Following the autumn budget announcement yetrerday, Finance Monthly has heard the initial reactions from experts at top accountancy firm Crowe UK. From Corporate Finance to Small Businesses and IR35, there are tax implications for many…
Matteo Timpani, Corporate Finance partner:
Entrepreneur’s Relief (ER) remains an attractive, and essential, tax incentive that drives UK innovation and entrepreneurship. That said, it is disappointing to see amendments made to the relief which may impact the ability of certain individuals to benefit from it in the short term. There will be a number of mergers and acquisitions (M&A) transactions currently in progress which will likely be put on hold to ensure participants are able to qualify for Entrepreneur’s Relief in due course.
This change only emphasises the importance of business owners taking specialist advice, and being prepared, long in advance of the time they are considering succession and exiting their business. We await the specific details of when this change will be implemented but anyone who is considering selling their business in the next 12 months, and is unsure if they, their management team and/or other shareholders will qualify for ER, should seek advice now and consider immediately the implications of this change.
Tom Elliott, Head of Private Clients:
It is not surprising to see The Chancellor reaffirm the government's commitment to Entrepreneurs' Relief, albeit with tighter conditions (qualifying period doubled to two years). However, it might have been more effective if the minimum shareholding requirement was abolished altogether – this would incentivise all employee shareholders and not just the C-suite.
The changes to Capital Gains Tax (CGT) reliefs for the sale of main residences look like an attempt at modernisation. Lettings relief has changed so as not to apply to the AirBnB model - relief applies only for shared occupation. The shortening of the ‘period of absence’ from 18 to nine months for Principal Private Residence relief will need to be monitored closely, as any slowdown in the housing market (where it may take more than nine months to sell) may result in an overall reversal.
Rebecca Durrant, Private Clients partner:
It was pleasing to see the personal allowance and higher rate tax brackets raised a year early, but it will be interesting to see whether the Chancellor treats this as a ceiling. Rates could now be frozen for following years, which would turn the tax cut into a hike very quickly. In the mid to long-term, this may not protect the inflationary impact that a no deal Brexit may have.
Phil Smithyes, Managing Director, Crowe Financial Planning
The move to raise the personal tax allowance to £12,500 and raise the higher rate tax threshold to £50,000 from 6 April next year is a move that should be welcomed by most pensioners, making their pension savings go that much further.
Under the pensions ‘freedom and flexibility’ rules, individuals could take up to £16,666 each tax year from their pension fund before they begin paying income tax. This is achieved through a combination of 25% tax-free cash (£4,166) and the new £12,500 personal tax allowance. Careful planning will help pensioners money go that further and minimise their liabilities to tax in retirement.
Susan Ball, Head of Employers Advisory Services:
In April 2017, the government reformed the IR35 rules for engagements in the public sector and early indications are that this has resulted in an increase in compliance within the public sector. This will now be replicated for the private sector, but a reasonable implementation period is vital so the effective date of 2020, and the fact the rules will only be extended to large and medium sized private businesses, are both sensible steps. The Chancellor clearly took on board the feedback from the consultation process over the summer. Engagers should start planning now based on the experience of the public sector in order to have an effective procedure in place for the start date of April 2020.
Laurence Field, Corporate Tax partner:
The Chancellor's statement was made against a background of political uncertainty, mixed economic signals and an increasingly protectionist agenda from many of our trading partners. Tax is one of the most politically high profile things a government can do, and this was one of the most political budgets a Chancellor has had to deliver for decades.
The UK doesn't raise enough tax to keep providing public services at the current level, especially given the aging demographic. A tax system that raises more tax will need to be more efficient, perceived to be more fair and find new 'pockets' of wealth or bad behaviour that can be taxed without political risk.
An autumn budget also has the advantage of kicking the can down the road given that the majority of changes will only kick in from April next year if not later. However, this is the first glimpse we have of the type of post Brexit fiscal landscape the government wants to create.
The announcement of a potential digital services tax (DST) makes sense. Global companies need to be seen to be paying their 'fair share'. They don't have votes, so are an easy target. Playing tough with the digital services tax is politically attractive even if this causes conflicts with other tax jurisdictions. It is unlikely such measures will find much opposition in Parliament given the ground has been well prepared. How our trading partners (and particularly the US) react will be the real challenge. Retaliatory measures will not help the British economy. Therefore by outlining a timetable to introduce measures in 2020 he has provided cover for trying to get international agreement. Talking tough, but deferring action makes other parts of the Budget more palatable.
Elsewhere, plastics have found themselves in the environmental firing line and it was an easy, and politically popular decision, to try and find ways of taxing its use. Requiring more usage of recycled plastics is a way of stimulating that industry while being seen to be tough on pollution. The challenge with all sin taxes is that if they are too effective, the source of revenue will dry up. The damage that plastics can do is all too obvious, the Chancellor is no doubt sincere in his desire to reduce our use, but would no doubt be grateful if industry doesn't take action too quickly.
