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‘Spreadsheet Chancellor’ tables business growth plans

23rd Nov 2016
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Philip Hammond tunes into Jazz FM

As the Chancellor known to his colleagues as ‘spreadsheet Phil’ got to his feet this afternoon for his first (and as it turned out last) Autumn Statement, the big query for businesses around the UK was whether Philip Hammond had the formula for growth.

Sailing into an economic headwind thanks to the gloomy economic outlook from the OBR, with slow growth, higher inflation, lower investment and weaker demand all threatening to rain on the Chancellor’s parade, Hammond chose to eschew the theatrics of his predecessor to deliver what the Federation of Small Businesses (FSB) labelled as a “modest and medium term” Autumn Statement.

Measures outlined in the Autumn Statement were a mixture of confirmations of existing policies, tweaks and the occasional new policy, and included:

Corporation tax still to drop to 17% by 2020

It was a reiteration of an existing commitment to continue cutting the main rate of corporation tax to 17% by 2020 that generated the most comment. Many believe this was a missed opportunity. Chas Roy-Chowdhury, head of tax at ACCA, commented that this would have been an “ideal time” for the Chancellor to consider a further corporation tax cut to 15%.

“In an increasingly competitive global environment, where major players like the US are considering hefty corporation tax cuts,” said Roy-Chowdhury, “a further cut would have given business a sense of security in a changing world, and positioned Britain as ahead of the curve and truly ‘open for business’.

“The announcement that the government will be raising £5bn from restricting interest relief and loss relief from large companies also belies the idea that Britain is ‘open for business.’ This penalty appears to be more of a one-size-fits-all measure which will negatively impact large businesses that have incurred bonafide interest charges and losses before paying tax.”

£400m to invest in scale-up firms

The Chancellor pledged £400m into venture capital funds through the British Business Bank to unlock £1bn in finance. The funds will be invested in innovative small businesses with potential for growth, to provide the finance that they need to expand.

The move was dressed up by Hammond as an attempt to address the issue of British start-ups struggling to scale up, and in many cases being bought by foreign investors instead of growing organically.

AccountingWEB contributor Steven Renwick, founder of Satago had a slightly more cynical take on the measure, telling our sister publication BusinessZone that the funds might replace funding British businesses are due to lose from the European Investment Bank.

"He did pledge to match lost EU funding after all, is there anything new here or are we just replacing the money we lost in Brexit?", said Renwick.

Productivity fund

Hammond also revealed a £23bn national productivity investment fund aimed at bridging the productivity gap between the UK and the likes of the US, Germany, France and Italy, which will back new infrastructure and innovation over the next five years, with transport, digital communications, research and development (R&D) and housing to be the focus.

Business rates reduction

Hammond announced that the government will push ahead with reducing business rates by £6.7bn over the next five years, as announced in this year’s Budget.

The confirmation was welcomed by many small business leaders, for whom business rates have become one of their major outgoings, but there are still concerns for many facing rate increases next year.

Phil Vernon, business rates leader at PwC, said that while the government has opted to lessen some of the impact of the April 2017 revaluation with a transitional scheme, they are still pressing ahead with a far less generous scheme in 2017 than the one adopted in 2010, when increases were capped at 12.5%.

“The business rates burden will increase for some businesses by up to 42% next year, which could see their payments increase by up to 75% from April 2018”, said Vernon.

The Chancellor also doubled rural rate relief to 100% from 1 April 2017 to remove the inconsistency between rural rate relief and small business rate relief, potentially saving a business up to £2,900 a year. Hammond went on to announce a new 100% business rates relief for new full-fibre broadband infrastructure for a five year period from April 2017.

Increase to insurance premium tax

One announcement that caused annoyance among individuals and businesses was that Insurance Premium Tax (IPT) will increase from 10% to 12% in June 2017. As a tax on insurers it will be up to individual companies whether to pass on costs to customers, but there seems little doubt that premiums will continue to rise.

David Bearman, financial services tax partner at EY, commented that both the insurance industry and UK customers will be frustrated with the rise, the third in just 18 months. “These incremental increases clearly reflect the fact that the government is committed to not raising other taxes,” said Bearman, “meaning there is limited scope for revenue-raising measures. We are concerned that this will not be the last increase.”

Benjamin Flockton, PwC insurance tax partner, said that the move was “not wholly unexpected”, as insurers have been predicting a trend of IPT ultimately aligning with the UK’s 20% VAT rate.

National Living Wage increase

In a move announced before the budget Hammond stated that the National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour.

The National Minimum Wage will also increase:

  • for 21 to 24 year olds – from £6.95 per hour to £7.05
  • for 18 to 20 year olds – from £5.55 per hour to £5.60
  • for 16 to 17 year olds – from £4.00 per hour to £4.05
  • for apprentices – from £3.40 per hour to £3.50

The Chancellor also announced that £4.3 million will be spent on helping small businesses to understand the rules and cracking down on employers who are breaking the law by not paying the minimum wage.

How will the measures announced today affect your business?

Replies (2)

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By Michael C Feltham
25th Nov 2016 13:25

There is ONE singular aspect, which ALL UK (and US) governments are incapable of comprehending.

Question: How and Why were "Manufacturies"(Manufacturers) able to massively invest in new plant, new buildings and new machinery (Bearing in mind, this was the "Age of Invention"), which powered Victorian England to become the World's greatest trading power and most dominant presence all across the globe?

Answer: They could freely "Save their hard earned brass" and reinvest. free of tax; without having to resort to borrowing in order to fund these paradigm shift, advances.

Surely, soon, UK and US governments might suddenly grasp how self-funded reinvestment is the one single issue which can empower true, real economic growth and the creation and maintenance of Competitive Advantage?

Is it any wonder, under the present regime of "If it makes a profit - disgusting! - Tax It!: If it is fixed; then bloody well tax it! If it moves - then bloody well tax it!

Clearly, what is needed, is a new regime of corporate tax, wherein:

1. Reserves, built-up against Contingent Liabilities which may or may not arise, yet does not then make the company (when a plc) liable to an hostile take-over and asset strip a la Lord Hanson et al!

2. Re-Investment - in particular in new F F & E, processes and facility (e.g. APD, etc) are recognised within Tax Codes as legitimate investment in current and forward expansion. NO, AIA does not count, actually, since in reality it is simply a deferred loan, where forward value attracts tax on residuals, unless they are written down to zero. Unlikely in a tech-centric environment, where advance in process technology means a constant re-cycling of capital plant and process assets, well before normal amortisation can apply.

Of course, such actions would militate directly against Government's incestuous and ongoing Corporatist linkage with the City and the vultures that lurk within... who simply adore High Leverage and the profits and fees accruing therefrom!

(note bene: I am currently re-reading both Orwell's epic work, The Road to Wigan Pier and concurrently, Thomas Armstrong's equally epic tome, "The Crowthers of Bankdom". Armstrong was hailed as a brilliant chronicler of Victorian England's Northern manufacturing industry, society and machinery. And thinking......)

Thanks (2)
By KWest
25th Nov 2016 15:46

I'm with Roy-Chowdhury on 15% corporation tax or perhaps even lower; say to 10%. Quite apart from encouraging increased economic activity, it might well deliver substantially bigger revenue for the Treasury.

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