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 lobbyists and retail experts welcomed the news.
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.
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:
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).