Deconstructing the Budget 2016

Reactions to the 2016 Budget from across the east of Scotland

Ross Martin, chief executive of the Scottish Council for Development and Industry (SCDI), says support for the emerging digital economy and national infrastructure for 5G roll-out in the Budget is good news:
“Budget 2016 takes place as the global economy slows and concern about weak productivity is increasingly shared internationally.
“As the Scottish Parliament takes on new powers from next year, it will become ever more important that the UK and Scottish governments develop a common economic platform to tackle these issues in Scotland – a process which SCDI will be encouraging as the First Minister and Secretary of State for Scotland jointly appear at our Forum later this week.
“The transformational potential of digital technologies is essential to increasing productivity in businesses and public services, and we welcome the support for the emerging digital economy in the Budget and the national infrastructure priority for 5G roll-out. However, we still have not-spots and poor signals in too many areas and on our transport networks with 2G and 3G, and SCDI is pressing for the UK and Scottish governments and other partners to work together to introduce innovative solutions now.
“We welcome the opening of negotiations for the Edinburgh and South-East Scotland City Region Deal bid and anticipate a positive announcement for Inverness and the Highlands in the near future. But we need transformational inclusive growth in all parts of the country, so SCDI believes that the UK and Scottish governments should also now work together with regions outwith Scotland’s city regions to develop collaborative approaches to driving productivity – starting with the proposed Ayrshire Growth Deal.
“The reduction in the Supplementary Charge and effective abolition of Petroleum Revenue Tax are further steps in the right direction and a key long-term signal to the oil and gas industry about the Government’s commitment to maximising economic recovery, but, with companies currently losing money, will have limited short-term effectiveness. The additional funding for seismic surveys is welcome which, particularly in the context of the support for innovation announced as part of the Aberdeen City Region Deal, will help the industry with the challenges and opportunities of operating in a mature basin.
“The confirmation of future funding for offshore wind – albeit the budget is tight and there is a gap before it will be available – and support for innovation in energy, particularly storage, are welcome as far as they go. It will be important that the offshore wind industry can reduce its costs to maximise the projects that this allocation can deliver and that further developments are supported in Scotland, to take advantage of our resources and grow a Scottish supply chain.
“We welcome the commitment to HS3 for the Northern Powerhouse. Should the announcement next week of the plans for HS2 between the North of England and Central Scotland confirm a journey time of 3 hours of less between both Edinburgh and Glasgow and London, this will mean a transformation of connectivity for the North and Scotland, driving productivity and underpinning a rebalancing of the UK economy.
“The reforms to business rates in England have implications for Scotland’s competitiveness. Three-yearly revaluations will improve their responsiveness to economic conditions, while raising the threshold for the rates supplement for larger businesses contrasts with the recent increase in rates for larger businesses in Scotland. The Scottish Government will shortly announce details of its review of local business taxation and this should be fundamental, including the overall revenue raised.
“Weak export performance is a major drag on economic growth, but support for internationalisation of the economy did not feature significantly in this Budget – other than the benefits of UK membership of the EU to trade and the risks of Brexit, points with which SCDI fully agrees. The freeze on excise duty for Scotch whisky, one of our key exporters, maintains rather than builds on the progress made in recent years, and we would hope that it can be resumed next year.”
Jerry Stewart, director of Eagle Couriers and Fellow of the Institute of Couriers, says the freeze on fuel duty will enable firms such as his to plan for future growth:
“Following weeks’ worth of rumour that we were set for a 2p rise, I am delighted that George Osborne has seen sense and frozen Fuel duty once again – this will allow firms such as Eagle Couriers to plan for future growth and employment in the sector to grow.
 “We would however still like to see a move towards an introduction of a stabilising mechanism as we believe that businesses and individuals should not expect the huge fluctuations at the pumps which we has become the norm.”
Alex Littner, chief executive of Boost Capital, a small business lender, says challenger lenders are disappointed by the Budget silence on the referral portal:
“Despite calling this “a Budget that backs small business”, it’s disappointing the Government scarcely addressed small companies’ ongoing need for finance. In particular, there was only passing mention of the bank referral scheme – a project that was announced in the Budget two years ago, but has yet to be given a date for launch – while many SMEs continue to be rejected for conventional bank funding. Their need is real and urgent. If properly administered, this scheme could introduce ambitious, but currently under-funded small firms to alternative providers with both the resources and appetite to lend.
“Measures to reduce business taxation, abolish business rates for many firms, help online traders, and improve the UK’s infrastructure will all be welcomed by small business bosses. The £1 billion package to support SMEs via the British Business Bank is also positive. But without a concerted effort to give firms broader access to business capital, many smaller enterprises will struggle to function at all. Action must be taken now to boost lending to this hard-working community, which is itself so important to Britain’s future prosperity.”
