Chancellor Phillip Hammond is set to deliver the 2018 Budget on October 29 – earlier than expected and in a climate of apparent stagnation on Brexit progress and the Prime Minister’s pledge to end the age of austerity.
James Hender and Lucy Brennan, partners in the Private Wealth Group at Saffery Champness offer their predictions on what will be on the Chancellor’s agenda.
James Hender, Head of the Private Wealth Group at Saffery Champness commented:
A political balancing act
“Finding Brexit to the right of him, and a promised end to austerity on the left, Phillip Hammond is shaping up for what could be the most politically sensitive Budget in many years and one which will be a case of performing the most careful of balancing acts.
“The signs so far suggest that the public spending tap is about to be turned on – with Theresa May’s bullish stance on ending austerity at the Conservative Party conference following the pledge to spend an extra £20 billion on the NHS. While Phillip Hammond will have been buoyed by the OBR’s revised forecasts, he will still likely be reticent to deal out generous gains without demonstrating an inkling of pain. Over the longer term this will mean either increased borrowing coming down the track – which would run counter to the long-standing Conservative mantra to balance the books – or a programme of tax rises to ensure that once the tap is on it doesn’t cause a drought elsewhere.
“At the same time, the shadow of an unresolved Brexit looms large. The Chancellor will undoubtedly be tempted to use the tax system to both safeguard ‘UK Plc’ and incentivise future investment from and within the global economy. However, any move which is seen as being soft on wealth and big business, particularly multinational business, will likely be met with short shrift by much of the electorate and certainly ire from the opposition bench.”
Lucy Brennan, partner in the Private Wealth Group at Saffery Champness, commented:
Pensions tax relief, inheritance tax and SDLT
“There has been growing chatter around cutting pensions tax relief, but this is already incredibly tight in real terms and any significant reform will shove the Chancellor into a political minefield. Raiding pensions tax relief has tempted Chancellors before, but it just lumps the problem on to the younger generation who, as well as facing a difficult housing market, will then also face an unfavourable pension saving regime. At the same time, it would risk alienating a core segment of the Conservative demographic. Similarly, we could see something announced on inheritance tax, though with the OTS review ongoing it seems more likely that the Chancellor will bide his time before swingeing changes are made.
“We may see a freeze in the personal allowance, but this wouldn’t mean big money for the Treasury.
“Theresa May caused quite a stir when she announced the prospect of changes to SDLT for non-resident buyers at the Conservative party conference and we expect to see more detail on that front – particularly regarding the timeline for any potential consultation.
“While recent increases in SDLT have taken the froth out of the market somewhat, there has also been significant stagnation – particularly in London and the South East. Albeit on the face of things the latest proposed increase seems small – between 1% and 3% according to speculation – the Chancellor will be cautious of throwing the baby out with the bathwater in any reform to the system for non-resident buyers, with overseas capital being both a sizeable source of income for the Treasury and an important investment pool for the property industry.
Digital services tax and IR35
“Similarly, the Chancellor has signalled that he is ready to accelerate beyond the EU and OECD on a digital services tax, which will inevitably play well in the court of public opinion but, with Facebook for instance investing hugely in the UK with its new Kings Cross HQ and its associated jobs creation, the government will be wary of driving businesses into the welcoming arms of other jurisdictions – such as Ireland.
“There have been suggestions that, following the roll out of IR35 changes for the public sector, the private sector may be next-up for reform as part of a fuller response to the Taylor Review of employment practice. With several recent legal cases finding that gig economy workers may in some circumstances be owed employment law rights, we could see an attempt to bring parity between employment law and employment tax. At the same time, the Chancellor will have to ensure there is a balance between supporting job security and facilitating job flexibility.”
James Hender added:
Making VAT Digital and beyond
“One thing we certainly do want to see from the Chancellor is more clarity around Making VAT Digital (MVD), which comes into force for the majority of businesses in April 2019. There are real uncertainties over the most complex parts of the system. Despite the government initially promising no more delays to implementation, it has since emerged that implementation for businesses with more complex requirements will be pushed back to October 2019 to enable fuller testing and feedback during the new pilot scheme. We hope the Chancellor will use this extra time to provide businesses more guidance so as to prepare effectively. At the same time, we await more information and guidance on Making Tax Digital for income tax – which itself isn’t a million miles away now.
“More broadly, in the current climate, the Chancellor is walking a tax tightrope.
“It seems probable that he, and the government, will be looking to get to the other side of the ravine unscathed come March 2019, rather than hopping and juggling with flamboyant tax reforms along the way.
“With the government’s political position precarious, any substantial reform is likely to be backed up by hefty consultations rather than definitive action, along with some tax tinkering to plug any immediate spending gaps remaining after the OBR’s timely windfall announcement.”