It might have been Philip Hammond’s first full Budget, but this is also the last Spring Budget. The Budget will now move to the Autumn with two statements this year either side of the big political news for 2017 – the triggering of Article 50 – and this was clearly first and foremost a Brexit Budget, writes ALMR chief executive Kate Nicholls.
The Chancellor and the Treasury remain very much at the ‘concerned’ end of the spectrum around the likely impact of Brexit on the economy. Therefore despite much better figures on economic growth and government borrowing, there has no business give away. The Chancellor has chosen instead to save the headroom he has in case there are bumps in the road when Article 50 is triggered. Instead, the Chancellor painted a long term picture of future reform: on business taxes – particularly on how to tackle the gig economy and online retailing – and, to dove-tail with the industrial strategy to incentivise investment. These are long term reviews.
The big news was the announcement of additional sector specific help on business rates – the only sector singled out for support and a direct response to the ALMR’s 6 month campaign, with support from members and constituency MPs and other industry bodies – and additional funds to ease the increases for businesses facing the steepest increase. There was also a nod to root & branch reform.
Further increases in the personal tax allowance give an effective tax cut and give greater discretionary spending power in the face of concerns about inflation and living standards.
· The Chancellor’s main message was that the economy has proved to be more ‘resilient’ than had been thought at the time of the Autumn Statement. This was the time of peak gloom for many economists and the Bank of England but the Chancellor said that performance had ‘confounded commentators’ but pledged to build in stability to take us through Brexit.
· Growth forecasts have therefore been revised signficantly upwards – the economy is expected to grow at 2% in 2017/18 (in the Autumn it had been predicted to be 1.4%) – but the good news doesn’t last: the expected slow down just comes a little later. Growth is forecast slow in 2018/19 to 1.6% before rising again to 1.9% in 2020 and 2% 2021. Although these figures are better than expected in the Autumn, it is worth noting that two years ago, the OBR was predicting growth of 2.3% in 2016-18 and 2.4% in 2019/2020
· This is the main reason the Chancellor will be able to meet the Government’s debt reduction targets. Forecasts for net borrowing have been revised downwards – some £16.7bn lower than forecast in the Autumn to £51.7bn and falling to £16.8bn by 2021/22. As a proportion of GDP this means net borrowing will fall from 3.8% to 2.6%.
· It means that, by the end of the Parliament, the Chancellor will have a £26bn headroom below the borrowing targets but this will not result in a give-away, rather the Chancellor
· Looking at ensuring the UK is the best place to start a business, the Chancellor set out a package of measures to support business investment. He confirmed the cut in corporation tax to 19% and that it will fall again to 17% in 2020.
· Chancellor confirmed that he had listened to concerns about the effect of the business rates revaluation and announced three new measures: any business coming out of small business rate relief will have an additional cap of £50 per month for the first year; recognising the valuable role that local pubs play in local communities a £1000 discount in 2017 for all outlets with a rateable value of less than £100k (90% of all pubs); £300m fund for local authorities to target individual cases in their local areas and respond flexibly for those facing significant increases.
· This is a sector specific relief as we requested and reinstates the high street relief pubs and restaurants benefitted from in 2014/15 and is anticipated to be worth £30-40m.
· Over the medium term, the Chancellor confirmed that there is a need to find a better way of taxing the digital part of the economy that does not rely on bricks and mortar. The Treasury will carry out a root and branch review in this area and will set out its preferred approach for consultation before the next revaluation is due in 2018.
· The Chancellor announced an overhaul of personal/company taxation to reduce the gap between employed and self-employed workers over concerns that the gig economy is not paying its fair share. There is also a further package of measures to tackle non-compliance.
· There will be a rise in NICs for self-employed by 1% to 10% from April 2018 and 11% in 2019.
· Directors shareholder tax advantage will be halved from April 2018 – this allows directors and investors to take out £5000 dividend tax free.
· The increases in the personal allowance to £11,500 and the increase in the higher rate to £45k were confirmed as were the planned increases in the NLW. He also reconfirmed the target of £12,500 and £50k by 2020.
· Soft drinks levy confirmed at 18p and 24p per litre but the product reformulation means the tax yield will be reduced
· No changes to previously planned increases in duties on alcohol means inflation only increases for beer, wine and spirits.
· A new minimum excise duty on cigarettes will be introduced at £7.35
· VED frozen for a further year