Home Economy Autumn Statement dissected – your take on the fiscal plan
The business community’s response to this year’s Autumn Statement has been a mixed bag, with some CEOs welcoming the changes and supporting the Chancellor’s efforts to stand SMEs in good stead post-Brexit, while others are not so sure. Some even suggest there are no benefits for the UK’s small to medium-sized businesses at all
BDO LLP, which has offices in Edinburgh and Glasgow, says the Autumn Statement is a sober one – with the implications for Scottish businesses still to be seen. It says the lack of detail in what was supposed to be a pro-business speech casts doubt.
According to the firm, the Chancellor put business at the centre of his speech and did his best to reassure firms facing uncertain times, but says a lack of detail casts shadows over an otherwise pro-business statement with headline-grabbing announcements such as the £2 billion R&D (research & development) investment providing no real clarity for businesses.
Head of tax Martin Bell said: “With Brexit negotiations around the corner, and the impact it will have on the UK economy yet unknown, Hammond delivered a considered and targeted speech designed to help the UK economy cope with the current uncertainty and the likely turbulence ahead.
“Clearly in relation to the income tax rates applicable in Scotland, we will need to wait until the Scottish budget announcement on 15 December.”
Despite BDO’s misgivings, accountancy software platform Pandle says the UK Government has set the best possible stage for British SMEs to prosper post-Brexit.
Owner of Pandle, Lee Murphy said: “Following Philip Hammond’s ‘final’ Autumn Statement, the UK government has set the best stage possible for UK SMEs to prosper once Article 50 is initiated next year. By unlocking one billion pounds of new finance to growing firms, more startups will be able to scale up, and in turn, provide more competition in the markets. This will allow for overall greater growth and innovation, and assist in augmenting the speed of innovation in respective sectors, something essential in enabling businesses to thrive in our economy. Furthermore, consumers will experience better prices, services and options as a result.”
“One of the major concerns to come out of Brexit has been on exports, with companies now having to consider separate licences for all the countries with which they wish to export their goods or services to. By doubling the UK Export Finance capacity, British SMEs will have a much easier time exporting to foreign markets, and also a great incentive to help tackle the trade deficit.”
Kerry Agiasotis, president at Western Union Business Solutions, said: “We welcome the Chancellor’s support for small and medium sized businesses in the UK by doubling its export finance capacity in the Autumn Statement. This, coupled with a relatively weak sterling represents a real opportunity for ambitious firms wanting to connect and trade with new overseas markets.
“We want to connect buyers and sellers all over the world, thousands of our clients are already benefitting from using our new digital trading tool. Today’s announcement supports innovation and ambition and we want to see many more SMEs understanding that new borders are within their reach. The traditional barriers for doing business internationally are quickly abating.”
Jon Gill, corporate partner at UK law firm TLT, said: “Some encouraging long term steps to improve the UK’s position as a great place to grow and invest in businesses developing innovative technologies. The continued investment in venture capital schemes by the British Business Bank will be welcomed, particularly as the availability of funds from the European Investment Fund is less certain post-Brexit. The patient capital review will be closely watched to see if this recommends a market intervention in the same manner as the Rowlands Review (that led to the Business Growth Fund), or a relaxation of restrictions around replacement capital – the latter being what many funds will be hoping for.
“The abolition of Employee Shareholder Status was expected. But it was disappointing not to hear of a replacement scheme to encourage wider equity participation in growing UK companies, which would have helped address the productivity issue that was highlighted in the Statement.”
But these sentiments aren’t shared by FreeAgent CEO Ed Molyneux, who claims there’s not much good news in the Autumn Statement for SMEs.
He said: “There’s not much good news in the Autumn Statement for small business owners – and especially for contractors. Despite the Chancellor announcing more funds to develop management skills, a rise in venture capital funds through the British Business Bank and an increase in rural rate relief, there’s actually very little to be cheerful about.
“In particular, the decision to shut down the supposedly-inappropriate use of the VAT Flat Rate Scheme by introducing a new 16.5% rate from 1 April 2017 for ‘businesses with limited costs, such as many labour-only businesses’, is likely to be detrimental for many contractors across the UK. It will essentially mean an increase in the amount of VAT that those businesses have to pay.
