Autumn’s bountiful Budget

Monday, November 20, 2017

Life at Westminster has been akin to a soap opera of late, with scandals, divisions and resignations aplenty. Moreover, this Autumn Budget was set against a backdrop of a snap-election that bloodied the Government’s nose, an opposition emboldened with a renewed vigour, the ongoing Brexit wrangling, and nations growing weary of austerity. Yet, despite this, it was a defiant Philip Hammond that took to the floor to present a relatively bullish Budget.

The Budget contained £25billion of new spending, which somewhat detracted from the disheartening news that the Office for Budget Responsibility has reduced its growth forecasts for the UK; from a moderate 2% for the year to just 1.5%. The forecasts for the next four years were also revised down, as was the growth in productivity.

This Budget’s headline-grabber – for there is always one – was the announcement that Stamp Duty has been abolished for first-time buyers purchasing homes worth up to £300,000. As a boost to those in more expensive areas, the first £300,000 of the cost of a £500,000 purchase will now be exempt from Stamp Duty, with the remaining balance incurring 5%. It took effect immediately in England, Wales and Northern Ireland – but the Welsh Government will determine its fate next year when Stamp Duty is devolved. It will not apply in Scotland, unless the Scottish Government decides to embrace it.  

Below is a run-through of the key revelations from the Autumn Budget 2017:

Personal

  • Mr Hammond announced that the personal allowance for income tax will rise to £11,850 and the higher rate tax threshold will rise to £46,350 from April 2018.
  • The National Living Wage and National Minimum Wage saw increases. For over two million people, this amounts to a pay rise of £600 per year for a full-time worker.
  • For savings and investments, there was an increase to £1,030,000 for a lifetime allowance, ensuring savings will increase in line with CPI. The ISA annual subscription limit for 2018-19 will remain unchanged at £20,000.
  • An increase the main rate of Class 4 National insurance contributions by 1% to 10% from April 2018, and by a further 1% to 11% from 6 April 2019. As previously announced, Class 2 NICs will be abolished from April next year.

Business

  • The planned cut to business rate rises has been brought forward by two years to 2018. Business rates were due to rise in line with RPI, so the change represents a £2.3billion reprieve. The business rates discount for pubs has been extended until March 2019.
  • The Government flagged a new IR35 regime for the private sector, because “public sector compliance is increasing as a result” of the regime, so an extension to the private sector seems the next step “to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.”
  • A plan to unlock over £20billion of capital investment to finance growth in innovative firms over 10 years, including through small changes to Enterprise Investment Schemes and Venture Capital Trusts limits.
  • Electricity provided by employers for electric cars will be made exempt from being taxed as a benefit in kind.
  • An increase in the R&D tax credit for large business to 12%, which is apparently part of the biggest increase in R&D spending by any government in the last 40 years.
  • Legislation will come in to extend HMRC’s powers to refuse to register and to de-register, pension schemes to master trusts lacking authorisation from the Pensions Regulator.

Tax

  • No change to VAT; it will remain at £85,000 for two years. While the Chancellor seemed disappointed that it “disincentives business growth” he stopped short of lowering it.
  • Retention of the proposed reduction of the corporation tax rate to 17% from April 2020 to help business investment.
  • Some aspects of the corporation tax rules involving hybrid structures and instruments – the hybridity arising from differences in tax treatment between two jurisdictions – will be amended to clarify how and when the rules apply.
  • Capital gains tax relief for overseas buyers of UK commercial property will be phased out, with exemptions for foreign pension funds.
  • The introduction of the 30-day payment window for Capital Gains Tax, between a capital gain arising on a residential property and payment will be deferred until April 2020.
  • HMRC has been provided with extra resources to combat evasion and avoidance for a range of purposes including analysing all the additional information which it is getting from overseas countries and other existing disclosure arrangements.
  • An end to the ‘staircase tax’ - how you define a single business space. Philip Hammond said, “We will change the law to ensure that where a business has been impacted by the Supreme Court ruling it can have its original bill reinstated if it chooses, and backdated.”
  • Online marketplaces to become liable to the VAT for non-UK business selling goods via that marketplace together with other anti-evasion measures – bringing it in line with the high street in honouring VAT obligations.

Elsewhere in the Budget, the Treasury was busy pledging more money to the NHS and a sizeable £3billion nest-egg to help deal with whatever happens as we leave the EU. It is a lot of borrowing and if more funding is needed given the uncertainties ahead, it is hard to see how the Chancellor, or his successors, might balance the books as promised in years to come. However, on balance it was a bountiful Budget with some popular measures. And as a Cabinet Minister, a role with terrible job security currently, Philip Hammond seems to have secured his future by giving the UK a boost – at a point it was much needed.