Hammond puts Mackay on spot over tax cuts
The Chancellor raised the thresholds on income tax for basic and higher rate taxpayers and scrapped stamp duty on homes costing up to £300,000 for first time buyers.
Mr Mackay will deliver his own budget at Holyrood in December amid expectations that personal taxes will rise and that he is will stick to the current thresholds on land and buildings transaction tax, the Scottish version of stamp duty.
Today’s Budget was seen as aimed at the young, the low paid and at helping to stimulated business investment.
He froze duties on alcohol and announced plans to increase diesel tax among a number of environmental measures. He unveiled a package of support to stimulate investment in R&D and the energy industry, set against forecasts for a decline in economic growth over the next three years.
He rowed back on threats to lower the VAT threshold for businesses which had alarmed thousands of small firms and self-employed workers.
Andy Willox, the FSB’s Scottish policy convener, said: “The last thing that Scottish small firms wanted was a Budget which pulled the rug from under them. The Chancellor’s solid plans will give many in business a little of the stability they crave.
“As many as 190,000 Scottish micro-businesses – like crofters, musicians and start-ups – could have been hit had the VAT threshold been lowered. Instead, FSB is ready to work with the Treasury to simplify an over-complicated tax.”
The Chancellor said there would be £2 billion heading north to the Scottish Government as a consequence of his decisions.
Steven Cameron, pensions director at Aegon noted that key benefits in the Budget related only to England.
“It’s important that people in Scotland are aware that not all announcements of changes apply to them. The Scottish Government has devolved powers around property taxes and has already introduced its own version of stamp duty.
“So first time buyers in Scotland shouldn’t get excited about the immediate abolition of stamp duty on the first £300,000 their counterparts in England will be able to benefit from.
“More broadly, the Scottish Government also sets its own income tax bands so the increase in the personal allowance and threshold for higher rate tax don’t apply north of the border.
“The Scottish Government has already set a lower threshold for higher rate tax meaning it’s already possible to be a higher rate taxpayer in Scotland even if the same earnings in the rest of the UK would mean you were paying basic rate income tax.
“As the Scottish Government makes greater use of its wider devolved powers, we can expect an increased number of winners and losers, unless of course the Scottish Government follows the UK Government. The Scottish Budget on 14 December will paint a fuller picture of this.”
Bryan Buchan, CEO of Scottish Engineering, said: “It would appear that most of the benefits from the Chancellor’s Autumn budget will apply only to England as we in Scotland will have to wait for another month to see how our Cabinet Secretary for Finance, Derek MacKay MSP can compete.
“Will he, for example use the £2bn extra from the UK Government to increase the personal allowance before tax to £11,850 or increase the higher taxation threshold to £46,350?”
Mike Cherry, National Chairman at the FSB, said: “Overall, this is a business-friendly Budget. The Chancellor’s vision for an inclusive economy includes a set of measures that will boost confidence across the small business community as they face extremely challenging trading conditions.
“1.5 million modest-earning small firms and the self-employed will be relieved that we have seen off a VAT tax grab that would have caused huge economic damage. Instead, FSB is ready to work with the Treasury to simplify an over-complicated tax that on average takes a business a whole week to administer every year.
“We welcome the careful approach to protect diesel van drivers while at the same time addressing air quality. We also welcome the fuel duty freeze, which is vital to so many local businesses for customers, suppliers and staff.
“FSB presented a series of reforms to the Chancellor to make the business rates system fit for the future, and we are delighted to see many taken on board to improve a tax that so badly undermines economic growth. We are particularly proud to see the elimination of the staircase tax, a victory that FSB has campaigned hard to secure over the last few months.
“The economic outlook remains extremely troubled, with high costs of doing business and inflationary pressures hitting confidence and deteriorating productivity and growth.
“New public sector headline investment will help, to scale-up the British Business Bank by two thirds as well as in research & development, local infrastructure, SME house-building, broadband and training. This must now be followed by practical detail in an ambitious Industrial Strategy next week.”
Mark Tighe, CEO of the R&D tax specialist, Catax, said: “In terms of future-proofing the UK economy, this was an extremely encouraging Budget.
“The fact that the Chancellor focused on the need for innovation so early in his speech shows the structural importance of R&D to the modern UK economy.”
Scottish Labour leader Richard Leonard said: “Today the Chancellor delivered a failing budget, on a failing economy from a failing government. They are rudderless and without a plan to grow our economy, help our industries and create the work of the future. This Tory Government is a driverless vehicle. This budget is insufficient, inadequate and insincere.
“This budget reminds us how years of Tory failure have damaged our economy. We urgently need a long-term industrial strategy which will invest in Scotland’s future and investment in our public services.”