“And among the announcements buried deep within the Autumn Statement document is a restructuring of off-payroll working rules in the public sector, which could be very bad news for contractors working with government organisations. It’s essentially a change to IR35 but my preference would have been to abolish that legislation completely – as it has a real, detrimental effect on small businesses and IT contractors who run their business as a limited companies and take short-term contracts – and replace it with simpler, more robust and fairer rules around small businesses’ employment status.
“In addition, the announcement that tax breaks on employee share status will be abolished is likely to be a blow for ambitious small businesses – as will the announcement that employees will no longer be able to sacrifice their salary in order to pay lower tax on benefits in kind.
“I would have preferred to see more information about the government’s Making Tax Digital plans, greater powers for the small business commissioner to tackle late payments and less red tape for micro-businesses and contractors to deal with when it comes to their tax.”
Walter Boettcher, chief economist, Colliers International, said: “The Chancellor was right to identify ‘uncertainty’ in the GDP and public finance forecast numbers, hence the ‘last’ Autumn Statement, at first glance, looks to be a ‘caretaker’ budget given the lack of a clear economic path.
“Nevertheless, there are a few very welcome commitments and reconfirmations. The direct link made by the Chancellor between productivity and transport investment is crucial as it demonstrates continuity of the economic concept that sits behind the regional development agenda in general and the Northern Powerhouse in particular.”
“Announcement of a National Productivity Fund with a link to the National Infrastructure Commission suggests that regional development is firmly on the agenda. For commercial property, transport infrastructure is the physical framework for real estate. Given the short supply of quality assets UK-wide, any initiative that promotes development must be good.
“There is also a very specific regional hierarchy in this as the Chancellor remarked that further devolution of borrowing powers will be given to the new local combined authorities, but only those that are adopting the ‘mayoral model’, that is a single elected mayor. These can be listed and those that have not adopted the model are set to lose out.”
James Broadhead, CEO of Close Brothers Motor Finance, said: “Today’s reforms to rural business tax rates will come as a welcome relief to small and medium sized businesses. Increases to the national living wage and pension auto-enrolment have burdened small businesses nationwide, and so this tapered and measured business rate relief for rural areas will go a long way in ensuring their future prosperity.
“We work with many car-dealerships in rural regions across the country and we understand the challenges they face on a day to day basis from changes to regulation. Today they can feel positive about a change that should improve local business confidence and inspire growth in the economy.”
John Webber, head of rating, Colliers International, said: “It is a disgrace that the Chancellor has not taken this opportunity to accelerate business rates reductions in depressed parts of the country, which could desperately benefit from any reductions being brought forward.
“For London, a small softening in the scale of increase each year. But let’s be clear: a London firm that has doubled its rateable value will still be paying double business rates only 18 months from today. And taking into account inflation, this sop to the capital will offer little comfort.
“It is also clear that Government does not intend to work with the Mayor of London by providing a ‘Crossrail-levy-holiday’. This would provide much-needed breathing space taking off a further four per cent on top of rates bills for London firms with a rateable value of £55,000 or above.”
Laura Mair, EY partner, Scotland, said: “The Chancellor’s recommitment to ensuring the UK will have the lowest overall corporation tax rate in the G20 may have felt like old news, given the PM’s statement on Monday. However, in describing this as the ‘overall rate’ the Chancellor left himself room to avoid dropping below 17%, even if the US drops to 15% as promised by Donald Trump. The use of “overall” allows the inclusion of US state taxes, meaning that the UK rate could still pass this test.
“While any drop in corporation tax is always sure to be a headline grabber, most businesses want the Government to shift its focus onto reducing the employment tax burden. However, all we saw today was a slight increase to employers National Insurance Contributions – so no help there in offsetting the costs of the apprenticeship levy.”
The Chancellor finally addressed the complexity of the UK tax code but much more needs to be done to help businesses succeed.
Martin Bell of BDO LLP said: “The Chancellor acknowledged the scale and complexity of UK tax legislation when he announced his first real tax simplification action – having just one major fiscal event each year from 2018, the Autumn Budget.