Following the Chancellor’s promise this month to ensure giant technology companies pay a fairer portion of tax, Chris Denning, tax partner at MHA MacIntyre Hudson, argues low tax rates for multinationals are a key fiscal tool to encourage investment into the UK. We’ll have to see how this pans out in the autumn budget next week.
Philip Hammond may have impressed the Tory conference by threatening to “go it alone” with a digital sales tax but in practice there will be a strong reluctance to take unilateral action as it could damage the UK’s economic and fiscal competitiveness. HM Treasury clearly stated in its updated position paper of March 2018 that the preferred solution for the UK needs to sit within the international corporate tax framework.
The constant negative focus on the level of corporation tax multinationals pay in the UK fails to account for the fact that the UK’s low rate is a hook for multinationals to locate here, and means they employ thousands of people as a result. The full benefits to the UK economy don’t show up in corporation tax statistics, and people must remember they don’t reflect the full story.
Amazon’s 2017 results for example prompted much furore, but indicated that the company paid more tax to the UK exchequer than in the previous year. Headcount went up significantly, resulting in a significant increase in pay-as-you-earn tax (PAYE) and national insurance contributions (NIC).While companies have a “moral obligation” to pay the right amount of tax they are also still obliged to create shareholder value which directly benefits thousands of individuals whose pension funds will be heavily invested in these stocks.
The Chancellor also needs to consider what defines the “digital economy” as opposed to the “digitalisation of the economy”, which impacts every business. The UK Government sees business models that profit from user participation, such as social networks, search engines and intermediation platforms as the targets for reform and not online content providers, e-tailers or software/cloud service providers. This is on the basis that remote selling cross border is not unique to “digital businesses”. This is a significant departure from the EU’s proposed Directive where remote content sellers and service providers are targeted. Going it alone is only likely to muddy the waters further.
Yesterday saw Chancellor Phillip Hammond deliver his second budget. While the abolition of Stamp Duty, several tax revisions, freezes on several duties, increased investment in AI and Technology and a £3 billion investment into the NHS all came as welcome additions they could not prevent a sharp drop in the UK Growth Forecast following the budget.
So with many experts labelling it a ‘make or break’ moment for Hammond and a somewhat beleaguered Government, we spoke to the industry experts to see what the Autumn budget really means for the Financial Sector in a special extended Your Thoughts: Autumn Budget 2017
Choose your sector below or scroll through to read all the insight.
Abe Smith, CEO and Founder at Dealflo
London has been a world-leading financial centre since the 19th century, but low growth forecasts and the lack of clarity around Brexit are unsettling for businesses. The Chancellor has had to work hard to ensure that the UK remains an attractive place to invest and innovate post-Brexit. The new National Investment Fund means that even after Brexit, the UK will remain a hub for FinTech innovation and will attract fast-growing tech companies.
Niels Turfboer, Managing Director of UK & Benelux, Spotcap:
The FinTech industry is going from strength to strength and the UK Government can play an important part in enabling FinTechs to continue to thrive.
We therefore welcome Philip Hammond’s promise to invest over £500m in numerous technology initiatives, including artificial intelligence and regulatory innovation, as well as unlock over £20bn of new investment in UK scale-up businesses.
With this assurance, the government has shown a strong commitment to the FinTech sector, which will hopefully help tech companies all around the UK to flourish and grow.
The reality is that it is not the scientific development of AI that will be game-changing in the next few years, but instead the more prosaic, practical application of AI across many different sectors.
While AI is too often associated with self-driving cars and robots, the truth is the most significant AI applications that are of most significance to businesses, are actually the least visually exciting. AI that improves decision-making, optimises existing processes and delivers more accurate demand prediction will boost productivity far more powerfully than in all sectors.
But it’s not just productivity that will be significantly impacted – business revenue will also benefit. The beauty of AI lies in its ability to be applied with no capital investments – making it an affordable innovation for businesses to adopt. Unlike what is commonly thought, applying AI does not require infrastructure changes – in many processes cases we already have automated process control, so adding AI on top would require no investment at all. Instead, companies will see ROI within just a few months.
Martin Port, Founder and CEO BigChange:
We welcome this announcement and support for tech businesses from the Chancellor. Financial backing and stability is a huge hurdle facing all start-ups, so I am pleased to see the government pledge more than £20 billion of new investment. I just hope this funding is easy to access and readily available for those who need it, rather than being hidden among reams of red tape.
Leon Deakin, Partner in the technology team at Coffin Mew:
As a firm with a growing technology sector and client base in this area we are obviously delighted to see specific investment in the technology sector, particularly in AI and driverless vehicles.
Doom mongers have long been predicting that the UK and its tech hubs will be hit hard by Brexit and there have been numerous reports of rival cities within the EU which have sought to position themselves as alternative options. However, we are yet to see this materialise and incentives and commitments such as those announced by the Chancellor in these innovative but essential areas have to be great news for the economy, the sector and those who advise businesses in it.
