The “era of austerity is finally coming to an end”, the Chancellor said in his last Budget before Brexit- an eye-catching line.
But this is in the context of an economy muddling through, and withdrawal from the EU clearly remains a risk in the immediate road ahead, said Laith Khalaf, senior analyst at financial services group Hargreaves Lansdown. “This is simply a continuation of the current trend, where the UK remains in a low growth, low interest rate environment,” he added.
But what may come to define Philip Hammond’s budget is hiscareful approach- especially in how it may affect UK businesses, said Khalaf.
‘The chancellor hasn’t rocked the fiscal boat with this Budget, not entirely surprising given the Brexit storm clouds gathering and the mutinous mutterings from below deck,” said Khalaf..
“Indeed he’s left the door open to checking the compass again in the new year, and changing course with a Spring Budget if needed. Improvements in the public finances have allowed the Chancellor to cover the big NHS spending promise, and provide some little tokens of largesse to boot.
“Bringing forward the manifesto pledge to boost the personal allowance and higher rate threshold will raise a cheer from millions of taxpayers,” he added.
One greatly expected initiative was an easing of taxes to reduce pressure on the high street, where traditional retailers have been impacted by online rivals.
“Cuts to business rates for smaller high street premises will be welcomed by shopkeepers, but it’s not going to deliver a dividend for the big department stores where store closures and job losses can unfortunately still be expected,” said Khalaf.
“These companies do at least have the resources to invest in their online proposition to compete in a digital age, even though they arrived pretty late at this particular party, and are suffering the consequences,” he added.
Chas Roy-Chowdhury, head of taxation at the ACCA (Association of Chartered Certified Accountants) said he backed the chancellor on the move.
“We fully welcome this significant announcement and consider it to be a good start. Much more needs to be done to reduce the disproportionate tax burden which small businesses suffer around tax compliance and red tape in general,” said Roy-Chowdhury. ACCA has been involved in discussions with Government Departments to find ways to relieve the burden of rates on small businesses,” he added.
Taxing tech giants
A new digital tax targeted at search engines, social media platforms and online marketplaces, or in other words, Google, Facebook and Amazon, will be controversial.
Khalaf said the global tech giants have proved slippery customers for tax collectors, and focusing on revenues rather than profits makes it more difficult for companies to squirm out of their obligations.
“A tax take of £400 million or so might seem a small number when you consider that Amazon alone is expected to post sales of $233 billion this year. But the worry for the tech giants, and their shareholders, is that this is the pebble that starts an avalanche of taxes from international governments,” he said.
But the ACCA’s Roy-Chowdhury suggested some caution on the matter. “The OECD is already working on the new digital services tax. The UK needs to be very careful about the design of the tax to ensure it specifically taxes the platforms in a targeted manner, should be time-limited and details need to be consulted on,” he added.
Mark Tighe, CEO of Catax, specialist advisors in capital allowances, R&D tax credits and the Patent Box, said of the Budget: “While the Chancellor repeated his commitment to making the UK a world leader in enterprise and innovation, it was disappointing he did not give this more of a focus in his speech, leaving out the detail on plans to support science and productivity to be looked up in the Budget Red Book.
“He announced a PAYE restriction on SME R&D tax relief which though designed to prevent abuse of the system sends out a negative message to SMEs that wish to innovate and benefit from the tax relief. This anti-avoidance rule will impact genuine claims made by technology start-ups where their payroll costs are low.
“There was good news for innovative companies generally, with £1.6bn funding for certain technologies such as AI, nuclear fusion and quantum computing announced, and increasing the Industrial Strategy Challenge Fund by £1.1bn. There will be further funding to support fellowships for technology based programmes and to support Catapult Centres,” said Tighe.
He said the chancellor did announce some positive changes to boost innovation including the increase in annual investment allowance from £200,000 to £1m for two years. This includes a tax relief for IP rich businesses so will stimulate general business investment but also reward the businesses that innovate most to create new products and services.
“Additional relief on ‘non-residential structures’ should provide further encouragement for businesses to invest in bricks and mortar, machinery, equipment and more but this was offset by a reduction in the Capital Allowance Special Rate Pool from 8 per cent to 6 per cent,” said Tighe.
When it comes to increasing incentives for apprenticeships, Ben Rowland, co-founder of Arch Apprenticeships said he was delighted by the government’s proposal to announce a £695m initiative to help small firms hire apprentices, with their proposed contribution now reduced from 10% to 5%.
“We have been strong advocates of the apprenticeship reforms that the Government has introduced, and truly believed that they will have a big impact on resolving the growing skills gaps in the UK.
“It’s brilliant that the government are taking steps to reinforce apprenticeships as the way to boost skills and productivity and we hope employers will increasingly recognise them as an opportunity to accelerate their business performance and bring new life to their teams,” he added.