“Scottish businesses will welcome this move. Again, the impact won’t be immediate but it is a step in the right direction and will make it easier to plan for the long-term, could improve the quality of legislation and result in less frequent change for businesses. The possible changes to the Scottish rate of income tax from April 2017 will be likely to increase the overall complexity in Scotland.
“Businesses will be disappointed that more wasn’t done to progress tax simplification. UK tax legislation is almost 20,000 pages long. From a business perspective, the sheer volume and complexity of tax law is a major obstacle to growth.”
Insurance Premium Tax (IPT)
Following the Chancellor’s announcement that ITP is set to rise, EY says the move will frustrate both the insurance industry and UK customers and may not be the last increase.
Lynne Sneddon, financial services tax partner at EY in Scotland, said: “Both the insurance industry and UK customers will be frustrated with this further rise in IPT; the third in just 18 months. For insurers, this is particularly the case because the revenue raised by the last two rate rises barely covers the cost of implementation, and for customers because costs are reflected in their premiums. These incremental increases clearly reflect the fact that the Government is committed to not raising other taxes, meaning there is limited scope for revenue-raising measures. We are concerned that this will not be the last increase.”
Tony Sault, UK general insurance market lead at EY, comments on the Chancellor’s announcement on whiplash claims: “Reforms to whiplash claims will be welcome when they come in, but motorists are unlikely to see any cost savings until 2018. In fact, premiums are expected to rise in 2017 for 3rd year running, adding a further £13 to the annual bill, on top of a £33 rise in 2015. However, any savings that motorists could expect in 2018 will be reduced by the 2% rise in Insurance Premium Tax (IPT), announced to come in next June.”
IR35 Tax Changes
The UK will now have one of the most inflexible labour markets in the world, according to The Association of Professional Staffing Companies (APSCo), which says it’s furious that the Government has ignored the concerns of industry stakeholders.
Samantha Hurley, operations director at APSCo, said: “The Government has announced that it is to introduce IR35 tax changes, which will result in Personal Service Company contractors in the public sector losing their right to determine their tax status.
“We are furious that the Government has ignored all industry stakeholders and has overridden the concerns of its own departments. This change will give recruitment firms and other engagers, who pay the contractor, liability and responsibility for operating payroll and paying the correct taxes to HMRC.
“These changes will convert the UK from having one of the most flexible labour markets in the world to having one of the most inflexible labour markets in the world.
“Despite the Government framing this as a duty on the Public Sector to ensure that those who work for them pay the correct tax, the reality is that the vast number of contractors work via recruitment firms and other engagers. In fact, it is these unconnected third parties that will bear the responsibility and legal liability for making the correct decision on tax status – namely whether the contractor is working in a similar way to an employee, and therefore liable for paying same taxes as an employee, which is an over-simplification of IR35.
“This is a disappointing and illogical move. The public sector will inevitably see its costs rise at a time when budgets are already very tight. A survey of independent professionals undertaken in July this year by IPSE, a membership body for independent professionals and the self-employed, revealed that 39% of respondents would work on public sector contracts but would increase their day rate to compensate for the extra tax liability.
“The same survey showed that over 50% of respondents would refuse to work on public sector contracts – or would terminate contracts if required to pay tax and NICs as an employee when delivering services independently. We are already seeing the public sector’s access to talent being severely impacted – there have been walkouts from a Ministry of Defence Agency which has left several major IT projects on hold.
“The Chancellor has just promised large scale investment in infrastructure and science and digital innovation to the tune of £23 billion over the next five years. However we would question how the public sector will deliver on this promise when HMRC has just destabilised the flexible labour market in the UK, which Government Departments and local& regional Government rely on.
“APSCo asks what assessment HM Treasury has made of the impact of these changes on the delivery of these projects. We would also be very interested to learn what assessment has been made on public sector labour productivity, which is already low, and could have a dramatic regional impact.
“While HMRC has developed an online tool which it says will determine an individual’s tax status, we believe that the public sector, the accountancy profession and the recruitment sector are sceptical as to whether this tool can deliver certainty. Consequently most placements will be treated as within IR35 in order to mitigate risk- this is likely to result in multiple appeals and employment claims against the public sector.
