Chancellor ‘gambled with public finances’ in Budget, states IFS

The Institute for Fiscal Studies (IFS) has suggested that Chancellor Philip Hammond ‘gambled’ with public finances in the 2018 Autumn Budget.

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In its Budget analysis, the IFS stated that, whilst forecasts prepared for the Budget by the Office for Budget Responsibility (OBR) gave the Chancellor room for manoeuvre, public finance forecasts could ‘deteriorate significantly’ next year, leaving the government in a tricky position.

The Institute also warned that UK public services are ‘going to feel squeezed for some time to come’, and that cuts are ‘not about to be reversed’.

In regard to austerity, the IFS stated that we will ‘only really know’ when it is over when we have ‘firmer plans’.

Commenting on the Budget, Paul Johnson, Director of the IFS, said: ‘Mr Hammond will be thanking his lucky stars for the OBR. After all, who would have believed a Treasury forecast which just happened to allow more than £20 billion of additional spending on the NHS without either any tax increases or any effect on forecast borrowing?

‘And that really is the story of . . . [the] Budget. Lots of extra money for the NHS ‘paid for’ by better borrowing forecasts.’

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2018 Autumn Budget: Chancellor unveils Digital Services Tax

In his 2018 Autumn Budget speech, Chancellor Philip Hammond unveiled a so-called ‘Digital Services Tax’, which will require certain digital businesses to pay tax on sales generated in the UK.

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Over the past few years, a handful of large international companies have been subject to criticism for paying only small amounts of tax on their UK profits. The Chancellor previously stated that international agreements ‘need to be put into place’ to help tackle the issue; however, the Organisation for Economic Co-operation and Development (OECD), the body responsible for co-ordinating economic policy, has reportedly struggled to come to a decision on the matter.

The European Commission (EC) separately proposed an EU-wide 3% digital tax, but has so far failed to convince some EU member states.

The Digital Services Tax will take effect from April 2020, and will target ‘established technology giants’ with global revenues from in-scope business activities in excess of £500 million per annum, as opposed to tech start-ups.

Commenting on the tax in his Budget speech, Mr Hammond said: ‘It’s clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the UK without paying tax here in respect of that business.’

View our 2018 Autumn Budget Report

Chancellor Philip Hammond delivered his 2018 Autumn Budget speech yesterday, outlining a range of tax and financial measures.

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Mr Hammond’s speech unveiled a raft of amendments, including a bringing forward of the planned increase in the income tax personal allowance, which will rise to £12,500 in April 2019; an increase in the higher rate income tax threshold, which will rise to £50,000 at the same time; and a two-year cut in business rates for small retail firms in England from April 2019.

Further details regarding the announcements made by the Chancellor featured in the official press releases. Our comprehensive Budget Summary outlines the key measures, including some of the less-publicised changes that may impact upon your business or personal finances.

For a detailed overview of the Autumn Budget information, please read our 2018 Autumn Budget Summary.

Hammond delivers pre-Brexit Budget

Chancellor Philip Hammond has delivered his second Autumn Budget, exactly five months before Britain is due to leave the European Union.

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The Chancellor was in bullish mood, asserting that the era of austerity is ‘finally coming to an end’ after a ‘long, hard journey’. However, he maintained that UK debt remains too high and highlighted the importance of continuing to reduce debt and borrowing.

Citing the latest economic forecasts from the Office for Budget Responsibility, Mr Hammond revealed that the UK growth forecast has been upgraded from 1.3% to 1.6% for 2019, while public borrowing in 2018/19 is set to be £11.6bn lower than previously forecast at the time of the Spring Statement.

With the Brexit negotiations ongoing, the Chancellor announced an additional £500m of departmental funding for Brexit preparations. He also raised the possibility of upgrading the 2019 Spring Statement to a ‘full fiscal event’ if no deal was agreed.

Key announcements for businesses include a two-year cut in business rates for small retail firms in England from April 2019, worth £900m, together with a £675m fund to help rejuvenate high streets. The Annual Investment Allowance (AIA) will also increase from £200,000 to £1m, for a period of two years.

Meanwhile, individual taxpayers are set to benefit from a bringing forward of the planned increase in the income tax personal allowance, which will rise by a further £650 in April 2019 to £12,500. The higher rate threshold will also increase from £46,350 to £50,000. However, from 2021, both thresholds will rise in line with CPI inflation.

The stamp duty relief for first-time homebuyers will be extended to shared equity purchases of up to £500,000, while the lifetime allowance for pension savings will increase to £1,055,000.

