Paul Falvey, a tax partner at BDO, looks at the key announcements affecting businesses and what was missing from the Chancellor’s speech
This was less about being ‘balanced’ and more about being bland. The Chancellor did well to deliver a speech that offended no one. He didn’t do well at delivering a speech that pleased anyone. For me, it reinforces the perception of many that government is drifting without a clear sense of purpose.
To be fair, he is stuck between a rock and a hard place. He is handcuffed by Brexit uncertainty and is also dealing with an economy with low growth forecasts and weak productivity. On top of that, he is manacled by a wafer thin majority in Parliament too, meaning anything even slightly controversial is likely to get knocked on the head.
By far the biggest news in the Budget speech came from the OBR rather than the Chancellor. The OBR’s decision to lower growth forecasts – with economic growth now averaging at just 1.4% over the next five years – was a blow.
The main reason for this is the productivity crisis we’re currently enduring in the UK, which is at levels not seen since World War II. Government, industry bodies, businesses and academia must work together to solve our productivity puzzle and soon.
All that considered, Hammond did a reasonable job both economically and politically. It my opinion, it was far from being a pro-business Budget, however there were some measures introduced that business leaders should be aware of.
One of the key themes of the speech was about making the UK fit for the future. There was a lot of talk about innovation and the UK’s technological revolution but the announcement in relation to R&D credit was a little disappointing.
R&D tax credits are a popular relief, however a rate increase of 1% is not going to encourage companies to be more innovative or invest in future-proofing their business. On the plus side, however, it will hopefully remind businesses to consider if they already qualify and therefore whether they should be claiming this relief.
As expected, the Chancellor announced positive changes to business rates, bringing forward the switch from RPI to the lower CPI by two years as of April 2018. He also announced that revaluations will become more frequent, taking place every three years from 2022.
In an unusual step, retrospective legislation will be enacted to end the so-called ‘staircase tax’ where different rates apply depending on whether staircases are private or communal. Affected businesses will be able to request that bills are recalculated and backdated to April 2010.
The Chancellor also announced the government is doubling Enterprise Investment Scheme (EIS) limits for knowledge-intensive companies (KIC). EIS has been hugely successful with more than £14bn invested in over 24,500 companies since its launch. There had been rumours prior to the Budget that EIS relief could be significantly reduced or even withdrawn so this is welcome news.
Additionally, the amount individuals can invest each year in EIS companies has been doubled to £2m a year provided they invest in at least one KIC.
But what didn’t Hammond address in his Budget speech?
For businesses, there were two glaring issues ignored by the Chancellor. The first being tax simplification. Almost two thirds (62%) of the businesses we polled before the Budget said they would be willing to pay more tax in return for a simpler system. But once again, the government did nothing to tackle this issue. The sheer scale and complexity of the UK tax code – which clocks in at 10 million words – is a huge obstacle to growth. Businesses will be disappointed that there was no commitment to setting out a coherent tax strategy.
The second thing missing for me was action and clarity around the gig economy. The words ‘gig economy’ weren’t even mentioned in the Chancellor’s speech; a surprise for many considering the focus on technology, a mobile-economy and the importance of future-proofing our workforce.
Some will have missed the draft bill that was published by the Work & Pensions Committee and BIS on the morning of the speech. The Government has also said it will launch an employment status consultation next year. This will, hopefully, provide some clarity on employment and worker status definition which the Chancellor should simply import – once a final definition is agreed – into tax law.
Paul Falvey is a tax partner at BDO LLP.