Samantha Hurley, head of External Affairs at the Association of Professional Staffing Companies (APSCo), says we should be wary of the impact on the professional, flexible labour market and public services:
“HM Treasury has today announced that there is to be a new duty on the public sector to ensure workers who are engaged through a PSC pay the right tax. While we support this in principle, HM Treasury has also said in the small print that when recruitment firms are involved, they will be deemed responsible for assessing employment status for tax purposes and consequently liable for the payment of taxes.”
“This is clearly unjust, because determining someone’s tax liability is highly complex. The IR35 tax rule, which governs the tax paid by PSCs, is not a simple test and requires detailed understanding of many aspects of a worker’s relationship with the client, and of a PSC’s day to day operations. But recruitment firms simply do not have sight of the reality of the working relationship. It is, therefore, entirely unreasonable to expect them to make this decision, and be financially liable for it.
“Deeming provisions in tax law have been challenged repeatedly in the courts, and clearly there is a huge principle of fairness that should apply to all tax payers, including recruitment firms. The proposals seem to totally contradict recent government reviews. The Office of Tax Simplification has just conducted a review of small company taxation and is also undertaking a cross departmental review of tax and benefits relating to freelancers. Additionally, Julie Deane, CEO of the Cambridge Satchel Company, recently completed an independent review of self-employment for the government. Yet none of these reviews were mentioned today.
“I believe that few, if any, recruitment firms will be willing to take on this type of liability. This will stop the vast majority of PSCs from providing services to the public sector, significantly impacting its ability to access the specialist skills it so badly needs.
“The only light is that the proposal is not due to take effect until 2017 and HMRC has announced that it will enter into a consultation process in the meantime.”
“APSCo will consequently vigorously fight this unreasonable proposal on behalf of its members, and will be asking the Government to publish its assessment of the impact this will have on the delivery of public services, because I find it hard to believe they’ve properly assessed the effects.”
Lynne Sneddon, tax partner at EY Scotland, asks while Lifetime ISAs are the future for savers, what about pensions?
“Pensions providers who don’t already offer an ISA should look quickly and seriously at the Lifetime ISA and at how they can offer it alongside their workplace pensions. This move feels like the future, and providers who don’t keep up run the risk of being irrelevant. It’s a sensible hedging of bets to offer both options.
“The introduction of Lifetime ISAs feels very much like a ranging shot. It’s likely to be popular and it won’t upset those people already saving into pensions – but it doesn’t address Osborne’s larger concerns about the level of pensions tax relief or the cost of public sector pensions. Expect Osborne to come back to this theme once the referendum is done. Could tax relief reform be the source of the big fiscal boost in his 2019-20 plans?
“The Lifetime ISA is likely to be a popular measure, but in the long run it raises some big questions. How will it sit alongside auto-enrolment? Will employees opt out of workplace pensions to save into Lifetime ISAs? Will they get support to choose between them? The questions only get bigger if Lifetime ISAs ultimately replace pensions: how will they work in the workplace? How do we ensure that the momentum around auto-enrolment isn’t lost? Who will pay for the Lifetime ISA generation’s healthcare when they living off their savings tax-free?
“The current retirement savings system is a messy mix of state pension, defined benefit, defined contribution, personal pensions, auto-enrolment and now the Lifetime ISA. It’s hardly surprising that young people don’t ‘get’ pensions, while high earners need to juggle with lifetime limits and the contribution tapers. You could be forgiven for thinking that the Chancellor is happy for us to struggle through the mire for a little longer so that a simplified system appears that much more attractive – even if the price is the loss of tax relief and tax free cash.
“The Lifetime ISA will have the same inheritance tax treatment as other ISAs. Spouses and civil partners can inherit the Lifetime ISA tax free, along with contribution allowance on top of their own individual allowance. But if someone else inherits, the Lifetime ISA is part of the estate for inheritance tax purposes and so subject to inheritance tax. This is a significant disadvantage over pensions for anyone looking to leave a legacy – a pension can now often be passed from generation to generation without being taxed, whereas a Lifetime ISA would be subject to both income tax on the contributions an inheritance tax on the legacy.
“The Lifetime ISA is a simple concept, but it will be quite a complex product to operate. When someone uses it to buy a home, the ISA manager will be responsible for claiming the government bonus in-year and transmitting it to the conveyancer. Somewhere along the way, there will have to be checks that this is a first purchase of a UK home and for residence not buy-to-let. The conveyancer has to pay the money back if the transaction falls through. It will be interesting to see what this means for do-it-yourself conveyancers.”
Laura Mair, tax partner at EY Scotland, says it’s a sweet and sour Budget, with the large paying for the small:
“This is a sweet and sour Budget with big businesses paying for the cuts for small ones.