As widely anticipated, the Chancellor confirmed plans to introduce a new tax on the UK revenues of digital services companies from 2020, applying to those with global sales of more than £500m per annum. However, plans for a tax on takeaway coffee cups were overruled in favour of a new tax on plastic packaging containing less than 30% recycled material.

Turning to duties, tax on beer, most cider and spirits have been frozen. Wine duty will rise in line with inflation, while tobacco duty will continue to rise by inflation plus 2%.

Other announcements include confirmation of an extra £20.5bn for the NHS over the coming five years, together with additional funding to help welfare claimants transfer to Universal Credit. An additional £950m will be made available for the Scottish government, £550m for the Welsh government and £320m for the Northern Ireland Executive for the period to 2020/21.

2018 Autumn Budget – the political reaction

Addressing the House of Commons, Chancellor Philip Hammond stated that the 2018 Autumn Budget was one ‘for Britain’s future’, highlighting how ‘the perseverance of the British people’ is finally paying off.

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However, Labour Party leader Jeremy Corbyn labelled the Budget as a ‘broken promise Budget’, full of ‘half measures and quick fixes’.

He added: ‘And far from people’s hard work and sacrifices having paid off, as the Chancellor claims, this government has frittered it away in ideological tax cuts to the richest in our society.’

Meanwhile, Vince Cable, leader of the Liberal Democrats, said that the Budget acted as a ‘sticking plaster’, stating that more cash is needed to end austerity – up to £19 billion would be required, he said, referencing figures produced by the Institute for Fiscal Studies (IFS).

The Green Party too were disappointed with the Budget. Green MEP for the South West, Molly Scott Cato, responded to the Budget, saying: ‘Rather than action to avert climate breakdown we saw the Chancellor accelerate faster towards it, throwing £30 billion at road building and freezing fuel duty for the ninth year running.

‘This now amounts to a £9 billion tax give-away, enough to reverse all Conservative benefit cuts of the past eight years.’

2018 Autumn Budget – the business reaction

Business groups have responded to Chancellor Philip Hammond’s Autumn Budget speech.

The Federation of Small Businesses (FSB) has welcomed the measures outlined in the Budget, extolling the £900 million in business rates support for small high street businesses, and praising the two-year freeze of the current VAT threshold.

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Mike Cherry, FSB National Chairman, stated: ‘This is the most small-business-friendly Budget that this Chancellor has delivered. He has listened to our requests across many areas of tax and public policy, putting him firmly on the side of Britain’s small businesses.’

Additionally, the Confederation of British Industry (CBI) commended the Chancellor for his ‘rock-solid’ Budget that delivered ‘more treats than tricks’.

Commenting on the Budget, Carolyn Fairbairn, Director General of the CBI, said: ‘It recognises the enormous contribution enterprise has made to balancing the UK’s books through jobs, pay and tax, and responds to many of the recommendations that firms have made.’

Meanwhile, the British Chambers of Commerce (BCC) stated that the Chancellor has listened to firms’ concerns by ‘delivering a Budget that supports investment and growth’.

Commenting on the speech, Dr Adam Marshall, Director General of the BCC, said: ‘Philip Hammond has sent important and positive signals to businesses across the UK, many of whom have been wavering on investment and hiring.’

However, the Institute of Directors (IoD) said that the Chancellor delivered a Budget that ‘pulled its punches’. Stephen Martin, Director General of the IoD, said: ‘Going into this Budget, IoD members urged the Chancellor to prioritise help for Brexit preparations. It is not enough simply to announce a potential ‘no deal Brexit Budget’- businesses need to get ready now.’

2018 Autumn Budget – the economic picture

Within his Autumn Budget speech, Chancellor Philip Hammond reported that ‘the era of austerity is finally coming to an end’, unveiling higher growth forecasts and lower-than-anticipated borrowing.

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In its report prepared for the Budget, the Office for Budget Responsibility (OBR) revised its growth forecasts for the UK economy up from 1.3% to 1.6% for 2019; to 1.4% in 2020 and 2021; to 1.5% in 2022; and to 1.6% in 2023.

Meanwhile, government borrowing in 2018 is set to be £11.6 billion lower than originally forecast at this year’s Spring Statement, the OBR revealed.

However, Mr Hammond also recently warned that an emergency Budget will be required if the government fails to negotiate a Brexit deal with the EU.

The Chancellor stated that, in the event of no deal, he will be required to alter his economic plan, and has therefore chosen to ‘hold back some fiscal headroom’.

All spending plans outlined in the Budget will take effect, ‘regardless of Brexit’, Downing Street confirmed.