“We are also extremely disappointed that the Government has chosen to act now rather than take the more logical approach of waiting for the review of self-employment taxation announced today.”
On Infrastructure & Innovation Investment
“Although we welcome the announcement on the boost to funding for infrastructure and research and development to make the UK a ‘go to’ global destination for innovation in a post Brexit world, we are very concerned that this laudable aim will be defeated by the Chancellor’s short-sighted tax changes.
His failure to recognise the connection between our current flexible labour market and the Government’s aspirations for higher productivity will result in all these projects running way over budget and way over time.
The UK’s ability to prosper in a post Brexit world will depend on our ability to source highly skilled experts – often on a short-term contract – and on a just in time basis. We would seriously question whether these independent specialists will still be available?”
Research & Innovation
ScotlandIS says there is some good news for the UK technologies sector.
Polly Purvis, chief executive of ScotlandIS, says: “We welcome the Chancellor’s announcement of a National Productivity Investment Fund worth £23bn, including an additional £2 billion per year for R&D in artificial intelligence, robotics and other technologies to catalyse the commercialisation of innovative ideas. Digital technologies are drivers of productivity and economic growth and form strong foundations for the future.
“We were also pleased to hear that the Prime Minister and the Chancellor recognise the link between world-class digital connectivity and increased productivity and will therefore invest £1 billion by 2020-21 into broadband and 5G roll out, supported by a 100% business rates relief for new full-fibre infrastructure for five years.
“A large proportion of our members are small and medium sized companies and access to growth capital is often difficult for them. The announced £400m of additional investment into venture capital funds is a welcome support for Scottish technology firms looking to scale.
“Given the downgrade of the economic outlook for 2017 and beyond, businesses urgently require help to open up new markets. Doubling the UK Export Finance capacity, as promised by the Chancellor, is a step into the right direction.
“This Autumn statement includes a number of measures that ScotlandIS called for following the EU referendum. However, both the UK and Scottish Governments need to do more to support businesses faced with continued uncertainty and major changes to their operating environment. We need immediate action on digital skills to create a more competitive workforce truly capable of meeting today’s and tomorrow’schallenges.
“ScotlandIS urges the Scottish Government to step up with concrete proposals on skills and to match the Chancellor’s investment announcements for digital connectivity, innovation and export support in their December budget.”
Kaleigh Haeg, head of life sciences at Colliers International, says: “The government commitment to research, development and innovation could not have come at a more pivotal time for the British science industry. Today’s commitment of £2 billion per year until 2020 reinforces Britain’s position in the global science community and allows us to continue with our world leading research. This investment is essential to companies who have been wavering since the outcome of the EU referendum as to whether to invest in Britain.”
Martin Bell of BDO LLP says: “The £2 billion annual fund to support R&D investment will take time to trickle through and impact businesses positively.
“Companies love R&D reliefs; they are genuine triggers that boost investment in innovation and technology. However, the £2bn figure is misleading. R&D reliefs are a form of EU state aid rules and it would be difficult – if not impossible – to see how the Government can action this pre-Brexit without it being detrimental to the UK’s negotiations with the EU.
“The devil will be in the detail but, realistically, there will be limited action here until we have triggered Article 50.”
Infrastructure & Productivity
Hammond spent a lot of time talking about infrastructure and productivity. His long-term focus will be reassuring to businesses that like certainty.
Martin Bell of BDO LLP says: “It’s rumoured that every £1 invested in infrastructure results in £3 of economic activity so I can see why infrastructure, infrastructure, infrastructure was the order of the day.
“Boosting productivity and bridging the gap with G7 nations will benefit businesses and workers in the long term. However, the productivity puzzle is a tough nut to crack and the Government must realise that it’s not just about innovation and; it’s about getting more by doing less.
“Making things simpler, helping businesses navigate the system and eradicating out-dated laws that make tax more taxing can only help growth and prosperity in the long term.”
Anthony Walters, ACCA’s head of policy for Western Europe, says: “ACCA firmly welcomes the Chancellor’s commitment to boost infrastructure spending, both physical and digital. This will be critical to the delivery of the Government’s new industrial strategy which focuses heavily on the role of devolution. With ambitions for booming regional economies that are strongly interlinked nationally and internationally, significant and long-term investment in both new and existing infrastructure will be essential: whether that be roads, ports or airports.
