In the first example of a true Autumn Budget (i.e. one without another Budget earlier in the year), Philip Hammond took to the despatch box for over an hour to deliver a Budget with 15 more measures in total than last year and 33 different tax announcements, containing some crowd pleasers and more than a fair share of groan-making puns and jokes. Hemmed in by the pre announced ‘end of austerity’ on the one hand, and the behemoth of Brexit on the other, the chancellor was working within a number of constraints, but seemed at ease as he set out a vision for the future.
There were two, really. First, there was the announcement that the chancellor would not only stick to his pledge of raising the income tax personal allowance to £12,500 by 2020 (and the higher rate threshold to £37,500), but that he would bring it in a year earlier than planned. As signalled, rather heavy-handedly in the speech, the chancellor had a perfect excuse for walking away from this commitment in the form of his announced extra spending on the NHS. He chose instead to stick to his principles (a marker perhaps for the coming squall around the Brexit endgame).
Second, there was the announcement that the UK has lost patience with the efforts of the OECD to establish an international consensus on who should have the rights to tax the profits of digital search engines, social networks and online marketplaces. Instead, the chancellor chose to deliver on his promise of ‘going it alone’ and to implement a turnover tax (the digital services tax) from 2020, but at a lower rate than was suggested by the European Commission and with some additional protections intended to avoid it damaging investment by start-ups and loss-makers. Although he explicitly recognised that the tax would be removed if international consensus was reached, he was clearly sceptical that anything would happen soon, as he built in a review of the measure in 2025.
Not really. In his opening remarks, the chancellor set the Budget up as being for ‘hard working families’, but he didn’t really deliver a coherent package to back that up, beyond repeated references to the ‘hard work of the British people’. Given the constraints we have already noted, it is perhaps understandable that Hammond had no thematic joker to play.
True to his word, the chancellor made winners out of the basic rate taxpayers who will see their personal allowances not only rise, but rise a year early. True to his creed, the other big winners were capital intensive businesses with an increase to the annual investment allowance (temporarily raised to £1m for two years from January 2019) and an added boost through the return of a relief for buildings, this time in the form of a 2% fixed rate structures and buildings allowance (worth an extra £1.9bn over the six-year period).
Further winners will be those companies looking to use the UK as a location to hold and make use of intellectual property, who will now be able to benefit from the partial reinstatement of relief for acquired goodwill.
The big losers will include, as discussed above, those digital businesses that will become subject to the new digital services tax, set to raise over £400m per annum by the end of the period, implying UK sales of over £20bn.
Others paying into the exchequer will be off-payroll workers in the private sector who will be subject to the regime brought in last year for the public sector, subject to any changes that will come from further consultation.
Another losing group is the remote gambling operators who have been stuck with making up the shortfall in tax receipts (in reality, somewhat more than that amount) arising from the government’s decision to reduce the permitted stakes on fixed-odd betting terminals in licensed betting offices.
Broadly, yes, but without the sort of grand-standing measures we have seen in the past, and with no mention at all in the speech of the commitment to reducing the headline rate of corporation tax, something rumoured to be at risk in the run up to the Budget. Instead we saw smaller measures (e.g. temporarily increasing the annual investment allowance, reducing the co-investment rate of the apprenticeship levy) designed to boost growth.
There was also some temporary support for the high street with the reduction in business rates for smaller businesses and a raft of spending measures to pump in extra money. Still no relief, however, for those operating larger premises.
This year the surprises were more about what was missing. Given the better than expected fiscal outturn, the big tax-raisers expected to be needed to fund the NHS were absent. So, even after a great deal of speculation on what the chancellor would do about pension tax relief, he did nothing.
The overall picture emerging from the detailed tax numbers is one of a give-away Budget, with the chancellor’s largesse in bringing forward the increase in the income tax personal allowance stealing the show.
Once spending decisions are factored in, we can even start to believe the rhetoric around the approaching end of austerity, as spending measures in turn dwarf the give-away delivered by the chancellor’s tax changes.
All being well, the next steps are the delivery of the Finance Bill and the adoption of the Finance Act. That would see the Finance Bill 2019 being released on 7 November 2018, and then working its way through the Parliamentary process towards royal assent in spring 2019. We can then look forward to a Spring Statement from the chancellor.
In the end, for all the billions spent, this was really a caretaker Budget. It delivered a number of important initiatives, and left options open, but deftly avoided the really big issues. To some extent it is an ‘elephant Budget’, with Brexit being the elephant in the room, mentioned only once in his speech. For all of the above is premised on the OBR assumption that there will be a ‘negotiated exit’ with ‘an average type free trade deal’, which removes the need to recognise the potential impact of a no-deal outcome. The chancellor noted in his speech that he had the flexibility to upgrade the Spring Statement back to a Budget ‘if the economic circumstances require it’.
So should we have a no-deal outcome to the negotiations in Brussels, we can expect Hammond (or his successor) to be back in Budget mode in the spring of next year.