Of course, creating the next unicorn is no easy task but a serious level of investment of the magnitude announced should at least ensure those businesses with promise have the best chance to scale up even if they don’t reach the $1billion level. Likewise, there is little point developing these new technologies if the infrastructure and support is then not there to utilise them properly
Matthew Adam, Chief Executive Officer of We Are Digital:
With the UK economy now expected to grow by 1.5% in 2017, a downgrade from the 2% forecast made in March, coupled with the challenges of Brexit, the need for the UK to sit at the forefront of digital skills and inclusion is more pressing than ever. We need to be able to grasp, with both hands, the digital opportunities that present themselves to us in order to make us a true global digital force.
The reality is that we simply cannot afford not to. Independent analysis shows that getting the UK online and understanding how to use digital tools could add between £63 billion - £92 billion to UK Plc’s annual GDP. Indeed, it is my belief that economies which focus strongly on getting its citizens online are also more productive.
The Chancellor has said that a new high-tech business is founded in the UK every hour, which he wants to increase to every half hour. It is imperative we support this growth through the announced £500m investment in artificial intelligence, to 5G and full-fibre broadband. However, to bridge the need for the 1.2 million new technical and digitally skilled people which are required by 2022, we must create and support retraining opportunities across society to make the UK truly digital.
Technology improvements are causing widespread changes in every market and the public sector should be no exception, especially as it often faces the biggest social problems to solve. I’m glad the government is waking up to the fact that the latest technological advances don’t need to be assigned only to the private sector, but can do a lot of good to the community at large. We know from our direct work with the Home Office that every government and council department is moving its processes online. Whether it’s chatbots to automate processes, or solving how people engage with Universal Credit, there is so much we can do here with ‘Gov -tech’
I therefore welcome the Chancellor’s digital announcements today and consider this budget as not so much a leap in the right digital direction, but more a necessary conservative step.
Owain Walters, CEO of Frontierpay:
The Chancellor’s efforts to win younger voters from Labour by abolishing stamp relief for first-time buyers on homes up to £300,000, and on the first £300,000 of properties up to £500,000, come as no surprise. The potential for such an announcement has been a hot media topic in recent weeks and as such, we don’t expect to see any significant impact on the value of the pound.
“In the wake of this Budget, any real movement from the pound will be caused either by developments in the Brexit negotiations or the potential for a further interest rate rise. I would therefore advise any businesses that want to stay on top of turbulence in the currency markets to keep a close eye on inflation data.
Markus Kuger, Senior Economist, Dun & Bradstreet
It’s not surprising that the Chancellor opened this year’s statement with a focus on Brexit; even as businesses absorb the implications of the Budget, they have a close eye to the ongoing negotiations and any likely trade agreement, which is likely to profoundly impact their future. The government’s move to provide a £3bn fund in the event of a no-deal outcome is designed to increase business confidence. In the meantime the business environment remains challenging, and Dun & Bradstreet forecasts that real GDP growth in 2018 will slow to 1.3% (from 1.8% in 2016). Businesses should continue to follow the Brexit negotiations closely and consider that operating conditions could change dramatically over the next 18 months as the Brexit settlement is clarified.”
Damian Kimmelman, CEO of Duedil
We welcome the government’s announcement that the Enterprise Investment Schemes’ (EIS) investment limit, for knowledge intensive scale-ups has been doubled.
The EIS has been great for attracting investment for small businesses, however we need to ensure investment through the scheme is not being used for capital preservation purposes, but instead to encourage the growth of companies.
The key to increasing investment in ‘higher risk’ growth companies through the EIS scheme, is to eliminate information friction. With more data, investors can price risk effectively, so they can lend to support the small businesses forming the backbone of the economy, driving growth, and creating jobs.
Lee Wild, Head of Equity Strategy at Interactive Investor:
This budget was always going to be especially tricky for the chancellor. Hitting fiscal targets amid wide divisions over Brexit, while also spending more on populist policies to distract voters from Conservative party infighting and dysfunctional cabinet, was a big ask. Hammond wasn’t fibbing when he promised a balanced budget. Once tax giveaways, downgrades to growth forecasts, billions more for the NHS and the rest are put through the mincer, both the FTSE 100 and sterling are unchanged.
Given Britain’s housing crisis was an obvious target for the chancellor, he really needed something substantial to make his aim of 300,000 new homes built every year anything more than a pipe dream. Committing to at least £44 billion of capital funding, loans and guarantees to support the housing market will go a long way to achieving the chancellor’s ambitious target. Abolishing stamp duty for first-time buyer purchases up to £300,000 is a tiny saving, however, and buyers, especially in London, will still require a huge deposit to get a foot on the housing ladder.
The market hung on Hammond’s every word, causing a comical yo-yo effect as the chancellor slowly revealed his strategy. A threat to use compulsory purchase powers where builders are believed to be holding land for commercial reasons, could cause sleepless nights.
Overall, Hammond’s ideas are sound, but probably not enough of a catalyst to get sector share prices rising significantly near-term, given mixed results in the run-up to this budget.