“We welcome the National Productivity Investment Fund of £23 billion. Productivity remains a huge challenge for the UK. Productivity in the UK lags at around 25% behind France, German and the US. With higher productivity comes higher wages and higher standards of living, so the investment announced today is a positive step towards cracking the productivity puzzle.
“If infrastructure delivery is reliant on public and private partnerships, then it is vital that the public sector has the right skills to manage the development of large scale capital infrastructure projects over the long term.”
Manj Kalar, ACCA’s head of Public Sector, said: “What’s clear from the Chancellor’s Autumn Statement is that public sector pressures will remain on spending and on the people who work within it.
“Austerity has been a feature since 2010 and the ‘easier’ cuts have been made. But, as the public sector continues to shrink and demand for public services increases, achieving the cuts will be a challenge. And that is before the public sector considers readiness for Brexit.
“However, ACCA welcomes the Chancellor’s commitment to furthering Britain’s digital agenda, which is not only beneficial to business but to the public sector too. Economies like Estonia already offer 99% of their public services online and it’s clear from our own research that technology will be a key skill that employers will need in the future. The question is whether the public sector can attract and retain the talented staff needed to support such innovative practices. After all, it was only two weeks ago that the Civil Service People Survey 2016 showed staff morale plummeting.
“The Chancellor repeatedly said that these policies are something that will work for everyone, but we wonder whether this will work for the good of the public sector.”
Philip Hammond announced plans for an eventual £1 billion injection into SMEs via venture capital funds and the British Business Bank, which UK FinTech start-up Funding Invoice says is not only great news for London’s status as a technology and FinTech leader, but for tech start-ups in general.
CEO Aamar Aslam says: “The announcement from the Chancellor today that £1 billion is due to be invested in the UK’s tech start-ups via the British Business Bank is undoubtedly good news for the London market, but also the growing number of start-ups based across the UK. Giving start-ups the chance to grow at a sustainable pace through expanded venture capital funding is a welcome move.”
SME lender Independent Growth Finance says it’s important, however, to remember that not all SMEs will be eligible for this proposed venture capital funding, and as such, alternative options must be considered.
John Nelson, managing director of Asset Based Lending at Independent Growth Finance, says: “£400 million injected into venture capital funds via the British Business Bank is great news for SMEs. Philip Hammond’s argument that start-ups need access to funding and resources to grow is correct – but it is important to remember that each business is different, and therefore their financing requirements are likely to be different in turn.
“SMEs form the heartbeat of the UK economy and as such, their funding needs must be a priority. The Bank Referral Scheme is undoubtedly a step forward in recognising the value of alternative financiers lending to SMEs, but more must be done to make small businesses aware of the options available to them. As not all start-ups and small businesses will be eligible for the funding opportunities laid out in this year’s Autumn Statement, business owners must consider alternative finance streams in the new year.”
Sue Dawe, EY partner and head of financial services in Scotland, says: “The FinTech census will provide a crucial fact-base for investors, policymakers and other stakeholders to understand the industry and to chart its growth. It will also allow us to compare the UK industry to that in other leading FinTech hubs and highlight areas where the UK needs to improve, drawing on best practice which we may wish to emulate.
“The value of this data shouldn’t be underestimated. The UK FinTech industry continues to consolidate and grow its lead in the international FinTech marketplace. EY’s research for HMT earlier this year showed that in 2015 the sector drew in £6.6 billion in revenues and attracted circa £524 million in investment. With around 61,000 people employed in the sector (about 5% of the total financial services workforce), more people work in UK FinTech than in New York FinTech, or in the combined FinTech workforce of Singapore, Hong Kong and Australia.
“The race is on as cities and regions vie to become the world’s FinTech hubs and Scotland is ideally placed to play a leading role in the future of FinTech both in the UK and globally.”
