Challenges facing Hammond
Chancellor to push investment and innovation
Philip Hammond unveils his first Autumn Statement tomorrow and given the fragility of the economy, the looming UK Brexit and Donald Trump’s election to the White House, it is no surprise that he has abandoned his predecessor George Osborne’s target to get the UK’s finances into surplus by 2020.
We shall learn the latest forecasts from the Office for Budget Responsibility and economists have warned that Mr Hammond will face a multi-billion pound black hole in the UK’s finances unless he does a ‘fiscal reset’.
Already he has shelved Mr Osborne’s plans to cut corporation tax rates to 15%, instead sticking with the planned reduction to 17% by April 2020, but going no further. On the other hand, the economy has been doing surprisingly well, with tax revenues higher than expected and employment up.
What are we likely to see tomorrow? Perhaps further incentives to encourage investment and innovation in the UK. With the implications of Brexit being the big known unknown, he will want to want to boost the economy in readiness.
Help for working families who struggle financially and “just about manage” (the JAMs) is another expectation. To fund this, it is predicted that salary sacrifice schemes operated by employers could be culled.
These have provided income tax savings for employees and national insurance savings for employers over many years and operate by the employee giving up part of their salary in return for non-cash benefits such as childcare vouchers or pension contributions.
Spending on the UK’s transport network is likely to be announced, along with incentives for smaller house builders and penalties for builders who stockpile land banks.
A reduction in VAT rates from 20%, a reduction in Stamp Duty and Air Passenger Duty and a cut in the higher rate of income tax have all been predicted. There may be some hints of cuts but the Chancellor is unlikely to use the Autumn Statement to make fundamental changes, and instead defer until his Budget next year.
As a result of the current climate, a number of trade associations have appealed to the Chancellor to use the Autumn Statement to offer reassurance amidst such volatility.
Oil & Gas UK wrote to Hammond requesting that he send a clear message to investors in order to boost confidence in North Sea exploration and production.
EEF, which represents Britain’s engineering and manufacturing businesses, claims one in four manufacturing companies are holding off on investment plans due to political uncertainty, so the Chancellor must tackle this by introducing supportive fiscal measures.
Despite these calls, the UK economy has performed better than predicted since the Brexit vote and the Chancellor may well wait until the Budget in March to announce any stimulus packages. It would allow the Treasury more time to review how well or poorly the economy is responding to the seismic political events of 2016.
At Johnston Carmichael we keenly await an update on the Government’s Making Tax Digital (MTD) plans and the proposed changes to corporation tax for the UK’s response to the OECD’s Base Erosion and Profit Shifting project. MTD is estimated to be costing £1.3bn, with the transformation of the tax system representing the most fundamental change to income and tax reporting in a generation.
Following Wednesday’s UK announcements, we will then await the Scottish Government’s response and, in particular, whether or not the delayed Scottish Budget that is to be announced on 15 December will reflect similar changes. The divergence of income tax rates for Scottish taxpayers for 2017/18 is a possibility.
Susie Walker is head of tax at Johnston Carmichael