Budget 2018 Review: Hefty but hypothetical?
As Philip Hammond wound up his Budget statement, he uttered the phrase that, he hopes, will define this Budget and the Government’s fiscal policy moving forward. According to the Chancellor, “austerity is coming to an end, but discipline will remain”. Should the Prime Minister and Chancellor survive in the political arena, post-Brexit, this is the basis upon which they will seek to frame their Government’s record, and the basis upon which they will fight the next General Election. The next two months will define whether they get that opportunity.
In many ways, the Budget statement was a surprise. The pre-briefing had been light and the fact the statement had been moved to a Monday for the first time since 1962 suggested this would be both low key and bereft of detail. In fact, the Chancellor stood for 72 minutes and delivered a statement full of detail. He started by outlining a better than forecast fiscal position, in which public borrowing will be £11.6bn lower than forecast and which sees debt as a share of GDP falling this year, and every year to 2023-24.
Clearly buoyed by this, Hammond waited until the very end to deliver his headline measure on personal taxation. The personal allowance would increase to £12,500 by April 2019, and the higher rate threshold would increase to £50,000 at the same time, a year earlier than planned. This, the Chancellor argued, was a sign that austerity was coming to an end; a reward for the endurance of the British people during the previous decade.
At the same time a raft of other measures were announced. Among them, a 4.9% increase in the National Living Wage which will be £8.21 from April 2019, a freeze to a range of duties including those on beer, cider, spirits and fuel, a stamp duty exemption for first-time buyers purchasing shared ownership properties of up to £500,000, a Comprehensive Spending Review (CSR) in 2019 which will see an average growth in departmental expenditure of 1.2% and additional money for Brexit preparations (£500m), the defence budget (£1bn), pothole repairs (£400m) and schools expenditure (£400m). In a widely trailed story, the Government also announced a commemorative 50p piece to mark Brexit.
But what was there for business? For retailers there was some good news. The Chancellor announced that retail premises with a rateable value up to £51,000 would see their business rates bill reduced by a third in 2019-20 and 2020-21. This combined with a new £675m future High Streets Fund is designed to provide retailers with breathing space as they grapple with the effects of changing consumer habits in the UK. At the same time the Government will introduce a Digital Services Tax, which will target the revenue of large search engine, social media and online marketplace platform. The 2% levy will be introduced in 2019-20 and raise £400m by 2022-23, as the Government actively looks to rebalance its tax base in the face of a changing retail sector.
For the flexible workspace sector, there was less for operators to cheer. Those facing increasing business rates bills were not afforded help at this Budget, as the Government targeted its efforts at the beleaguered retail sector. However, for customers within the sector there was some positive news. The Chancellor announced a fivefold increase in the Annual Investment Allowance which will rise from £200,000 to £1m for the next two years. Alongside this, the VAT threshold will stay at £85,000 until April 2022 and changes to the IR35 rules will not come into effect in April 2020 and they will only be levied on “medium and large organisations”.
Buried within the Budget “Red Book” was the announcement that the Government will now consult on extending permitted development rights to “allow commercial buildings to be demolished and replaced with homes”, potentially accelerating the loss of workspace in the UK. At the same time, the Government will also consult on allowing a new permitted development right that will see high street shops turned into offices, as well as new homes in a bid to “bring life” to the High Street. Once the consultation closes in the new year, the Government is expected to bring regulations in front of Parliament to reflect its conclusions and the sector will pay close attention to its every move.
This was, therefore, a heftier Budget than was anticipated. For the flexible workspace sector, more could have been done to help with the increasing business rates burden operators and their customers face, and the move to introduce further types of office to residential permitted development rights represents a concern.
However, the Budget may well turn out to hypothetical regardless, if Britain leaves the European Union without a deal. If it’s a no-deal Brexit, the Chancellor announced the Spring Statement will be upgraded to a full fiscal event, which is code for an “Emergency Budget”. In that case, this Red Book, its key message about austerity ending and discipline remaining will go out of the window, and those delivering that message are unlikely to be around to see these policies through.