Philip Hammond promised “a balanced Budget”, one that would maintain fiscal responsibility but help families cope with the cost of living. What measures did he announce to achieve his Budget aim?
Economic forecasts of the OBR
Hammond shared the OBR’s forecasts for GDP growth over the coming years following slower growth than expected in 2017 so far. The OBR has revised down its forecast to 1.5% in 2017; 1.4% in 2018; 1.3% in 2019 and 2020; 1.5% in 2021; and 1.6% in 2022, leading the chancellor to state that productivity performance “continues to disappoint”, and has remained “stubbornly flat”.
Nevertheless, Hammond championed the 3m jobs created since 2010 and the shrinking deficit, although he warned that it “still remains too high”.
Technology and innovation
It was a Budget recognising the rapid pace of change led by technology and acceptance that a “dynamic and innovative economy” must be “at the heart of global Britain”.
To leverage innovation and support tech start-ups, Hammond promised £3.2bn investment in research and development, including an increase in the main R&D tax credit to 12%, and £500m on a range of initiatives to help businesses, including artificial intelligence and full-fibre broadband.
He also set aside £20bn of patient capital investment over the next 10 years to fund innovative growth by doubling the annual allowance for investment in knowledge-intensive companies through the Enterprise Investment Scheme (EIS), while highlighting that EIS schemes would not be used as “shelter for low-risk capital preservation schemes”.
From April 2018, the VED rate on new diesel cars will go up by one band, and the current diesel supplement in company car tax will rise by 1%. The diesel levy will fund a new £220m clean air fund, which the chancellor said would “support the implementation of local air quality plans”.
High strength and low-value alcohol will also be hit, with duty on white cider products scheduled to increase by 2019. Other products will be subject to a duty freeze – including beer, wines, spirits and other ciders.
The chancellor has also frozen short-haul air passenger duty rates and long-haul economy rates.
Personal allowance and national living wage
To support individuals with rising prices, the chancellor has increased the personal allowance from April 2018 to £11,450, asserting that the basic rate taxpayer would be £1,075 a year better off as a result.
The national living wage will also rise to £7.50, up from £7.38 from April 2018.
The chancellor vowed to crack down on tax avoidance and tax evasion schemes, yet failed to reveal details of these measures in the Budget speech. The government would continue its work, he said, collecting £4.8bn in revenue by 2022-23 with the new measures.
With regard to corporate tax, Hammond reiterated the government’s commitment to maintaining low corporate tax rates, but announced a measure to freeze corporate indexation allowance from 1 January 2018 to broaden the tax base and bring the system in line with personal capital gains tax.
The chancellor also said that more had to be done to reform the system to cope with the digital economy. From April 2019, income tax will be applied to royalties relating to UK sales in cases where the royalties are paid to a low-tax jurisdiction, “even if they do not fall to be taxed in the UK under our current rules”. The measure would raise £200m annually, indicating that more had to be done to tackle multinational tax avoidance.
Hammond also took aim at VAT fraud, by ensuring that all online marketplaces are jointly liable with sellers for VAT, addressing fraud that costs the taxpayer £1.2bn each year.
Elsewhere on VAT, the chancellor said that he was “not minded” to reduce the VAT registration threshold, as had been recommended by the Office of Tax Simplification, but would consult on the “design” of the system to incentivise growth. Yet, he committed to the threshold remaining at £85,000 for the next two years.
On business rates, Hammond said he would bring forward the planned switch from RPI to CPI to April 2018, rather than in 2020 as originally planned. He also extended by one year the £1,000 discount for pubs with a rateable value of less than £100,000. The discount will now apply until March 2019.
Much concern has been raised about the revaluation system – in response, the chancellor announced that revaluations will take place every three years, rather than every five years – taking effect after the next revaluation.
Housing and stamp duty
The big news from the Budget was that Hammond will abolish stamp duty for first-time buyers purchasing properties up to £300,000. In addition, to help with high property costs in certain areas, stamp duty will be waived on the first £300,000 on properties with a value up to £500,000.
In other measures to address the housing challenge, Hammond committed to £44bn of capital funding, loans and guarantees over five years in a package to unlock new sites, and boost supply of skills and resources. The chancellor also said he would implement an urgent review of the gap between planning permissions and housing starts to address the high number of residential planning permissions that are currently unbuilt.
As many suspected, it was Budget without surprise, as Hammond sought to avoid the furore that followed the national insurance contributions changes in March. Housing was the hot topic, yet the chancellor’s focus on technology and innovation showed that the government is planning to leverage digital transformation to boost productivity and drive growth.