Ashley Osborne, head of UK residential at Colliers International, says: “While there had been speculation of a relaxation of the stamp duty surcharge imposed on second home owners and buy-to-let investors, this has not materialised. We were not anticipating any significant alteration to stamp duty land tax as we believe that if the May government does change its view on the recent stamp duty amendments, it will keep its powder dry and make changes after Article 50 when the government will be looking for good news stories and policies to help stimulate the building industry.
“The commitment to provide £1.4 billion to deliver an additional 40,000 new homes in England in today’s Autumn Statement is a welcome announcement and likely to have a positive impact on the market, particularly for areas such as Milton Keynes and Bedford. However, the government has traditionally found it difficult to physically procure new build development, so we believe there are some real practical challenges to actually deliver this physical housing.
Lifting restrictions on housing types and grant funding for major and minor road improvements is good news for developers, however, the devil will be in the detail, and we await the white paper at the end of the year.
“The ban on upfront estate agent’s fees, currently imposed by lettings agents, is unlikely to have any significant impact on demand for buy-to-let property as ultimately, landlords will look to pass these increased costs on to tenants and this will put further pressure on rental levels.
“While we perhaps didn’t get the Christmas wish some had hoped for in the form of a reduction of stamp duty, overall, perhaps in times of such uncertainty, we should be thankful for some positive steps to take pressure off affordable homes and increase access to new land available for development.”
Anthony Aitken, head of planning at Colliers International, says: “The £2.3 billion housing infrastructure fund to help provide 100,000 new homes in high-demand areas creates a good soundbite, however with 300,000 houses required each year in the UK, and just over half that number being delivered, the scale of the housing crisis, predominantly lack of housing supply, becomes all too apparent. The fund will not start until 2021 and represents four months of the annual requirement. The biggest incentive that could help provide new homes in high demand areas, especially the south east of England, would be for government to require, indeed insist upon, local authorities to provide timeous local plans, where they have to meet their housing demand in full, having undertaken full green belt reviews. Not a snappy soundbite, but less obfuscation by local authorities in bringing forward local plans and addressing the actual issue, ‘head on’!”
Ishaan Malhi, CEO and founder of online mortgage broker Trussle, says: “We needed a radical injection of new houses in the UK from today’s Autumn Statement, and the Chancellor certainly hasn’t ducked the issue. £7.2 billion to support the construction of new homes and a housing white paper which will soon tell us exactly how he plans to address the long term underlying issues.”
“The unaffordability of housing is arguably the biggest problem facing young people in the UK today, so it will come as a huge relief to many that the Chancellor has placed homeownership at the top of his agenda. These investments won’t change things overnight, but for aspiring homeowners and those trapped in the rental cycle, the prospect of purchasing a property may have become a little more realistic. Hopefully Mr Hammond’s policies will mark a renewed effort to turn Generation Rent into Generation Buy.”
Frank Pennal, CEO property division Close Brothers, also comments on the government’s announcement to support small housebuilders: “Today’s announcement will be welcomed by small housebuilders across the UK as they look for relief amid their struggle to overcome the challenges of the current planning system, industry skills shortages and uncertainty over how Brexit negotiations will impact their business. Today’s investment announcement by the Chancellor of a £2.3bn housing infrastructure fund to deliver 100,000 new homes in areas of high demand is vital for the confidence and long-term future of the sector, and in turn, prospective homeowners.
“SME housebuilders will play a critical role in making up the existing new build shortfall each year in the UK, which currently stands at 80,000 short of the quarter of a million target. Today’s announcement, together with the £3bn Home Builders Fund introduced earlier this year, should help accelerate construction and remove some of the hurdles faced by smaller housebuilders, allowing them to unlock their potential and contribute to vital UK housing development.”
Alan Brown, EY executive director of tax, Scotland, says: “The Chancellor has clearly not inherited his predecessor’s passion for ISAs. Far from introducing a new ISA every season, the strategy favoured by Mr Osborne, Philip Hammond has restricted himself to uplifting the annual subscription limit for Junior ISAs and Child Trust Funds in line with the Consumer Prices Index. While these changes are welcome, perhaps the ISA train will not roll quite as quickly as in the past.”
EY Scotland says the pensions industry will breathe a sigh of relief that no major change has been announced, but warns that both (chargeable) gains and losses are in the small print.
