Spring statement 2018 - quiet before the storm?

By | 14 March 2018
Chancellor Philip Hammond delivered a mercifully short, and modestly upbeat, Spring Statement that was above all a political balancing act in troubled times. Whilst 2017 saw a (sometimes confused) raft of tax changes announced and introduced, the Chancellor crafted his short spring statement to convey an air of prudence and stability. At less than 30 minutes in length, it nonetheless managed to pack in 13 consultations on matters as diverse as tax & insolvency, business rates, work-related training, the Digital Economy and plastic bottles.

On a macro-economic Level

The macro-economic position remains troubled notwithstanding unexpectedly high tax receipts in January which have allowed the Office for Budget Responsibility (OBR) to reduce borrowing forecasts for this year. The medium term 5 year outlook looks problematic  – there has never been a five year period since the end of World War II when the UK economy has grown at 1.5% or less, but this is exactly what the OBR is predicting. Inflation is above target with interest rates predicted to rise before the Summer, partly as a result of the fall in confidence in Sterling after the Brexit referendum. The UK manufacturing sector has had its longest period of expansion in 50 years and yet any version of Brexit, scheduled to commence in a years’ time, risks significantly damaging manufacturing because of future trade barriers, possible tariff disputes and the need to re-engineer complex supply chains.

With this backdrop, the Chancellor sought to deliver calm confidence and to keep his tax-raising powder dry for the Autumn Budget. He broadly succeeded. The consultation on business rates is positive given the pressures faced by retail businesses and restaurants, though some worry that the pace of change is too slow. VAT simplification (an EU initiative) is to be welcomed if it eases the burdens on entrepreneurs and their growing businesses. Similarly, the common-sense proposals to make Entrepreneurs Relief more flexible for shareholders of companies who are raising capital to grow, are to be welcomed. EIS changes to finance innovation should help UK plc play to its strengths, though as ever the devil is in the detail. Increased support for self-funded work related training will help encourage businesses to invest in human capital. 

What's new for business and technology? 

Businesses in the technology sector will feel understandably apprehensive at the government’s desire to find new ways to raise revenue (announced last Autumn and expanded in the Spring Statement) and the risk that unilateral action rather than a co-ordinated multilateral approach brings with it unintended consequences which risk undermining UK plc at a time when trading partners worry about the consequences of a possible Brexit. 

What was not mentioned? 

What this Spring Statement didn’t address in any meaningful way however is the more fundamental issue of how we tax different things and whether as a nation we have found the right balance. Is it reasonable, for example, that capital gains are taxed for the most part at 20%, as low as 10% for wealth creators, that companies pay 19% tax on their profits, that income tax rates reach as high as 45% with a 40% rate above £46,000, that inheritance tax raises relatively low amounts of revenue for the public purse? This latter point may be dealt with in the recently announced OTS review which will be published in time for the Autumn Budget but these are all issues that warrant a positive debate once, as a nation, we make up our minds on how and if Brexit should proceed. 
 

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