In what is likely to be the last Budget before Brexit, the Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, delivered a Budget for “hard working families” who he said were the “backbone of our communities”.
The timing of this year’s Budget was unusual, coming earlier in the year to avoid clashes with the final Brexit negotiations, and taking place on a Monday instead of the usual Wednesday, with many suggesting this was to avoid giving headline writers a Halloween gift.
In a “new chapter” for the economy, the Chancellor began by committing an extra £500m to prepare for all eventualities of Brexit negotiations with “fiscal buffers” to protect against any unanticipated negative economic effects of a no deal Brexit. He also confirmed that he may upgrade the Spring Statement to a full fiscal event if needed. This comes in the wake of conflicting comments by the Chancellor and No. 10 leading up to the Budget on whether spending commitments would be under threat by a no deal Brexit scenario.
With the majority of significant announcements released in the days and weeks before the Budget, there were few surprises in the Chancellor’s Statement.
Dubbing himself ‘Fiscal Phil’, the Chancellor talked up the Government’s finances, committing to cut the deficit to 0.8 per cent by 2023/24. Outlining the Office for Budget Responsibility’s (OBR) outlook for the UK, the Chancellor said growth going forward will be “resilient”, with the forecast for next year increasing to 1.6 per cent – up from the 1.3 per cent predicted in March. Growth is then estimated to drop to 1.4 per cent in 2020 before picking back up to 1.6 per cent by 2023.
On employment projections, the Chancellor stated that Britain’s “job miracle” was set to continue, celebrating the lowest level of low wage jobs since 1997 and the improved OBR forecasts that a further 800,000 jobs will be created by 2023.
In a move to tackle tax avoidance by the self-employed, the IR35 legislation, which is designed to combat avoidance by workers, has been extended to large and medium organisations in the private sector in plans that reportedly could raise about £1bn a year.
The Chancellor noted calls for him to postpone the flagship Conservative manifesto pledge to increase the personal allowance for income tax to £12,500 and the higher rate threshold to £50,000. Thanking “improved government finances”, Mr Hammond said he rejected these calls and instead committed to bringing forward the change by one year to next April.
Housing and development
Last year, the Government announced ambitious housebuilding targets of 300,000 new homes a year with a wave of initiatives aimed to support this. And with little having changed since then, this year was no different. Mr Hammond announced £500m for the Housing Infrastructure Fund to unlock 650,000 homes, extended the abolition of stamp duty land tax to first-time buyers of shared-ownership homes up to £500,000 and committed an additional £1bn to SME housebuilders.
Reacting to housing announcements, the G15 group of housing associations said it will “continue to make the case for more long-term funding for affordable homes”, but welcomed the extension of stamp duty relief to shared ownership properties and new commitments for the Housing Infrastructure Fund.
Reports leading up to the Budget suggested that there was a record gap between planning permissions granted and homes built. The report by former Cabinet Minister, the Rt Hon Oliver Letwin MP, on the review of build-out rates was published alongside the Budget, with the Chancellor relaying Mr Letwin’s conclusion that developers were not in fact engaging in so-called land banking. He noted that several recommendations were included to reform the planning system, which the Government would respond to in the new year.
The Treasury announced it was extending its Help to Buy Equity Loan Scheme until March 2023, but limiting it to first-time buyers and introducing regional caps; recommitted to keeping family homes out of capital gains tax; and granted funding to up to 500 local communities to allocate land for housing through the neighbourhood planning system.
In the wake of the collapse of outsourcing giant Carillion earlier this year, the Chancellor announced that he would abolish the use of Private Finance Initiative (PFI) funding for public contracts due to “compelling evidence” that it does not deliver value for taxpayers. He confirmed existing contracts would be honoured to avoid triggering penalty clauses.
Retail and the high street
With the high street under unprecedented pressure, calls were widespread for the Chancellor to include provisions to tackle this. Following suit, he announced £675m of co-funding to create a Future High Streets Fund to enable councils to draw up plans for the future of their high streets and facilitate redevelopment of empty units for residential. A consultation on how Compulsory Purchase Orders (CPOs) could help the high street will be launched. Among initiatives to help struggling retailers is a business rates cut of a third for all retailers in England with a rateable value of £50,000 or less.
The Royal Institute of Chartered Surveyors (RICS) supported the Chancellor’s emphasis on the UK high street, stating that business rates relief and plans to repopulate the high street through permitted development rights would help local economies.
Much of the hype in the lead up to the Budget was around a potential new tax on global technology companies, and the Chancellor did not disappoint. He stated that it was not fair for digital platforms that generate substantial value in the UK to avoid paying tax here, announcing ambitious plans to introduce a UK Digital Services Tax for profitable firms that have at least £500m a year in global revenues. He stressed that this was not a sales tax on goods bought online and would only affect large online retailers – not tech start-ups. A consultation will be held before the tax comes into effect in April 2020 and the Chancellor confirmed the Government would still work with international partners to find a global solution.
Industry, regions and devolution
Following longstanding calls from the British Chamber of Commerce, Mr Hammond announced an increase of the Annual Investment Allowance – a tax relief for British businesses designated for the purchase of equipment such as plant and machinery – from £200,000 to £1m, while an extra £1.6bn of new investment was pledged to support the Government’s industrial strategy.
Announcing a range of investment deals for the regions to give “power back to the people”, Mr Hammond announced funding for city deals in Tay Cities (£150m), Belfast (£350m) and North Wales (£120), with negotiations progressing in others. In 2021, funding for the devolved nations will increase by £950m in Scotland, £550m in Wales and £320m in Northern Ireland,
On infrastructure, the Treasury increased the Transforming Cities Fund to £2.4bn; gave an additional £90m to new models of smart transport such as on-demand buses; some £36m of additional funding for Northern Powerhouse Rail; £20m to further develop the critical central section of East West Rail between Oxford and Cambridge; and committed to supporting the delivery of 19,000 new homes by improving the Docklands Light Railway (DLR).
The Chancellor also committed £70m for the Defence and National Rehabilitation Centre in the Midlands to fund the capital cost for creating a facility to help rehabilitate civilians with major trauma injuries.
Responding to Mr Hammond’s announcements, the Local Government Association (LGA) said it supported the “desperately-needed investment in our under pressure local services” but refuted claims that austerity was coming to an end for local councils.
Other major announcements
Other policy announcements included an extra £20.5bn for the NHS over the next five years, including a £2bn increase in annual mental health spending in England and £240m for social care winter pressures. Despite strong opposition calls to halt the expansion of welfare reform, Mr Hammond committed an extra £1bn for universal credit over five years to fund extra protections for claimants, with work allowances being increased by £1,000, at a cost of £1.7bn.
A new tax was set on importing plastic packaging containing less than 30 per cent recyclable plastic but there was no place for the ‘coffee cup tax’, which the Chancellor confirmed he considered implementing but was not convinced in isolation would affect behaviour. There was also £60m committed to planting trees in England, a continuation of the freeze in fuel duty and £900m in business rates relief for small businesses. Some £400m was set aside to help schools buy extra materials; the living wage will rise to £8.21; and duty on beer, cider and spirits will be frozen.
On Home Affairs, an additional £1bn was designated to the Ministry of Defence; £160m more in funding for counter-terrorism police; and a review of police spending power announced.
While last year’s Budget was dubbed to be about “much more than Brexit”, it’s impossible to look at this year’s fiscal statement through anything other than a Brexit lens. However, with the Chancellor signalling that a new Budget would be needed if the UK cannot agree a Brexit deal with the EU, we could be doing this all over again within the next few months.