Mihir Kapadia – CEO and Founder of Sun Global Investments:
The Autumn budget statement from Chancellor Phillip Hammond was as expected, with a few pleasant surprises. While Mr Hammond set out his policy proposals with a "vision for post-Brexit Britain", he also acknowledged that his Budget was "about much more than Brexit". With the Conservatives struggling in the polls, the Chancellor was under pressure to regain support for his party, which is currently in a fragile coalition.
The expected announcements include the decision to abolish stamp duty for first time buyers on properties up to £300,000, addressing the housing crisis, an immediate injection of £3.75 billion into the NHS, investments into infrastructure (transport and network), freezing duty on fuel, alcohol and air travel, and finally a Brexit contingency budget of £3 billion.
While today’s budget was populist and aimed at the electorate, it has to be noted that the Office for Budget Responsibility (OBR) sharply downgraded both Britain's productivity and growth forecasts, as well as its business investment forecasts, meaning the UK's finances look set to worsen over the coming years. This does not factor the possibility of a Brexit-related downturn or a wider global recession, which has already been seen as overdue by many forecasters.
We expect the abolition of stamp duty for first time buyers on properties up to £300,000 will draw extra attention and headlines from much of today’s announcements. It is vital that we acknowledge the warnings from the Office for Budget Responsibility.
Angus Dent, CEO, ArchOver:
The UK’s productivity growth continues to decrease and we’re looking in the wrong place for answers. It’s not just a case of everyone working a bit harder. Investment in public infrastructure and fiscal policy will be the defining factors that help the UK catch up, while real growth will come from our SME sector.
Britain is known as a nation of entrepreneurs. Yet we’re in real danger of not giving our SMEs the support they need to thrive. We need a bottom-up approach where small businesses with bright ideas have access to the finance and advice they need to grow. Only then will we have the firm economic foundation we need to build our productivity post-Brexit.
The expansion of the National Investment Fund in today’s Budget is a good start, but too many SMEs still have to pay their way with personal savings or put their houses on the line as security if they turn to the big banks for help.
We need to inspire a new culture. We know there is an army of willing investors out there who want to support British business - lending across P2P platforms is on course to rise by 20 per cent by the end of this year according to data from 4thWay.
However, we need to raise awareness among SMEs of the different options available to help them finance their growth. SMEs need to take control of their own destiny. With the right finance in place, they can drive the whole country forward to new heights of productivity. We can’t just leave it to government – small businesses must be given the power and the cash to fulfil their potential.
Paul Falvey, tax partner at BDO:
It’s clear that the headline grabbing news revolved around the Chancellor’s decision to abolish stamp duty for first time buyers on properties purchased up to 300,000, at a cost of £600m a year to the tax man. Whilst this is important for people getting on the property ladder, there were other key assertions.
Firstly, HMRC will start to charge more tax on royalties relating to UK sales when those royalties are paid to a low tax jurisdiction. Although this is only set to raise approximately £200m a year, it sets a precedent that tax avoidance will continue to be on the governments agenda. Implementing the OECD policies is a tactic we expected.
Furthermore, companies will pay additional tax on the increase in value of their capital assets from January 2018. The expected abolition of indexation allowance will mean that, despite falling tax rates, companies will be taxed on higher profits. By 2022/2023 this is expected to raise over £525m.
62% of the businesses we polled before the Budget said they will be willing to pay more taxes in return for a simpler system. Yet, once again, the government has done nothing to tackle the issue of tax complexity. It is a huge obstacle to growth and businesses will be disappointed that there was no commitment to setting out a coherent tax strategy.
Craig Harman is a Tax Specialist at Perrys Chartered Accountants:
Although it was widely anticipated beforehand, the only real rabbit out of the hat moment for the Chancellor was confirming the abolishment of stamp duty for first time buyers. This equates to quite a generous tax incentive for those able to benefit resulting in a £5,000 saving on a £300,000 property purchase.
The Chancellor has also stood by his previous promises, by raising the personal allowance to £11,850, and the higher rate threshold to £43,650. This is in line with the commitment to raise them to £12,500 and £50,000 respectively by the end of parliament.
Small business owners will be pleased to note that speculation regarding a decrease in the VAT registration threshold did not come to fruition. It was anticipated the Chancellor would look to bring the UK in line with other EU countries, however this will be consulted on instead and may result in changes over the next couple of years. Any decrease in the threshold could place a significant tax and compliance burden on the smallest businesses.
Ed Molyneux, CEO and co-founder of FreeAgent
I don’t believe that this is a particularly positive Budget for the micro-business sector. Rather than actually offering real support or meaningful legislation to people running their own businesses in Britain, the Chancellor has simply kept the status quo.
While it’s pleasing to see that the VAT threshold has not been lowered - which would have added a significant new administrative burden to millions of UK business owners - this is hardly cause for celebration. Neither is the exemption of ‘white van men’ from diesel charges, which is the very least that the Government could have done to protect the country’s army of self-employed tradespeople.
