2019 Spring Statement – the economic picture

In his Spring Statement speech, Chancellor Philip Hammond responded to the latest forecasts as published by the Office for Budget Responsibility (OBR).

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Acknowledging that economic growth in the UK and around the world has ‘slowed since the Budget’ in October 2018, the OBR cut its UK growth forecast for 2019 to 1.2% from 1.6%.

It also revised down its government borrowing forecasts: the OBR expects the government to borrow £22.8 billion this year, which is significantly lower than the £25.5 billion predicted during the 2018 Autumn Budget. The OBR attributed the decrease to ‘higher income tax receipts and lower debt interest spending’.

The OBR stated that it produced its latest forecasts ‘against a backdrop of considerable uncertainty’, primarily generated by Brexit. As a result, it stated that it has ‘no meaningful basis for changing the broad-brush assumptions’ that have underpinned its forecasts since the EU Referendum.

The OBR said that a ‘disorderly’ ‘no deal’ Brexit ‘remains the biggest short-term risk’ to its forecasts.

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HMRC figures reveal an increase in first-time buyer relief claims

Figures recently published by HMRC have revealed a 3% increase in the number of first-time buyer relief (FTBR) claims from the previous quarter, with 78% of transactions paying no Stamp Duty Land Tax (SDLT) at all.

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FTBR eliminates stamp duty for first-time buyers paying £300,000 or less for a residential property. Since the introduction of FTBR in the 2017 Autumn Budget, there have been a total of 241,300 FTBR claims, providing an estimated total relief amount of £570 million.

First-time buyers paying between £300,000 and £500,000 pay SDLT at 5% on the amount of the purchase price in excess of £300,000. Those purchasing property for more than £500,000 are not entitled to any relief and pay SDLT at the normal rates.

The Association of Accounting Technicians (AAT) recently suggested that FTBR will cost UK taxpayers £670 million by 2021/2022.

It has called for SDLT liability to be transferred from the buyer to the seller. The AAT argues that this would help people to move up the property ladder, and would assist those in the ‘most populated and expensive parts of the country’, such as London and the South East, where house prices are significantly high.

Phil Hall, Head of Public Affairs and Public Policy at the AAT, said: ‘Switching stamp duty liability from the buyer to the seller isn’t a silver bullet for our myriad housing problems, but it would make the system fairer because those moving up the ladder would be paying duty on the lower-priced house that they are selling, not the higher-price one they are buying.’

Finance Secretary for Scotland outlines tax plans in Scottish Budget

In his draft Budget, Derek Mackay, the Finance Secretary for Scotland, outlined his plans for Scottish taxation and spending.

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Mr Mackay stated that he will ‘not pass on’ a tax break for higher earners, which was announced by Chancellor Philip Hammond in the UK government’s Autumn Budget.

The Finance Secretary used the Budget to confirm that the Scottish higher rate income tax threshold will be frozen in 2019-20. Meanwhile, the starter and basic rate thresholds will increase by inflation, in order to ‘protect the lowest and middle-earning’ Scottish taxpayers.

Mr Mackay also made changes to Scotland’s Land and Buildings Transaction Tax (LBTT) system by announcing an increase in the Additional Dwelling Supplement (ADS) rate from 3% to 4%.

Commenting on the Scottish Budget announcements made by Mr Mackay, Tracy Black, Director of the Confederation of British Industry in Scotland (CBI Scotland), said: ‘Against a backdrop of Brexit uncertainty, and the fact that no deal remains a live concern, the Scottish government faces tough choices ahead.

‘We welcome the fact that the Finance Secretary has listened to CBI Scotland and other stakeholders on business rates, scrapping the unhelpful out-of-town levy, capping the poundage rate and confirming the switch from RPI to CPI for the duration of this Parliament.’

The Scottish Budget announcements can be read in full here.

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.’

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.