an easy target over the past few years with both the annual and lifetime allowance significantly reduced. It is likely that we will see a further cut in the tax relief available on funding for retirement. Some have even suggested a complete change to an ‘ISA’ like system, however this may be a step too far.
Individuals with significant dividend income have been penalised heavily over the past couple of years and this may be set to continue with many predicting either a cut in the tax-free dividend allowance or an increase in the tax rate.
Aziz Rahman, Founder, Rahman Ravelli:
The Paradise Papers have placed the issue of non-payment of tax back on the news agenda at a time when the Chancellor is announcing his tax priorities.
A large part of the Chancellor’s job is to assess and determine what taxation can be brought in from business. And in the current climate, everyone in business is under scrutiny to ensure they are paying what they should. This scrutiny can only increase if new or heavier taxes are announced tomorrow.
This may seem alarmist. But the Criminal Finances Act, which only came into effect two months ago, makes companies criminally liable if they fail to prevent tax evasion by anyone working for them; even if they were unaware it was happening. They can face unlimited penalties.
If businesses are to avoid prosecution, they must be able to show they had reasonable measures in place to prevent such wrongdoing. To ensure this is the case, they must review their practices and procedures to minimise risks.
This means ensuring staff are aware of the legislation regarding tax offences, having procedures in place for monitoring workplace activity and introducing procedures so that suspicions of wrongdoing can be reported in confidence.
The government is under huge pressure to tackle the non-payment of tax. At a time when the government is outlining its tax priorities, it would be foolish for those in business to fail to make sure their tax affairs are legal and above board.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!