Shadow Secretary of State for Scotland, Lesley Laird said: “So much for strong and stable – under the Tories productivity is down, growth is down and wages are down.”
Budget – the Main Points
Brexit: First on the agenda was the announcement of an extra £3bn to be put into Brexit negotiations for the next two years. £700m has already been spent on the issue with the Chancellor not rolling out further investment.
Personal Taxing and Earning: The threshold for personal tax is to go up to £11,850 in April 2018. The higher-rate tax threshold will also increase to £46,350.
The living wage is set to go up by 4.4% in April 2018, meaning workers will now earn £7.83 an hour. This will see a pay increase of £600, taking the total pay rise to over £2,000 a year, giving over 2 million workers across the country a pay rise.
Short-haul air passenger duty rates and long-haul economy rates to be frozen, paid for by an increase on premium-class tickets and on private jets.
The dividend allowance: will be cut to £2,000 as already announced. In particular, this will hit small and medium sized business owners who take their profits as a dividend. Employer pension contributions will become an even more attractive way of extracting profits from a business.
Capital gains tax allowance: will increase by £400 to £11,700.
Business Taxes: Good news for small businesses as the VAT threshold is held at £85,000 for the next two years. But he is bringing forward a planned switch from RPI to CPI inflation for calculating business rates to next April, which will be worth £2.3bn to business over the next five years.
The Chancellor has also said he’ll solve the staircase tax for businesses that are on to floors – extending the £1,000 discount for pubs with a rateable value of less than £100,000 for another year to March 2019. He also announced future revaluations will now take place every three years.
Tobacco and Alcohol Duties: Tobacco to go up inflation plus 2% of the Retail Price Index and rolling tobacco prices to increase inflation plus 1% for the RPI.
Alcohol duties on beer, wine, spirits and most ciders to stay the same, but there will be plans to tackle the consumption of cheap “white cider”.
HM Treasury said the changes add 28p to the price of a pack of 20 cigarettes, 41p to a 30g pack of hand-rolling tobacco (HRT), 14p to a 10g pack of cigars and 18p to a 30g pack of pipe tobacco.
Emissions and the Environment: Diesel cars owners will be hit hard from April next year if their car doesn’t meet standards, as the Chancellor puts up the VED rate.
It part of a move to tackle fuel emissions but Philip Hammond was keen to assure no white van man or woman will be hit by the tax.
Further incentives for electric cars announced, which include a £400m charging infrastructure, and extra £100m Plug-In-Car Grant and £40 million for research into charging.
Mr Hammond also said he would look in to how to possibly bring in additional charges for for single-use plastic items.
Growth Forecasts: Economic growth was originally expected to grow 2% this year but that’s been cut to 1.5%. Predicted growth for 2018 has also been cut to 1.4% and 1.3% in 2019 and 2020, but it will hopefully pick up to 1.5% and finally 1.6% in 2022.
Public borrowing/ Deficit/ Spending: Annual borrowing this year is at £49.9bn, £8,4bn lower the predicted in March, and it’s expected to continue to go down from £39.5bn in 2018-19 to £25.6bn in 2022-23.
It is hoped public sector borrowing will also follow this trend with forecasts suggesting it’ll go from 3.8% of GDP last year to 2.4% this year, then 1.9%, 1.6%, 1.5% and 1.3% in subsequent years, reaching 1.1% in 2022-23.
Meanwhile, debt will peak at 86.5% of GDP this year, then fall to 86.4% next year; then 86.1%, 83.1% and 79.3% in subsequent years, reaching 79.1% in 2022-23.
The Chancellor has previously committed to getting the deficit below 2% and the forecast is hopeful he’ll do it by 2020-2021. The UK’s debt, as a percentage of economic output, or GDP, is expected to fall from 2.4% this year to 1.9% next year.
The OBR forecasts the deficit to be 1.3% of GDP in 2020-21, giving £14.8bn of headroom against the 2% target forecast.
Housing: From today Stamp Duty in England will be abolished for first time buyers purchasing properties worth up to £300,000. In expensive areas like London this will include the first £300,000 of the cost of a £500,000 purchase by those buying their first property. The Chancellor also announced the there will be a 100% council tax premium on empty properties and a compulsory purchase of land banked by developers for financial reasons.
Offshore Crackdown: After pressure to tackle offshore tax avoidance the Chancellor says HMRC will start to charge more tax on royalties relating to UK sales when those royalties are paid to a low tax jurisdiction, raising about £200m a year.
Welfare: £1.5bn package to address concerns about Universal Credit and the seven-day initial waiting period for processing claims is to be scrapped. Those claiming will also get one months payment with five days of applying and the repayment period for advances will go from 6 to 12 months. Added to this new claimants who get housing benefit will will continue to receive it for two weeks.