Autumn Budget 2018: Our chairman comments
For a Budget that wasn’t expected to rock the boat until we reach the safe harbour of a Brexit deal, the Chancellor made more waves today than many were expecting. Announcing a flood of spending on initiatives ranging from potholes to public lavatories, Hammond has clearly shored up the Government’s commitment to ending austerity, even if he couldn’t quite bring himself to echo the Prime Minister’s exact phraseology.
While the rhetoric today was purposeful and positive, it was as concerned with political posturing as economic pragmatism. Eyes may have been on the Despatch Box today temporarily, but in five months’ time things could look very different as Hammond himself acknowledged. If we get to a no deal Brexit then as well as ending austerity he will have no alternative but to retain some of the discipline that 'fiscal Philip' began to relax today.
While Hammond made much of the 'jobs miracle' there were surprisingly few initiatives to address the continuing concerns of business about access to the right skills to fuel a future innovative Britain that is open for business.
Despite these blurred lines, the Chancellor has managed to deliver what he needed to in terms of building public confidence– with the necessary nods to housing, education, health and social care, the cost of living and an income allowance tax sweetener.
And at a time when we need to bolster the economy, and be incentivising businesses to invest, it was encouraging to hear the Chancellor buoy up the support available to entrepreneurs and start-ups. By extending new enterprise allowance and start up loans funding to 2021 the Government is recognizing the vital contributions of entrepreneurs to the future success of the UK economy and its competitiveness in the global, post-Brexit arena.
Our experts share their thoughts on this year's budget:
"The Chancellor had tried to signal he is listening to the pressures that austerity has placed on public services by a combination of reheated old news on Health, mixed with continuing greater freedoms for Local Government, topped off by the unsurprising death knell of PFI" Comments chairman Bruce Potter.
He continues "On health and care, the Prime Minister had already stolen his biggest giveaway namely the extra £20 bn going to the NHS to coincide with the 70th Anniversary of the NHS earlier in the year. The Chancellor therefore had to content himself with a sneak preview of a continuing focus on mental health initiatives being planned as part of the new NHS 10 year plan, the road map for how that Brexit dividend will be spent. Very welcome but hardly new money. The announcements on the inextricably linked area of social care were more mixed. Yes another £650m was promised to target a range of Disabled Living , Children's support and other much needed interventions. However what was unsaid was when the critical new proposals on long term Social Care funding will see the light of day. It is a very costly and politically charged issue, which many before the Chancellor have dodged. The fact remains that until that funding issue is settled, the vital integration of social care with the rest of health care will be impossible.
"Apart from Social Care, Local Government will get a much needed (and heavily trailed) £420m to help it fill pot holes and mend bridges. Whether that is enough to keep the shires quiet and the shire counties solvent remains to be seen.
"More subtly the Chancellor acknowledged that Local Government had been at the sharp end of austerity and the cuts needed to make that medicine work . He signalled a continuance of local freedoms and rate retention, as well as greater freedoms to stimulate local housing . Historically those freedoms have been linked to more regional devolution schemes but this did not feature as a key pre condition in this year's speech.
"In the Education space the one off extra £400m promised to schools with capital projects sounded like good news, until the Chancellor converted that number into an individual impact of roughly £10,000 to each primary school and £50,000 to each Secondary school which may not look quite so generous.
"Finally the Chancellor confirmed that PFI has had its day. Whether the announcement had anything to do with the mess left by the collapse of Carillion, or was just too good a political opportunity to miss, as it allowed Hammond to take a sideswipe at a favoured old Labour policy, and pre- empt a new Labour promise hardly matters. It neatly illustrated the relative importance of the politics as opposed to the economics underpinning the Chancellors comments on Public Services."
UK Digital Services Tax
Chancellor Hammond has made a pre-emptive move in order to impose a tax on the UK generated revenues of tech giants, explains legal director Cathy Bryant. Called the UK Digital Services Tax, the Chancellor has moved despite the international community not having reached a unanimous position on this matter. The detail is still to be worked out, but the Digital Services Tax is aimed at tech companies with global revenues in excess of £500 million, will be introduced in April 2020 and is predicted to net the UK purse some £400 million per annum.
Commenting on the 'digital tax' Cathy said: "Obviously, the competitive environment of the UK must be balanced carefully with the implementation of this tax. If the UK moves in advance of the rest of the international community, it could lead to a flight of profit from the country. This is possibly one of the reasons why the implementation is delayed to 2020. If the international community reach agreement in the interim, the Chancellor has stated his intention to consider adopting that route rather than implementing the UK Digital Services Tax."
IR35 rolled out to the private sector
Following consultation over the summer, the Chancellor has announced the extension of the IR35 off-payroll rules to the private sector. Commenting on the announcement, legal director Cathy Bryant, said:
"The practical effect is that the company which ultimately benefits from the consultancy services provided through a private service company, must determine whether or not it is required to withhold PAYE and NIC on the fees charged by the personal services company. This requires the beneficiary company to investigate and assess whether or not the consultant delivering the services would, but for the agreement in place with the personal services company, be an employee. If the outcome of the assessment is in the affirmative, the beneficiary company must withhold PAYE and NICs on the consultancy fees.
"This is a very controversial move and is based on an equally controversial idea that individuals doing the same work (regardless of how they are employed or contracted) should pay the same tax. The implementation is delayed to April 2020 and is limited to large and medium sized companies."
Did the Chancellor meet our SDLT predictions?
This year’s Budget has been less dramatic for Stamp Duty Land Tax (SDLT) than some recent Budgets, but there are still changes and announcements of interest. Read more here from our SDLT expert John Shallcross.
"From a tech perspective the budget takes with one hand and gives with the other" says commercial partner Simon Stokes. "The 2% digital services tax on large established digital services companies is politically attractive but a potential disincentive for some of the world’s most dynamic companies to continue to invest in the UK. Other initiatives announced bring welcome funds and support to the industries of the future: quantum computing, nuclear fusion, blockchain, the internet of things, virtual reality, electric vehicle motors and AI/big data are all beneficiaries. The government has allocated £1.6bn to strengthen science and innovation in the budget. Other measures here include attracting and retaining world-leading research talent through fellowships, continuing to support R&D clusters and further funding for digital catapults. There is also more money for digital infrastructure."