The last Budget^ (opens in a new window) to be delivered before the likely triggering of Article 50 at the end of March was relatively low-key and drama-free. The Chancellor chose to focus on key domestic issues, including closing the productivity gap, stabilising public services in the long term, and providing additional provisions for social care.
Hammond’s approach in producing a smaller fiscal statement – with no real surprises – will be welcomed by businesses who have told us they are cautious about the impact of Brexit. The Chancellor did give indications of bigger policy announcements to come, such as the Consumers and Markets Green Paper – which could impact businesses offering digital subscriptions that automatically renew – but also demonstrated that he is willing to listen to business concerns.
The Budget included announcements that the Government will provide an extra year before the digital tax system – Making Tax Digital – is mandated for unincorporated businesses and landlords with a turnover below the VAT threshold. The Government has also reviewed the R&D tax credit regime, announced in the 2016 Autumn Statement, accepting industry calls for a reduction in administrative burdens.
Overall, financial services received very little attention, with the key announcement for investors being the reduction in the director’s tax-free dividend allowance from £5,000 to £2,000 from April 2017.
The economic outlook announced in the Spring Budget is marginally brighter than that announced in the Autumn Statement, with an upwards revision of growth for this year up to 2% from the 1.4% previously forecast. However, Brexit uncertainty does show itself in the forecasts for 2018-2020, with growth forecasts revised down in the run up to the exit from the EU. In addition, Hammond didn’t shy away from the more difficult point that the UK is still going to borrow £100bn more than expected before the Brexit vote.
Table shows year on year GDP growth estimate for 2016 from the Office for National Statistics (ONS) and forecasts for 2017 and 2018 from the Office for Budget Responsibility (OBR), compared with Barclays’ latest estimates, released 3 March 2017.
Despite media attention ahead of the Budget, the Chancellor has said he will not abolish business rates, but has acceded that there has to be a better way of taxing the digital part of the economy. The Government will set out its preferred approach on this in due course, but for now, Hammond has announced three measures to help small businesses facing the biggest increases:
The Budget takes the next steps in delivering the Government’s Industrial Strategy by setting out the initial actions being supported by the National Productivity Investment Fund announced in the Autumn Statement. This includes a ‘5G Strategy’ creating a new National 5G Innovation network; £200m investment in full-fibre broadband to help businesses grow; and £690m allocated to local authorities to alleviate road congestion. £270m will be invested to keep the UK at the forefront of disruptive technologies like biotech, robotic systems and autonomous vehicles.
On talent funding and attraction, £300m will be invested to further develop the UK’s research talent, including through creating an additional 1,000 PhD places in STEM subjects.
The Chancellor has announced the introduction of ‘T-levels’ – a simpler format of technical education comprised of 15 areas including agriculture, construction and digital, in an attempt to bring skills training on a par with academic qualifications. The Government will also work with business groups and public sector organisations to identify how best to increase the number of people returning to work after a career break, for instance to raise a family. This will be supported by £5m of new funding.
There were no changes to the previously announced plans to reduce Corporation Tax to 17% by 2020, and Hammond re-stated his aim to make the UK the best place in the world to start and grow a business.
|From 1 April 2015||From 1 April 2017||By 2020**|
**The Chancellor confirmed in the 2016 Autumn Statement a commitment to reduce the main rate of corporation tax by April 2020
In delivering his second considered and concise fiscal statement, Hammond is moving the Government into a new era of greater predictability in fiscal events: a move that is to be welcomed by businesses. However, we can expect a larger set piece in the Autumn, when the Chancellor knows a lot more about what the Brexit landscape looks like.
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