It’s also disappointing that there are still a number of issues including digital tax that have not been expanded in this Budget. I would have preferred to see the Chancellor provide clarity on those issues, as well as introducing new legislation to curb the culture of late payment that is plaguing the micro-business sector and further simplifying National Insurance, VAT and other business taxes.
Rob Marchant, Partner, Crowe Clark Whitehill
The Chancellor announced that the VAT registration threshold will not be changed for the next two years while a review is carried out of the implications of changing this (either up or down).
Having a high threshold is often regarded as creating a ‘cliff edge’ for businesses that grow to the point of crossing that line. However, keeping a significant number of small businesses away from the obligations of being VAT registered allows them to focus on running their operations without additional worry. Many small businesses will welcome the retention of the threshold.
The consultation should look at ways to help smooth the effect of the “cliff edge”, while continuing to reduce administrative obligations for small businesses.
Jane Mackay, Head of Tax, Crowe Clark Whitehill
The tax avoidance debate has centred around large multinationals and their corporate tax bills. High profile cases have eroded public trust in how we tax companies. By maintaining the UK’s low corporate tax rate, currently 19%, and reducing it to 17% from 2020, the Chancellor accepts that corporate tax is only of limited relevance in our UK economy. It accounted for around just 7% of UK tax revenues last year.
The Budget announces changes to extend the scope of UK withholding taxes to tax royalty payments in connection with UK sales, even if there is no UK taxable presence. There will be computational and reporting challenges, but this measure may pacify those who feel the UK is not getting enough tax from international digital corporates which generate substantial sales revenues from the UK
Hitesh Dodhi,Superintendent Pharmacist at PharmacyOutlet.co.uk
With a focus on Brexit, housing and investment into digital infrastructure, it was disappointing to see a many healthcare issues overlooked in today’s Budget. The additional £2.8 billion of funding for the NHS in 2018-19 is a undoubtedly a step in the right direction, but it falls short of the extra £4 billion NHS chief executive Simon Stevens says the organisation requires.
What’s more, the Budget lacked substance and specifics; it did little to progress digitalisation in the healthcare sector – an absolute must – while the opportunity to promote pharmacy to play a greater role in delivering front-line services to alleviate the burden on GPs and hospitals was also overlooked. These are both items that should feature prominently on the Government’s health agenda, but the Chancellor did little to address either in today’s announcement.
Jeremy Cooper, Head of Retail Crowe Clark Whitehill:
There is little in this Budget to bring cheer to the struggling retail sector.
The changes to bring future increases in business rates into line with the Consumer Price Index in 2018, two years earlier than previously proposed, is welcome, but is it enough for hard-stretched shop owners?
The National Living Wage will increase for workers of all ages, including apprentices, which is excellent news for lower paid employees. Retailers would not begrudge them this increase, but retail tends to have a higher proportion of lower paid employees and the impact on store profitability and hurdle rates for new stores should not be underestimated.
There is more positive news for DIY, home furnishings and related retailers in the form of the abolition of Stamp Duty Land Tax (SDLT) for first time house buyers. This should help stimulate the first time buyer market and free up the wider housing market which in turn should boost retail sales for DIY and home furnishings retailers from buyers decorating and furnishing their new homes.
Paresh Raja, CEO of bridging specialist MFS
After an underwhelming Spring Budget that completely overlooked the property market, this time around the Chancellor has at least announced some reforms that will benefit homebuyers. While stamp duty has been cut for first-time homebuyers, the amount of money this will save prospective buyers is in reality still limited – the average first-time buyer spends £200,000 on a property; abolishing stamp duty for them will save them just £1,500.
Importantly, homeowners looking to upgrade to another property still face the heavy financial burden of stamp duty, which will ultimately deter them from moving house. I fear this will have significant implications in the longer term, decreasing the number of people moving from their first property purchase, and thereby reducing the number of properties available for first-time homebuyers, and reducing movement in the market as a whole.
Fareed Nabir, CEO and founder of LetBritain
“Having acknowledged the growing number of Brits stuck in rental accommodation, it’s pleasing to see the Government deliver a Budget heavily geared towards the lettings market. With 7.2 million households likely to be in the rental market by 2025, the Chancellor has seized the opportunity to continue with the recent wave of reforms by offering tax incentives for landlords guaranteeing tenancies of at least 12 months. This should hopefully have a trickle-down effect on rental prices, offering more financial manoeuvrability for tenants saving to buy their own house – something the Chancellor has made easier – while also providing additional security for renters.”
Richard Godmon, tax partner at Menzies LLP
We should to see house price increases almost immediately on the back of this announcement. His commitment to building an extra 300,000 homes a year is not going to happen until 2020s, so this measure could lead to market overheating in the meantime.
The removal of indexation allowance will come as a further blow to buy-to-let landlords, many of whom have been transferring their portfolios into companies since interest the restriction rules were introduced. This will mean paying more tax on the future sale of properties.
Now that all sales of UK investment property by non-residents after April 2019 will be subject to UK tax, it effectively means one of the incentives to invest in UK property by non-residents has been removed.