Lynne Sneddon, EY Partner, Scotland, says: “If no news is good news, then Philip Hammond’s first Autumn Statement was a good one for the pensions industry. The Chancellor reserved his barbs for the opposition, and delivered the UK’s pension providers a respite from the constant change of the last few years. There was a moment of nervousness when he announced measures to tax salary sacrifice schemes in the same way as earnings, swiftly calmed by confirmation that pensions, along with childcare, cycle to work and ultra-low emission cars, would not be affected. We will have to wait for the consultation to learn how the government plans to tackle pensions scams – but moves to clamp down will be welcome and help to boost public confidence in the system.”
“In the small print, there are changes for holders of life insurance investments and pensions in drawdown. Pensioners wanting to contribute to pension pots they have begun drawing down will need to watch out for the Money Purchase Annual Allowance (MPAA) dropping from £10,000 to £4,000. But there is better news for people who want to partially surrender a life policy. Previously this could sometimes trigger a tax charge on any capital gain, but now policyholders can apply to have that recalculated on a “just and reasonable” basis.”
“However, for UK pensions reform, this is not the end, nor even the beginning of the end. George Osborne left office with his programme of reform half-finished. More still needs to be done to encourage lower earners to save enough for the retirement they expect. The contribution taper to reduce the tax relief taken by the highest earners has proven cumbersome in practice. At some point these will have to be addressed, but it seems that they could now be on the back burner, perhaps until the dust settles on Brexit.”
Fuel Duty Freeze
Lothians-based Eagle Couriers says it welcomes the fuel duty freeze, but had hoped to see a cut in the tax along with extra measures to make electric vehicles more affordable.
Jerry Stewart, fellow of the Institute of Couriers and co-director of Eagle Couriers, Scotland’s largest courier firm, said: “With a weak pound and prices creeping up at the pumps it is a relief that the pain has not been compounded with a fuel duty increase.
“It would have been welcoming to see a cut in what is a regressive tax – hitting those struggling to get by the most, both directly at the pumps as well as the increases in food and commodity prices that result from high fuel prices.
“It is disappointing not to see more measures to encourage businesses to adopt electric vehicles – something that we hope will be addressed in the very near future.”
End of an era
The Autumn Statement is dead, long live the Autumn Budget, says one commentator.
Peter Spencer, chief economic advisor to the EY ITEM Club, says: “As we thought, the strength of the economy following the EU Referendum vote has allowed both the OBR and the Chancellor to approach the Autumn Statement cautiously. Neither has wanted to be seen as over-reacting to the uncertainty surrounding the position of the UK following the vote.
“The OBR’s GDP forecast was revised up to 2.1% for this year, reflecting the strength of the economy. The forecast for next year was reduced to 1.4%, down from the 2.2% previously forecast at Budget time. This figure is above the consensus of around 1% for 2017, although we think the risk of another downgrade at the next Budget seems low given the continued momentum. The OBR could risk being more negative about the long term risks in later years, adopting the strategy the Bank of England belatedly adopted in November. That said, the OBR judges that the economy will be 2.4% smaller than otherwise as a result of the after-effects of the Brexit vote.
“Unfortunately, the underlying strength of the economy has not translated into tax revenues in recent years. Taking these unfavourable trends and the Chancellor’s policy measures into account, the OBR forecast saw another huge deterioration in government borrowing. The target for a fiscal surplus had to be postponed from the end of this Parliament to the end of the next.
“The strength of the economy removed any pressure on the Chancellor to take aggressive action at this stage. However, in view of the risk to business location and investment decisions, it is surprising that there was not more support for companies. In fact, business taxation, particularly taxation of multinational corporations, will rise significantly as a result of this statement. The Chancellor seemed very confident about the strength of the economy, but perhaps he is expecting this to fade and keeping what little powder he has for the Budget. The short-run impact of this package on the economy will be small, with most of the big numbers on infrastructure spending and the like coming through in the next Parliament. Most of the key elements had been flagged up in advance.
