Budget 29thOctober 2018
The Chancellor, Phillip Hammond, delivered his third budget on Monday at 3:30pm. As with most budgets it had been preceded by much speculation and pre-announcements, with the background of Brexit uncertainty, the strain on public services, trouble on the high street, global tech tax dodgers and the “end of austerity” (to name a few) expectations were high for some dramatic news.
Scanning the news and press after the budget, we may be tricked into believing that it was indeed a dramatic budget of – Tricks and Treats. However (in my opinion) the headlines had been written way before any announcements were made, the pundits found the proximity to Halloween too tempting.
Walking to work this morning a more apt pun came into my mind “The Tinkerman” anyone remember Claudio Ranieri during his spell as Chelsea Manager? Lots of small changes.
With UK spending at appx £650billion per annum, a few million or even billion changes here and there isn’t going to make a dramatic impact on us. Yes, the changes will impact some pockets of the economy and UK population, but unlikely to impact the economy overall. Granted, I’m no economist, so may be out argued by the clever City folks.
What matters most (again in my opinion) is Economic Growth – the better the economy is doing, the better we feel, and spend and earn more. The more we spend and earn, the more the government collects in taxes – I think the experts will tell us that Economic Growth is more important to public finances, than raising tax rates or cutting public spending. Forecast growth rates remain modest – 1.3% to 1.6% per annum.
OK, then let’s pick out a few of my highlights, I turned 50 recently so have a right to be grumpier!
Personal allowance– increasing from £11,850 to £12,500 in April 2019 and the higher rate threshold (for 40% income tax) increasing from £46,350 to £50,000 again in April 2019. No changes to the rates of Income Tax or National Insurance. Good news for most.
Corporation Tax– no change to the rate (19%) but Annual Investment Allowances (AIA’s – for Capital Expenditure) increasing from £200,000 to £1m for 2 years. Handy if any of us are considering spending more than £200k on new equipment!
Business rates– business rates bills, for those with a rateable value of £51,000 or less, to be cut by a third over two years. Good news.
No action – VAT thresholds. There has been much talk of a “significant” reduction in VAT registration thresholds (currently £85,000) and expectations were high….. No changes for the next 2 years, AKA, a lot of hot air and no decisions made but the government will consult widely……
No action yet – IR35. Again, much speculation on IR35 (mostly for consultants in a Limited Company). Public Sector contractors have been “on payroll” for a while now and the Chancellor announced that this would be extended to the Private Sector for medium and large firms, from 2020. In my humble opinion much of the Income Tax and National Insurance benefits of operating via a Limited Company vs being on Payroll, were removed a few years ago when tax on dividends was tightened. There is also much evidence that the Public Sector have increased day rates for contractors to compensate for any extra tax paid – thus is there actually a financial benefit for the government? I also expect that it will be challenged by big business. Much of industry (e.g. Engineers in the Automotive Industry) is staffed by contractors (via Limited Companies) and given the current troubles of e.g. Jaguar LandRover, I can expect that they will flex their muscles in the background and challenge this implementation in 2020, watch this space.
No action yet – Global Digital Tax Dodgers. The Chancellor announced that he’d had enough of inaction on the tax dodging activities of the global firms (by channelling profits into low tax territories) and was going to take action in advance of any global agreements. The result a 2% digital services tax on big tech companies from April 2020. Again, a delay of a year and once again a lack of detail – what about the likes of Starbucks are they a global tech firm? Again, I’m no expert on this, but it smells to me like a whole lot of talk of acting tough, but little action. Let’s see the detail on this.
The death of PFI (for now)– no more Private Finance Initiative contracts. When I was a youth I studied a bit of Economics, and the benchmark for low cost debt was Government Debt (of stable economies) as “risk free” debt. Thus, I could never grasp the sense of replacing Government debt with higher cost PFI, other than the cynical “off balance sheet” reason. PFI isn’t included in the national debt figures.
Waffle– why-oh-why is it appropriate to waste time during the budget on announcements like; business rates relief on public toilets (likely just to get a few puns in), £60m for planting trees in England, a commemorative 50p coin for Brexit etc. Please cut out the waffle and stick to the important information.
But………. The Chancellor announced that the Spring Statement could be upgraded to a full Budget if needed. So, the Tinkerman could return in the first quarter of 2019.