Jason Harris-Cohen, founder of Open Property Group
There was a lot of speculation before the Budget that the Chancellor would reduce or temporarily suspend stamp duty for first-time buyers, in a bid to help young people get on the property ladder. What we got was the complete abolishment of the tax on first-time house purchases of up to £300,000, effective from today, and in London and other expensive areas, the first £300,000 of the cost of a £500,000 purchase by first-time buyers will be exempt from stamp duty. This is arguably the biggest talking point of today’s announcement and as the Chancellor says will go a long was to "reviving the dream of home ownership".
It was equally refreshing to hear that the Government is committed to increasing the housing supply by boosting construction skills and they envisage building 300,000 net additional homes a year on average by the mid-2020s. However, I was surprised that local authorities will be able to charge 100% premium on council tax on empty properties, though I appreciate that this is a further stimulus to free up properties sitting empty and bring them back to the open market to increase supply. Conversely this could result in falling house prices if there is further supply and lower demand following a period of political and economic uncertainty.
What was disappointing, however, was the absence of any mention to reverse the stamp duty change that were introduced in 2016 for buy-to-let and second homes, which is currently deterring people from investing in the private rented sector. The longer it is around the more of a knock on effect it will have on the growing homelessness crisis, a problem the Government plans to eliminate by 2027 - a bold statement from Mr Hammond!
We’d love to hear more of Your Thoughts on Phillip Hammond’s Autumn Budget. Will it benefit Britain and will the reduced growth forecasts have an impact? Let us know by commenting below.
In light of the UK’s Chancellor Philip Hammond’s Autumn Statement today, where he vowed to make the UK economy "resilient" in its exit from the EU, and noted an expected economy of higher borrowing and slower growth, Finance Monthly has heard from several sources who have given their opinions and comments on the Chancellor’s announcements. The comments below range regarding the productivity investment fund, tax free personal allowance, and the new NS&I savings bond, to the fintech sector, economic forecast, IR35 tax legislation, and general funding in infrastructure, R&D and more.
You can read about the key points delivered in Hammond’s Autumn Statement here.
CEO and Co-Founder of MoneyFarm, Giovanni Daprà:
Tax free personal allowance
By raising the tax free personal allowance and higher rate threshold, the government is providing Brits a terrific opportunity to save and invest more money. By 2020 when these changes are in full effect, people earning £30,000 will have close to an additional £300 in their purse each year while those earning £50,000 will be as much as £1,700 better off. Investing this money for the future, as it is earned, is an incredibly easy way to grow wealth over time.
News savings bond
The new savings bond announced today is a reminder from the government that interest rates are low so Brits need to consider an alternative to cash savings. Chancellor Hammond has provided a potential solution in terms of capital preservation – however a 3 year term at 2.2% will tie up money. Some expectations suggest inflation may shoot above the target 2% during that time frame, in which case locking money into this bond may hinder wealth growth.
This is one option but each individual needs to look at their personal circumstance and financial goals to see if a savings bond is a good solution for them. There are other alternatives to cash savings in the investment market, the growth of robo-advice has helped make this more affordable.
Kerim Derhalli, CEO and Founder of invstr:
Much has been made of the recent dip in venture funding within fintech, but we’re simply observing the typical cycle of an innovative environment. The fintech boom has seen rise to many impressive products, but also a large quantity of lower level pretenders who will, naturally, fall by the wayside. Venture capitalists have now reached a point where only the best ideas with real longevity will find funding.
The key for foreign investors looking to invest in the booming UK fintech scene is consistency. By essentially maintaining the status quo in today’s statement, Mr Hammond has gone a way to restoring calmer waters following the tidal wave of concern following Brexit and Donald Trump’s election. The reality is that, despite various forecasts, no one really knows what Brexit means so businesses will look to reduce their own volatility until details emerge.
The City is going to remain the hub of finance and fintech, irrespective of Brexit. The likes of Barclays and HSBC have already said as much. If a fintech start-up wants to succeed it needs to be where it’s at – which is the UK. For now, the outlook doesn’t look too bad.
Markus Kuger, Senior Economist at Dun & Bradstreet:
In the UK government’s first major economic statement since the shock Brexit vote, Chancellor of the Exchequer Phillip Hammond has announced a series of new measures designed to alleviate the economic pressures facing businesses in the UK. Firms looking to combat the continued slowdown of business growth and navigate fluctuating global markets should turn to data as the key to unlocking smart growth and mitigating risks.
A bleak forecast was expected from the UK government, and similarities with the US, following the surprise ascension to power of Donald Trump, won’t go unnoticed in the globalised business world. It’s also important to note that the long-term impact of Brexit is yet to be felt, as Article 50 is only likely to be invoked in Q1 of next year.
With levels of uncertainty remaining very high, Dun & Bradstreet is maintaining its ‘deteriorating’ outlook for the UK’s country risk rating. The two downgrades we have made to the UK’s rating since the referendum make the UK the worst performing economy in 2016, in terms of rating changes. In this light, we remind companies that it’s crucial to carefully assess growth opportunities, while preparing for the far-reaching negative implications of Brexit.
