29/10/2018

Informi Responds To The Budget 2018

Informi logo

By Informi

Informi responds to the 2017 Autumn Budget

Like much of the political discourse of the last two years, the spectre of Brexit hangs heavy over this week's Budget announcements. As negotiations in Brussels turn increasingly nervy, talk of a no-deal Brexit, a 40% likelihood according to some bookmakers, will certainly have spooked the remain-backing Chancellor, Phillip Hammond. Having consistently warned of the consequences of a no-deal outcome, the Chancellor hinted that another emergency budget would be likely in the Spring – should the UK and the EU fail to agree on a deal by 31 March next year. 

Business lobbying groups have been similarly spooked by the stalled talks in Brussels. The Federation of Small Business (FSB) reported in August that a no-deal scenario would disproportionately hit small businesses, and, more recently, that only one in seven have started planning for such an outcome. 

With all that in mind, this year's Budget does not seem quite as pivotal as it normally is; the real story being what happens across the Channel over the next five months. Capturing this general sentiment, Sky News' Economic Editor Ed Conway tweeted the question 'is this a do-nothing, or do-very little Budget?'

 

So, in a nutshell, what happened?

In truth, there were more announcements than many expected and very little mention of Brexit. This included tax cuts and a string of spending pledges that amount to the Treasury's biggest giveaway since 2010, with a huge chunk of this going to the NHS. The central theme was a continuation of Theresa May's conference declaration that 'Austerity is over'. The Chancellor, instead, used the more careful phrasing: 'Austerity is coming to an end'. Needless to say, this did not go down well with the Labour opposition who have strongly contested these assertions, citing a lack of spending on other public services.  

Having learnt the lesson of his infamous national insurance U-turn, small business owners can be mostly happy with the contents of this year's Budget. 

 

Business rates

The decline of the high street has been a much-discussed topic in 2018. We've seen a string of big-name retailers and restaurant chains having to shut down branches from M&S to Gourmet Burget Kitchen, but smaller businesses face similar struggles. The burden of paying business rates is one of the commonly-cited reasons for this, as well as competition from online retailers. In the run-up to the Budget, the Chancellor announced that high street reform was on the way in the shape of a £1.5 billion spending pledge. This included "cutting business rates bills by one-third for retail properties with a rateable value below £51,000, benefiting up to 90% of retail properties." 

 

 

Business lobbyists and retail experts welcomed the news.

 

 

 

Others, though, questioned how effective these measures would be; that it was simply a short-term 'sticking plaster' fix. 

 

 

What we say:

Cutting business rates is something that will be welcomed by small business owners on high streets across England, saving them thousands of pounds and helping them in what is a very precarious time for many. This is a change which should hopefully slow the alarming rate of shop closures.  

That’s excellent news, however, the fact that the cut is only for two years means this is just a sticking plaster over the problems inherent in the business rates system. We still believe that a fundamental and comprehensive review of the whole system of business rates needs to be undertaken, to ensure the system is still fit for purpose in the 21st Century. The digital environment and new technologies are changing things immensely for bricks-and-mortar small business owners, and the system needs to be adjusted to take that into account. 

 

Digital tax

News that a single John Lewis store will pay four times the total UK corporation tax paid last year by Amazon highlights why there has been such a clamour for action against tax-avoiding global tech giants. Calls for a coordinated international approach to the issue may well come to fruition, but, for now, the UK is going it alone. The Chancellor announced: "from April 2020, the government will introduce a new 2% tax on the revenues of certain digital businesses to ensure that the amount of tax paid in the UK is reflective of the value they derive from their UK users."

This was met with some scepticism as to how it would be enforced and, indeed, whether it would actually pass into law.

 

Others highlighted just how big the tax gap is between high street and online retailers, and, whether this tax would actually raise its fair share into the Treasury's coffers.

 

 

 

What we say:

One of the headlines of the Budget will be the new digital services tax aimed at technology giants such as Facebook, Amazon, Netflix and Google (the FANGs). The tech sector has seen huge swathes of public money pumped into it in recent years in order to fund its growth acceleration, and it’s fair and right that they pay a fair share of tax. At the same time, the Chancellor would much rather hand responsibility in this area back to the G20 and OECD, who are working on a global solution, so this tax might never see the light of day.

 

IR35

Here's a bit from the Guardian on IR35: "The tax framework, known as IR35, is aimed at stopping tax dodging by disguising employment through so-called personal service companies, which will cost the exchequer £1.3bn a year by 2023-24, according to HM Revenue and Customs figures."

At the moment the legislation has only been rolled out in the public sector but suggestions were that it would be extended to the private sector in 2019. This was a concern to many SME owners as the framework has already proven problematic. In his speech, the Chancellor announced the rollout would be delayed: "To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt, minimising administrative burdens for the vast majority of engagers..."

Whilst the delay was welcomed, concerns remain about an eventual rollout.

 

 

What we say:

Many SME owners were worried that IR35 reforms would unfairly target contractors, and that the government was going after an easier target in self-employed and owner-managed companies, while larger companies who can afford to search for loopholes seemingly underpay their tax bills. So, they may have been worried about the Chancellor announcing the extension of IR35 reforms to businesses in the private sector. 

The fact that the reforms will not come in until 2020 will be welcome, giving businesses and individuals time to prepare and the fact that small organisations will be exempt will let small business owners breathe a sigh of relief. 

 

VAT changes

In the run-up to Budget 2017, there were significant murmurings that the Chancellor was about to lower the VAT registration threshold, potentially burdening many more SMEs with having to pay VAT. This did not come to pass, and, once again, the Chancellor confirmed that the turnover threshold of £85,000 would be frozen.

 

 

What we say:

Freezing the £85,000 turnover threshold for VAT means that small business owners will continue to have certainty about it. For many business owners, it’s simply not worth it to cross the threshold, as it can mean that any extra profit they make is taken away. Lowering the threshold may have given the Treasury a good payday, but it would have seemed like another way for the government to clobber small business owners.

It’s also worth remembering that there’s not much the government could do with VAT for at least another two years until the end of the Brexit transition period, because of EU VAT rules.
 

Away from fiscal policy, there were some moderately improved economic forecasts from the Office of Budget Responsibility (OBR). 

 

 

We'd love to hear what you made of the Chancellor's Budget? Let us know in the comments section below or get in touch on Facebook and Twitter.

Stay informed

Register or Login to add this article to your reading list.

Share this
8
Informi logo

Published 29 October, 2018 by Informi

Comments (0)

Be the first to comment on this page. Submit your comment below.

Join the conversation

You need to login or register before you can comment.