Autumn Budget 2017

A positive budget for a positive Britain, yet again laying the foundations for a flourishing Britain and a future we can be proud of. Amongst all the embracing of change, challenges and opportunity, the real picture of the economy was clouded in this speech. A significant amount of spending without the tax reform everyone expected leaves you feeling shored up, positive even. But as ever, the devil’s in the detail and the picture painted is often brightly coloured compared to the duller reality.

Economic outlook

The OBR has reduced their investment, productivity and growth expectations, despite their prediction of another 600,000 jobs by 2020.

  • GDP: 1.5% in 2017 with slowing growth to 1.3% in 2019 & 2020 before starting to increase again
  • Inflation: expected to peak at 3% this year, then reduce to the current 2% target
  • Borrowing: £49.9bn this year (2.4% of GDP), falling continuously to £25.6bn in 2022-23 (1.1% of GDP) - the lowest level in 20 years.
  • Debt to GDP: expected to peak this year at 86.5% of GDP then reduce to 79.1% by 2022-23


A vision for a ‘global’ Britain

The government is in the middle of presenting its Modern Industrial Strategy - an effort to increase productivity and wages nationwide. The projects we’re undertaking - HS2, road, Crossrail - are a big part of this and supposed to bring the country together, so the Northern Powerhouse and Midlands Engine are in touch with London. In the age-old tradition, pay and productivity go hand in hand so the National Productivity Investment Fund is getting £23bn more funding, hoping it will increase productivity and the government’s aim of higher wages will be realised too. Presumably then come higher taxes?

To support this, another new fund - the Transforming Cities Fund - will be created with £1.7bn at its disposal. This is aimed at six areas in the most part, with the remainder being able to compete for funds.
Rail investment continues, along with £123m for Redcar Steelworks site and the usual investment in Scotland, Northern Ireland and Wales.

Faith in electric cars has been bolstered, giving £400m more to charging infrastructure, £100m in Plug-In-Car grants and £40m for R&D in charging. Diesels will be taxed more as expected.

Further investment in oil fields in the North Sea should allow new entrants, with a ‘Transferable Tax History’ policy it has unveiled previously.

 

Business outlook

As well as the investments above in rail, production and construction there are key areas the government are looking to encourage.

Company Tax

Reductions in CT will continue as expected (to 17% by 2020) but there will be changes to the indexation allowance for Capital Gains. The rate of inflation will be frozen, to bring calculation of chargeable gains on disposed assets in line with the personal calculation.

There’ll be no change to VAT, though the registration threshold will be frozen at £85k for the next two years. There will be a review over whether it could be used to incentivise growth - perhaps a more complex Flat Rate Scheme system is on the horizon?
Whilst our threshold is very high and the Chancellor doesn’t seem to want to bring it in line with similar countries, this will be on the table on future. Whether it’s a stepped or drastic change the likelihood is it will be cut at some point.

Construction

Bolstered by the education incentives, housing is again a big budget topic.
Government backed schemes to buy remain in place along with new announcements, but the real glitch is the housing stock.
A minimum of £44bn of various sorts of funding will be available over five years - leading to an average of 300,000 additional homes/year where possible.

  • The Home Builders Fund will receive more to encourage small firms to build
  • HRA caps reviewed/lifted in high demand areas and funds for estate regeneration, small sites, urban regeneration and private housebuilding
  • Reviews on the time between planning permission and building starting, with compulsory purchase powers being brought in if necessary
  • £34m for construction skills training

The green belt will continue to be protected, but there will be focus on the Cambridge - Milton Keynes - Oxford corridor and five new garden cities are to be built.

More importantly, there’s a focus on the infrastructure needed to support these new homes, particularly around transport and where high density homes are to be built.

Technology investment

A key factor in this budget, the Chancellor wants Britain to be at the forefront of development, affording opportunities to everyone. We already have a booming tech industry with a tech company being incorporated ‘every hour’ but the latest round of investments want to double that, setting out a strategy that aims to bring products to market.
Incentives include the following:

  • £500m in AI, 5G, full fibre broadband and other technology growth areas
  • Regulator’s Pioneer Fund - allowing products to come to market quicker
  • Geospatial Data Commission to use location data to support growth
  • Opportunities to unlock more than £20bn of investment:
    • Allowing pension funds access to long term investment
    • Doubling EIS investment limits (for knowledge intensive companies)
  • Recognition that the European Investment Fund may need to be replaced, with funds available if needed

£30m is also allocated to trial digital connectivity solutions on the TransPennine rail route.

R&D

R&D is to be encouraged, increasing the investment fund and putting Britain at the cutting edge of technology. The R&D tax credit will increase to 12%, with an aim of R&D spend to be at 2.4% of GDP.