Geoff Smith, Managing Director of Experis UK & Ireland:
In response to the £23bn Productivity Investment Fund
It’s pleasing to see the Government pledge billions of pounds worth of investment into the tech and science sectors in a bid to create more highly-skilled and better-paid jobs. Despite high employment levels in the UK, productivity remains low, part of which is down to the rise in low-paid, low-skilled jobs, following the economic crisis, so it’s encouraging to see the Chancellor attempt to turn things around.
However, if we’re to see an improvement in wages and living conditions, it’s vital that we upskill the tech sector as quickly as possible. Organisations are struggling to find the right talent, and as a result, demand and remuneration for IT professionals continue to grow, with cloud, IT security and mobile skills most in demand, according to our recent Tech Cities Job Watch research.
Upskilling will be vital to success for businesses that want to retain their best talent. By offering the right training and development opportunities, organisations can support their employees in learning the latest skills as these evolve. This needn’t be a complicated or expensive process – a lot of the skills that IT professionals already have are easily transferrable.
To take advantage of the Government’s funding boost, businesses need to think about building their optimum teams for the future. We work closely with our customers to ensure they have a long-term workforce solution in place when it comes to anticipating what skills will be needed three to five years from now, and the IT know-how required to deliver business success.
In response to the changes to IR35 tax legislation
While HMRC’s intentions to amend existing IR35 legislation in a bid to crack down on tax avoidance should be lauded, we’re concerned about the impact that the change in regulation will have on the IT sector. In an industry where organisations are already struggling to find the right talent, there is a serious risk of ‘brain drain’, whereby projects could be ground to a halt until they find individuals willing and able to work under the new regulations. In fact, we wouldn’t be surprised to see how such a change might encourage existing IT professionals to set their sights abroad to countries courting their talent in a post-Brexit world.
To mitigate against any likely risk, organisations should prepare for these changes now, and also optimise their use of talent for the long term. This can be done in various ways. Firstly, invest in Employed Consultants (ECs) that are permanently employed by recruitment companies and sit outside the scope of the legislation. ECs will be a steady investment for any project, and will offer organisations cost savings and flexibility. Secondly, if developed correctly, Statement of Work projects that clarify deliverables/results, resources, costs, and timelines will help ensure that all Personal Service Company (PSC) work is compliant with IR35 requirements. Finally, consider implementing a Managed Service which will help reduce the time taken to process a high number of contractors, by transferring all the admin and risk to the master vendor.
Lucy-Rose Walker, CEO of Entrepreneurial Spark:
The Chancellor’s pledge to provide an economic environment that drives productivity and supports growth sounds great for entrepreneurs, but we’re keen to see more support for early stage and scale-up businesses in the form of tax relief, access to finance and support for employing and developing people.
On broadband investment
Technology is a great enabler for business growth and here at Entrepreneurial Spark we’re seeing growing momentum across the UK in the technology sector. Investing in broadband will help more internet based businesses to grow, however many of our Chiclets and alumni are facing issues in accessing basic broadband services, so access for all should be prioritised before investment is made into 5G networks. We are currently looking to the future to help entrepreneurs right across the UK through a virtual business growth enablement programme so access to broadband is essential to help us deliver this.
On R&D funding
Investment into R&D is crucial for British firms to compete in a global economy. The commitment of £2 billion per year in tax breaks between now and 2020 for research and development will certainly help, however we’d like to see more done to help start-ups and scale ups access finance to help them grow.
On regional investment
The increased support for economies outside of London will help to strengthen entrepreneurship and economic growth across the UK through schemes such as City Deals and investment into regional transport infrastructure.
On the British Business Bank VC Fund
Unlocking £1bn in finance for growing firms through the British Business Bank as venture capital funding is a great step forward in helping start-up and scale-up businesses to invest in growth.
On Corporation Tax
Sticking to the previously announced tax roadmap is a good move for the Chancellor, reducing corporation tax to 17% by 2020 as previously planned is crucial at this time of uncertainty for British business. We hope this will see continued investment into UK start-ups.
Jake Trask, currency analyst at UKForex:
Sterling fell this afternoon as Philip Hammond announced a raft of measures in an effort to stave off a potential post-Brexit slowdown as we head into 2017.
The pound jumped earlier, as measures to tackle a lack of productivity were announced. However, this good news was tempered by the feeling that the statement didn’t go far enough with regards to infrastructure projects and other measures to promote growth. After an initial snap higher, the pound fell away as investors were left disappointed by the Chancellor’s stimulus package.
Ben Brettell, Senior economist at Hargreaves Lansdown:
We might have a new chancellor but Philip Hammond’s speech today came straight out of the George Osborne playbook.
Like his predecessor he was keen to stress the economic positives in his opening remarks, highlighting that the IMF predicts the UK will be the fastest growing major economy this year, with employment at a record high.
