‘Spreadsheet Chancellor’ tables business growth plans
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
- £400m to invest in scale-up firms
- Productivity fund
- Business rates reduction
- Increase to insurance premium tax
- National Living Wage increase
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.”
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.
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.
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.
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.
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?