There’ll also be a review of plastics (especially single use items) in light of the tax system. It’s worth putting a review of your parts and packaging materials that could be caught by this on your to do list and your recycling policies. Other waste measures already announced will go ahead as planned.

It’s worth looking at the changes to education below too - with a focus on retraining meaning there may be incentives to take advantage of in future.

Digitalisation

International companies that incur royalties on sales in the UK will have to pay tax on those royalties here, even if not quite correct under current UK law, where the royalties are paid to a low/no tax area.
This will continue to be under review and there will be work internationally to make the system fair.

Another impact of digital services being under scrutiny means all online traders/retailers will be jointly liable for VAT to try to recoup some of the £1.2bn in online VAT fraud incurred each year. This means the online marketplace will be responsible for unpaid VAT, as well as their traders. Part of the measure will mean the online marketplace has to check the trader’s VAT number is valid. The idea of split payments is also being reviewed.

Business Rates

As well as the measures previously introduced, rates will be reduced by linking increases to the CPI from April 2018, instead of the RPI. Rates will be revalued every three years rather than five.
Anyone affected by the ‘staircase tax’ that meant that companies on different floors of buildings (put simply) could lose small business rates relief will now be able to request it’s original bill to be reinstated and backdated.

Certain pubs will get their £1,000 discount extended for another year - a helpful boost to a struggling industry, that Mr Hammond hopes reflects the commitment to Britain and its communities.


Personal / Employment

From April 2018:

  • Personal tax allowance £11,850
  • Higher rate tax threshold £46,350
  • National Living Wage £7.83/hour
  • National Minimum Wage from £3.50/hour to £7.38/hour depending on age

Income inequality is at it’s lowest level in 30 years, “clear” proof of a fairer Britain.

Clarification that charging your electric car at work won’t cause a BIK (benefit in kind) charge will come. The price of running a new (Apr18) diesel car not meeting emissions standards will go up as increases in road tax and Company car tax come into play, with the surplus going to the Clean Air Fund.

Universal Credit will continue to be rolled out nationwide, with some amendments that ease the burden (but don’t solve all the problems!). Additional funding for those where rent is least affordable is being made available too.

The ISA allowance will remain at £20k per year and the tax free dividend allowance will reduce from £5k to £2k from April 18 as expected.

Duty on wine, beer, cider and spirits will be frozen, though tax on high alcohol ciders (i.e. White Lightning) will be reviewed from 2019. Tobacco and cigarettes duty will increase as expected. Air Passenger rates will be frozen too, with Premium air travel taxed instead.
A new Rail Card for 26-30 year olds will be introduced as well.


Public Services

NHS

An additional £10bn in funding over the term was announced, along with a £2.8bn addition outside of any other commitments - £350m to be available immediately.

Nurses pay structure will be reviewed and additional funding will be made available if recommended by the Pay Review Body.

Education

T-levels announced in March will be progressed, with a fund of £20m for FE colleges to prepare.
Training for maths teachers around the country (£40m) and Teaching for Mastery of Maths programme extended, as well as incentives for students taking maths at A-Level.
Training for computer science teachers expanded to 12,000, tripling the current number. Also creating a National Centre for Computing.
Both measures intend to support the increased investment in tech, bolstering our future and giving our children the life skills ready to work.

A new National Retraining Scheme will be developed to provide continued support to workers, so tech advances don’t put people out of touch or out of a job.
Digital skills distance learning courses will be looked at first (£30m of investment).


Other

Local Authorities will be pressed upon to make safety changes to housing as soon as possible, with potential help if required.

Homelessness and affordability was a big, perhaps unexpected, target of this budget. Local Authorities will be given power to levy a 100% council tax premium on empty properties. Long term rental agreements and incentives will be looked at, to give tenants more security and a homelessness task force will be created. There will be three “Housing First” pilots - adding to the potential for the construction industry.

To boost housing and youth aspirations further, stamp duty for first time buyers is to be cut:

  • For purchases under £300k there will be no stamp duty
  • For purchases under £500k, the first £300k will be at 0%


The future looks bland...

On the face of this, it looks like Philip Hammond’s been given a licence to print money. Each announcement was cash cash cash with no real substance about where the money’s coming from. Political aspirations for Britain were revealed over the environment and internal ambitions but the sluggish productivity and reduced forecasts can’t be avoided, however much the Chancellor tries to show off his wittiness and knowledge of current affairs.

It’s not a car crash of a budget, but with little mention of the changing of Brexit gears it’s likely Hammond and May won’t be driving into the future quite as silently as this budget would suggest.

Go Back

Forward Thinking