To be fair to Mr Hammond, the economy has proved surprisingly resilient in the wake of the vote to leave the EU. Nevertheless forecasts were unsurprisingly downgraded, to 1.4% next year and 1.7% the year after.
Also predictable were the abandonment of the commitment to eradicate the deficit by 2019/20 and the announcement of a mild fiscal stimulus, focused on housing and infrastructure, and with an emphasis on regional development and improving productivity.
This focus on productivity was welcome, and long overdue. The UK has fallen behind in productivity for too long, though it should be noted that promising to tackle the problem is much easier than finding a solution.
Danny Cox, Chartered financial planner at Hargreaves Lansdown:
We saw from the popularity of the NS&I ‘pensioner’ bonds introduced back in January 2015, how savers are desperate for a better return on their cash. With no end to low interest rates in sight a new bond aiming to pay 2.2% over 3 years and a limit of £3,000 is a decent gesture, but with inflation rising and heading toward 3%, its unlikely money in this new bond savings will do anything but go backwards.
Ray Withers, CEO of Property Frontiers:
This statement was less show-stopping than usual, though not without its moments. Hammond is apparently keener on setting top-level economic policy than laying out specific spending measures, which will sensibly (if less entertainingly) be left for individual departments. His overarching themes included easing pre-referendum austerity commitments, more (and less glamorous) spending on infrastructure and housebuilding, and help for struggling families.
The best way to help working people is simply to fix the economy, and we are hopeful that Hammond's moves on that front will be successful.
More interestingly for those of us in the industry, however, the Chancellor today cemented the place of housebuilding as the cornerstone of Mrs May's refashioned 'working for everyone' economy.
There is important work to be done on that front. 'Just about managing' families are more than twice as likely to rent privately as to own their own homes and the Treasury is clear about its intention to help would-be buyers get a foot on the ladder.
The main pledge today - a £2.3bn fund for 100,000 new homes in high demand areas - is relatively substantial, but even smarter is the focus on infrastructure spending in ways and places that support new development.
An encouraging takeaway from this supposedly final autumn statement is a clear indication that the government understands the need to make the rental sector more affordable in addition to beefing up its traditional focus on housebuilding.
With landlords still reeling from Osborne's final statement, we had been hoping that Hammond's first would also offer them some conciliatory breathing room in this area. A reversal of the recent changes around stamp duty and tax relief on mortgage payments, as a string of industry bodies have called for, was always a long shot and did not happen.
Indeed, the prospect of a silver lining of any kind faded fast with news overnight heralding a now-confirmed ban on lettings fees. The Chancellor in fact targeted landlords specifically with the rebuff: 'landlords appoint letting agents and landlords should meet their fees'.
A ban of this kind is something that has been the subject of debate for some time, and so not altogether surprising. Scottish renters already benefit from something similar, while English households reportedly face average fees of £337 per year. Some of those fees are indeed overinflated, but the key question is: who will eat the cost?
It is not difficult to imagine a farcical parlour game in which the Treasury passes the cost from tenants to agents, who pass it to landlords, who in turn pass it back to tenants. The only part of the chain at no risk of incurring the cost is the Treasury itself, and indeed a subsidy for agents to charge extortionate fees is ridiculous.
But this is indicative of a wider and more worrying misunderstanding in the government's handling of the private rental market: it is largely treated as a zero sum game in which losses for landlords are automatically wins for tenants. That is not the case.
With any luck, the repercussions of this new ban will focus the debate on the balance of pressures affecting every part of the rental supply chain - including landlords. Recent moves giving the Bank of England powers to limit overstretched buy-to-let mortgages, for example, seem like a better way of discouraging the darker side of the rental market than squeezing profits for all landlords.
We wish the Chancellor great success with his new program, and have faith that the pendulum will swing back if the desired corrections to the housing market do underwhelm. In the meantime it is not such a bad time to be a landlord: mortgage rates are at historic lows, and Savills projects rent increases of around 19% across the country in the next five years.
On a more local and self-centred note, we are delighted at the confirmation of a £27m expressway connecting our hometown of Oxford with Cambridge via Milton Keynes. Congestion is probably the main constraint on the UK's twin knowledge economies, and shortened commutes will be a welcome boost to our own staff morale, when it eventually happens.
Charles Owen, Founder of CoInvestor:
Hammond’s announcement to reduce the Money Purchase Annual Allowance is likely to come as a blow to those who currently benefit from double tax relief on their pensions. However, significant tax relief can still be found through investing in alternative assets, such as those under the Enterprise Investment Scheme and Venture Capital Trusts.
It is becoming increasingly important that investors assess how they can diversify their portfolio to protect themselves against economic volatility. Our research has shown that half (48%) of mass affluent Britons who decided to act on pensions freedoms now feel more in control of their own investments and 38% have already benefitted from alternative tax-efficient investments. Considering the decreasing state support and the growing mistrust in pension schemes, we expect this trend to continue as Britons look to take growing their pensions into their own hands.