In the Spring Budget 2017, British Chancellor Phillip Hammond announced a “brighter future” for the UK economy. Nine months later, in the reformatted Autumn Statement, known as Budget 2017, the Chancellor admitted that growth has not been as expected.
In March, the Spring Budget was the last major fiscal event at that time of year. Now significant budgets are going to be delivered towards the end of the calendar year, in November, with March statements a chance to re-adjust according to Office for Budget Responsibility (OBR) and other economic indicators.
Right now, the economic indicators, for a number of reasons - too much consumer debt, low productivity, inflation and Brexit - are weaker than the Treasury predicted.
Bad news: Growth is slowing
Growth forecasts were slashed from an optimistic 2% to a slower 1.5%.
From 2018 through to 2021, growth is estimated to be between 1.4% and 1.6%.
Productivity has also been revised downwards, 0.7% weaker per year until 2023.
How has the Chancellor responded?
When money is tighter, or not as much is expected, borrowing needs to increase. In real terms, the government has borrowed £8.4 billion lower than Spring Budget forecasts, with UK debt peaking at 86.5% of GDP in 2017. Despite sizeable pledges and an unknown Brexit divorce bill (nothing was budgeted for that), borrowing forecasts are still set to fall, down to £25.6bn in 2022-23, around 79.1% of GDP.
However, compared to the last budget, the amount the government is expecting to borrow will increase until 2021-22, as a result of lower tax yields and the weaker economic outlook.
Earlier in November, the Bank of England (BoE), independent from the government, increased the base rate to 0.5%, using its own lever to stimulate the economy, reducing inflation (now down to 2%) and making saving more attractive.
Apart from increasing borrowing to cover the cost of running the country, the Chancellor has other levers he can use to stimulate the economy. Here is what we’ve seen that should be welcome news for small businesses.
Good News For Small Businesses
VAT threshold for small businesses isn’t moving for two years: Staying at £85,000
The “Staircase Tax” has been scrapped, after a prolonged Federation of Small Businesses (FSB), which will benefit 30,000 small companies. In August, the Supreme Court ruled that companies linked by a communal lift, corridors or stairs should not be treated as though they were occupying more than one office. HMRC promises to refund businesses that were taxed.
Business rates, previously pegged to the Retail Price Index (RPI) are now going to be linked to the Consumer Price Index (CPI), which is lower, saving businesses £2.3bn in 2018-19, when it comes into force at the start of the new tax year. In the FT, Gerry Biddle, director of business rates at Deloitte Real Estate said this move will reduce rate bills 0.9% and “will be welcomed by hard-pressed business occupiers.”
Rateable values are also going to be recalculated every three years instead of five and will be phased in over several years, to avoid future sharp rises that hit some businesses over 100% in 2017. Pubs will still receive a £1,000 rates discount for another year.
The Tax-free personal allowance rate will increase again, to £11,850 in April 2018.
At the same time, the higher rate threshold is increasing to £46,350.
Exciting news for first time buyers: Stamp duty is being abolished for properties up to £300,000. For buyers in expensive areas, those with values up to £500,000 will only pay 5% on £200,000 of the purchase price. So far, this is only in England, Wales and Northern Ireland.
A major push is moving forward to resolve the housing crisis, which is good news for property developers, investors and landlords. Planning permission for development sites should move forward more quickly. Although, landlords with empty properties need to be careful, as they risk being charged full council tax rates, instead of a discount rate for an empty property.
In April 2018, fuel duty for petrol and diesel cars was due to increase. That rise has been scrapped.
A series of funds have been announced to support long-term growth:
- Designed to replace European funds that are so valuable to SMEs across the country, the British Business Bank is going to receive a £2.5bn investment fund.
- £500 million to support a national roll-out of 5G fibre broadband.
- £540m to support electric car adoption, research and manufacturing.
- Another £2.3bn to fund research and development. Those wanting to access the Research and Development Expenditure Credit (RDEC) tax relief will benefit from a simpler, easier process. R&D tax credits have also increased to 12%.
- £30m for digital skills distance learning courses.
- £1.7bn for transport, to be shared between six cities and regions with elected mayors.
- The Scottish government will receive another £2bn; whilst Wales will get £1.2bn, and £650m is going to the Northern Ireland Executive.
- Even Teesside, another region with an elected Metro Mayor and devolved powers, will receive £320m to regenerate a former steelworks site and the surrounding area.
Healthcare, education and welfare recipients are also benefiting from this budget, the first in several years whereby almost everyone in the country benefits in some way.
Small business reaction has been largely positive. However, when it comes to National Insurance Contributions (NICs) for the self-employed - people who pay Class 2 and Class 4 - there have been no new announcements so far since the Chancellor’s U-turn one week after the Spring Budget 2017. Those who earn below £6,000 are still paying 400% more than in previous years.
Disclaimer: We hope you found the information in this article useful and informative. Please remember that this is an article and is no substitute for professional advice on taxes, your business or personal finances.