Budget 2018: "Slow demise" of austerity – but does Chancellor remain spooked by Brexit?

Brian Palmer, tax policy expert, AAT

This Halloween week's Budget suggests Chancellor Philip Hammond may be spooked by ongoing Brexit negotiations – notably with the promise of a possible Spring Budget depending on the nature of any deal being agreed or not. It did, however, suggest the Government had exorcised enough taxes to increase funding for vital public services, as they seek to finally end the austerity which has dominated our financial planning for the past decade.

Recent careful tax-spending has meant there’s been little for business to shout about. That said, the immediate – if temporary – business rates cut for smaller retailers will provide funding that many desperately need. In contrast, moves to double the minimum qualifying period for entrepreneur’s relief will make no difference whatsoever in encouraging British entrepreneurialism.

The delay to new rules determining IR35 status in the private sector to April 2020 will be widely welcomed by accountants and other tax professionals. With there being no evidence to date that ‘off-payroll’ rules have worked in the public sector last year, it’s clear more work needs to be done to truly define those taxed as employees and those taxed on a self-employed basis, and to allow private sector businesses adequate time to prepare.

Digital tax could backfire

One of the headline focuses of the Budget will be the new digital services tax aimed at technology giants such as Facebook, Amazon, Netflix and Google (the FANGs). The tech sector has seen huge swathes of public money pumped into it in recent years in order to fund its growth acceleration, and it’s fair and right that they pay a fair share of tax. At the same time, the Chancellor would much rather hand responsibility in this area back to the G20 and OECD, who are working on a global solution, so this tax might never see the light of day.

We would rather see a fundamental (and essential) review of business rates undertaken in the near future, and in the meantime keep rates frozen across the board so that companies with both a strong high street presence and digital presence aren’t unfairly affected. Reform is desperately needed, but needs to be well thought-through.

Some way still to go on stamp duty reform

Even with the Chancellor seeking to boost the Treasury’s coffers, he was able to grab the headlines with a surprise hike in the personal and higher rate allowances to £12,500 and £50,000 respectively from April 2019, a year ahead of schedule and to the delight of some 32 million tax payers.

News that stamp duty has been abolished for first-time buyers on shared-ownership homes up to £500,000 will cost the Treasury additional revenue, especially given that it is being backdated to cover this Parliament. As part of AAT’s ‘Time for change: AAT alternatives to tax rises’ we have called for further reforms in this area, not least the tax-neutral policy switching stamp duty liability from the buyer to the seller which would prove helpful to the market while maintaining valuable revenue.