“Having said that, the Chancellor did use his speech to announce some important innovations, including an extension of the comprehensive spending review to the end of the next Parliament. The big surprise was as usual kept secret right until the end of the statement. Many thought this would be the last Autumn Statement, but no one thought that it would be replaced in future by an Autumn Budget, with the 2018 and subsequent Spring Budgets relegated to simple Statements. This reform is sensible but, with the road ahead so uncertain, it remains to be seen whether the Chancellor will be able to stick to his ambition of avoiding fiscal changes in the spring.”
Laura Mair, EY partner, Scotland, says: “All in all, this was an Autumn Statement that felt pretty familiar and similar to those of his predecessors. The Chancellor even confirmed that he would stick with the Business Tax Roadmap of the last Budget. This may be of limited benefit since it was more of a travel journal than a roadmap, and was short on vision for the future.
“Many businesses will be thankful for the lack of new measures but will now be waiting for legislation day on 5 December to see the detail of the items omitted from today’s speech. Close attention will also be paid to how the Scottish Government decides to implement the Barnett consequentials arising from the Chancellor’s announcements today. For a first indication we will look to the Scottish Government Draft Scottish Budget 2017/18 on 15 December 2016.”
James Klempster, head of investment management at Momentum UK, says: “Given that the seismic shock of Brexit and its destabilising effect was felt just a few months ago, today’s Autumn Statement is likely to be a relatively minor affair in comparison, with a modest impact on the markets. The Chancellor’s new initiatives may cause a little noise here and there, but their ultimate influence on investments in UK assets is generally pretty limited.
“In fact, we may actually see a calming effect, thanks to an increased level of certainty following the speech. But if there is a more substantial impact, this will be welcomed by long term investors, with heightened volatility presenting opportunities to add positions in asset classes at discounted prices.”
Alex Littner of Boost Capital concludes: “Brexit was always set to cast a long shadow over the Autumn Statement, and the weak economic outlook made it unlikely the Chancellor would have much good news for Britain’s small business community. But with the Government admitting growth is set to be even lower than expected in 2017, modest infrastructure investment announced, and higher wage bills on the cards, few SMEs will feel there’s much reason to celebrate after Wednesday’s speech by Philip Hammond.
“It’s not all doom and gloom, and there were some measures in evidence that could help Britain’s smaller businesses. A boost to export finance to encourage overseas sales is welcome at a time when more companies are considering trading with foreign markets. The fact that £400 million has been set aside to improve small business finance via the British Business Bank is also encouraging. And fuel duty being frozen for the seventh year running will be a relief to those that operate a large fleet of vehicles. Plus, the commitment to invest £1.8 billion in Local Enterprise Partnerships, which should provide much-needed support at a grassroots level for businesses across England, is not to be dismissed. This will bring valuable investment in local infrastructure, transport networks, and should speed up broadband in more remote areas.
Pay rate headache
“But many SME owners will be worried about the confirmation that the National Living Wage is set to increase to £7.50 an hour next year. While it is good news for low-paid workers – those working full-time will get the equivalent of a £500 pay rise from April – it’s a real blow for small firms already struggling to cope with higher pay rates. Boost Capital has a lot of clients operating in sectors such as care homes, retail, and hospitality, and many are already borrowing just to cover basic wage costs. With uncertainty over the outcome of the Brexit vote and higher inflation set to squash any hopes of a resurgent economy for the time being, SMEs are set to be under increasing pressure from many quarters in the coming months. Higher wage bills only add to this mounting stress.
UK open for business?
“The decision to cut corporation tax to 17% by 2020 as previously planned has been welcomed in many quarters, though doesn’t go far enough for some. A corporation tax cut to 15 per cent would have sent the world a strong message that Britain is truly open for business, as the Brexiteers would have us believe. But small firms must take from the policies what they can. The Government continues its commitment to remove many small firms from the need to pay business rates, cutting that burden by £6.7 billion over the next five years. Rural rate relief is good news for small companies based in the countryside. And, once the details emerge of exactly how businesses will be further incentivised to invest in research and development, those with innovation and business growth in mind should take advantage of any tax breaks in this vein.
What SMEs really want
“That this was the last ever Autumn Statement will be a change that few people will lament. At a time when instability abounds, reducing fiscal announcements to just once a year seems sensible, and at least allows businesses to adapt to one round of regulatory changes before another is introduced, as happens at present.”