Philip Hammond walks the tightrope
between Brexit and the problems of making big policy announcements with a minority government
Download the full d&t Budget 2017 report
The Chancellor had his work cut out delivering his second Budget of 2017 yesterday. Last time, we had a majority-Conservative government and were still waiting for Brexit negotiations to start. We’re in a very different position now.
As expected, Philip Hammond’s Budget was a carefully-crafted statistics-fest. There were some bold headlines and his attempt to engage more younger voters may prove to be a successful one – the abolition of stamp duty land tax for the first £300k of a property’s value has been widely welcomed by first time buyers and those in markets such as London. A continued freeze on fuel duty for the eighth year in a row also went down well – a major cost for many small businesses and individuals.
From a small business perspective, I was pleased to see business rates change from RPI to CPI, which, combined with more frequent revaluations, makes the system far fairer. The frankly ridiculous so-called “staircase tax” idea, which could penalise businesses operating on more than one floor by taxing each floor’s value separately is, thankfully, being booted from the business rates system entirely.
Productivity in the Budget
Reading between the lines and behind the shiny bright headlines, however, there are some major issues to unpick. Productivity has been an issue in the UK since the 2008 crash. Expectations were that we would return to pre-crash levels of productivity, but this hasn’t yet happened – nearly a decade on, the typical rate of growth over the last 5 years has been just 0.2%. Lower worker productivity, of course, has a knock-on effect to employe Download the full d&t Autumn Budget 2017 reportrs, consumers and the business world as a whole – as well as a lower tax revenue for the Chancellor. To address this continuing issue, Hammond announced yesterday what many had expected – that GDP (Gross Domestic Product) would be decreased to reflect the productivity gap. He also extended the National Productivity Investment Fund by a year to help improve infrastructure across the country, taking the total allocated to £31 billion. Whether this is enough of a boost remains to be seen – I’m not convinced.
No change to the VAT threshold – good news for many businesses
Perhaps the biggest Budget announcement in my book was that VAT registration threshold is NOT changing as many expected. There was a lot of talk about bringing it in line with other EU states with lower thresholds, but many new and small business owners breathed a sigh of relief when Hammond announced he would not slash the threshold, despite the OTS’s recommendations. This is great news – the current system isn’t perfect by any means, but I believe a high threshold is in the best interests of UK PLC. A lower threshold would most likely act as a demotivator for startups – charging a tax to encourage growth was never going to work.
All in all, there’s a lot of spending but not a lot to increase government revenues. There’s very little in the way of details, and even less in the way of costing. And everyone knows the devil is in the detail…