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In what was a more modest yet political speech, the Chancellor gave an update on the economic and public finance forecasts to the House of Commons.
Alongside this, Hammond announced a number of consultations that will be used to feed into bigger policy announcements which are expected to be delivered at the upcoming Autumn Budget 2018. These range from new VAT collection mechanisms for online sales to changes to enable investment in fast growth, knowledge-intensive companies.
With few detailed policy announcements to distract commentators, all eyes were on the state of Britain’s economy.
Growth forecasts, higher than forecast in November 2017, were revised up from 1.4%, as expected, to 1.5%. However, in the longer term, growth is expected to drop from 1.5% to 1.4% in 2021 and from 1.6% to 1.5% in 2022.
Inflation will fall to 2% by the end of the year, with real wages set to rise again by the first quarter of next year. Hammond also confirmed that in 2018-19 day to day spending will be in surplus, with Government borrowing set to decrease year on year.
While Hammond has described this as the “light at the end of the tunnel”, he has defended continued austerity, saying the Government will continue to deliver a “balanced approach” to secure the economy against future shocks.
Hammond did, however, announce a future spending review in 2019 – will this be the point that the Conservative Party decides to show itself as willing to increase the amount of spending and possibly taxation ahead of the next General Election?
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As well as covering economic forecasts, Hammond gave an update on progress against measures announced at last year’s two Budgets (March and November 2017) and announced a series of policy consultations,^ (opens in a new window) which were published alongside yesterday’s statement.
Among these, Hammond announced that the next revaluation of business rates will be brought forward one year to 2021. This follows the Autumn Budget 2017 move to increase the frequency of property revaluations from every five years to every three years, and means that these three-year revaluations will take effect in 2024.
Growth and productivity
Since his appointment as Chancellor in 2016, Hammond has made tackling the productivity challenge one of his key goals, and a number of the consultations announced today are in that vein.
On skills, the Government has published a consultation on self-funded training, looking at improving the way the tax system supports self-funded training by employees and the self-employed. This explores extending the scope of tax relief currently available to employees and the self-employed for work-related training costs to support upskilling and retraining.
On business support and growth, the Government is seeking views on whether the design of the VAT threshold could better incentivise small business growth. For now, businesses will welcome the Government’s continued view that the VAT threshold should not be reduced.
In the coming months, the Department for Business, Energy and Industrial Strategy will publish a call for evidence to help the Government understand how best it can help the UK’s least productive businesses to learn from and catch-up with the most productive.
In the meantime, another consultation is looking to improve the specific provision for fast-growth companies in knowledge-intensive industries that may otherwise have struggled to access investment from the government-backed Enterprise Investment Scheme. The Treasury want to better understand the capital requirements of such companies.
Tax and the digital economy
Looking ahead to the future, the Government has published a call for evidence looking at the role of cash and digital payments in the new economy.
This will consider how the transition from cash to digital payments impacts on different sectors, different regions and different demographics, and will explore how Government can support digital payments and ensure that the ability to pay by cash is available to those who need it, as well as cracking down on those who use cash to evade tax and launder money.
As part of the Government’s ongoing work looking at the challenges posed by the digital economy, it has published an updated position paper setting out its proposed approach to the corporate tax framework.
This aims to strike a balance between ensuring that the corporate tax system is fair across all different types of businesses, whilst also maintaining the Government’s ambition for the UK to be a start-up ‘hub’ and global tech leader. However, this does not set out the Government’s final position, but rather sets out its updated thinking with a view to engaging further with businesses.
The Government has also published a consultation on a proposed split payment model to reduce online VAT fraud and improve how VAT is collected, as well as a call for evidence to explore what more online platforms can do to help their users pay the right amount of tax.
Against the backdrop of increased attention on environmental impacts - from both the public and politicians - Hammond announced a number of consultations to consider ways the tax system can be used to encourage people and businesses to make more environmentally friendly choices. Published yesterday, the call for evidence looks at how the tax system or charges could reduce the amount of single-use plastic waste. The review looks at the entire supply chain for single use plastics.
In the near future, the Government will also be consulting on whether the use of red diesel tax relief discourages the purchase of cleaner engines, and whether reducing VED rates for the cleanest vans will encourage cleaner choices.
Hammond’s decision to move to one Budget a year to cut the amount of “fiddling” with the tax system was broadly welcomed and is hoped to provide businesses with increased certainty and stability. It was in many ways an unsurprising move: Hammond favours low-key rather than headline grabbing events if that is what he thinks is best for the economy.
But whether this will last is yet to be seen. Former Chancellors including Ken Clarke, Gordon Brown and George Osborne all made similar moves only to revert back to having two major fiscal events a year (Osborne’s Autumn Statement in 2010 was only 20 minutes long, but average nearly 52 minutes thereafter).
And with pressure on Hammond to end austerity and start spending again only set to increase - including pressure from his own benches – Hammond may find a reversal to the old system irresistible.
As expected, this was a fairly underwhelming statement, but it does lay the groundwork for a much fuller Autumn Budget and gives businesses the opportunity to feed into what could be a series of important policy announcements.
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