“There is the sweet taste of stimulus for small businesses through exceptions to tax relief restriction but the taste for big businesses is less easily determined. The cut in corporation tax will help, as will deferral of the announced advance in payment dates, but the seven other changes to corporation tax will raise over £9 billion over the budget period.
“Whether you like the dish the Chancellor has served depends very much on which menu you are ordering from.”
Ed Molyneux, CEO and co-founder of FreeAgent, says it’s a mix of good and bad news for SMEs in the UK:
“On first look, there seems to be some good news for small business owners in this year’s Budget. NIC2s will be scrapped, business rate relief doubled, cuts made to Capital Gains Tax and corporate stamp duty and the Government is going to create two new £1,000 allowances for property and trading income – all of which are positive announcements.
“But I think the Budget is also a bit of a missed opportunity when it comes to small business tax reform. There’s very little information about how the Government actually plans to make tax simpler for self-employed people, or if it plans to follow through on any ideas put forth by the Office of Tax Simplification other than a closer alignment of income tax and NI contributions.
“There’s also little for contractors to get excited about either. There are no amendments to the forthcoming travel and subsistence tax relief changes which is a huge blow because, in their current form, the changes will unfairly penalise contractors and could potentially put their businesses at risk. I would personally have liked to see an alternative approach such as allowing travel and subsistence claims for any home to work journeys longer than the national average.
“And once again, the Government has shown that it has no intention of dealing with the issue of IR35. Despite its intended goal of highlighting false self-employment and tackling tax avoidance, IR35 actually has a real, detrimental effect on small 1-2 person businesses and IT contractors who run their business as a limited companies and take short-term contracts. I remain hopeful that it will eventually be replaced with simpler, more robust and fairer rules around small businesses’ employment status.”
Dr. Neil Blake, head of EMEA Research at CBRE, talks about the implications of the Budget on real estate:
“Lower growth forecasts, due to lower productivity may look like gloomy news for retailers if it translates into lower wage growth and weaker consumer spending, but continued optimism around employment growth is good news for future demand for office space.
“On the other hand retailers, and small businesses in general, will be pleased with the more generous exemptions on business rates, even if they didn’t get some of the more radical measures they were asking for. Changing from RPI to CPI indexation from 2020 will take the sting out of the future tax burden as RPI is expected to grow by 1% ahead of CPI. The move to a 3-year valuation cycle will also be welcome.
“The time when London will have full control of business rates has been brought forward to April 2017, this is a significant measure as it allows London to keep the fiscal benefits of economic growth and property development, which encourages growth friendly policies at the local level. We may well see this become the blueprint for similar plans extended to other parts of the UK.
“There are new mayoral devolution deals for a number of areas (though not yet for Leeds, Southampton and Portsmouth which have yet to agree to elected mayors), and there are new deals for the Shire areas that have agreed to have mayors. City deals plans for Edinburgh will also put it in on level pegging with Glasgow and Aberdeen.
“Commercial property stamp duty changes coming in at midnight will come as some relief to smaller property owners, but is effectively tax grab for the Chancellor, to the tune of £500m; a significant 15% increase in the tax take.
“New rules to tighten up tax rules for offshore property investors and developers will have some impact on returns from overseas interests, but if the Chancellor is right about the UK being the fastest growing major economy over the next five years, the UK will continue to be an attractive investment prospect.”
Adrian Sainsbury, chief executive of Close Brothers Commercial division, says business rates changes are a welcome relief:
“Today’s reforms to business rates will result in 600,000 more small businesses falling under the business rate threshold, as relief more than doubles to £15,000 from £6,000. This will come as a welcome relief to small businesses up and down the country, who have consistently cited Business Rates as a major factor hindering their growth.
“We work with thousands of SMEs across the UK and we know recent policy changes such as the national living wage and pension auto-enrolment have been met with concerns around their impact. We must therefore continue to support SMEs and help them plan for changes like this so they are able to continue to thrive and thus help the economy grow.”
Joanne Segars, chief executive of the Pensions and Lifetime Savings Association, says she’s pleased with the chancellor’s decision not to change pension tax relief: 
“The Chancellor’s decision to make no changes to pension tax relief is the right one. We are pleased the Chancellor has listened and recognised that huge changes to pension tax relief will not act as an incentive to save.
“The introduction of a Lifetime ISA is an interesting initiative to help younger people add to their pension and lifetime savings. We look forward to working with the Government to help make sure that the Lifetime ISA does help younger people build up their savings. An important part of this will be to make sure that savers’ interests are protected by ensuring that the regulation on charges and governance of the Lifetime ISA are comparable to those for pensions, which have been reviewed to make sure they offer savers good value.
“The Government has extended the way in which people will be able to save for their retirement and should use this opportunity to agree a new consensus for pensions that focuses on the long-term, builds confidence and gives both savers and employers clarity and stability. We call on the Chancellor to create a new independent retirement savings commission to tackle that challenge.”