Autumn Budget 2017 - overview

Philip Hammond faces the music on St Cecilia’s day!  

The Autumn Budget was delivered by the Chancellor Philip Hammond on 22 November 2017. He has certainly had to face the music in the run up to the Budget, so it seems entirely appropriate that the event took place on none other than St Cecilia’s day – St Cecilia of course being the patron saint of music.

So, and with apologies to a certain Mr George Frideric Handel, how did Mr Hammond’s Ode for St Cecilia’s day go down? Actually, pretty well. It was just as well, as there was a lot riding on this Budget, including the Chancellor’s job. He had an unenviable task: he needed to balance the need to catch the public imagination and garner support on important matters like intergenerational fairness, while avoiding the controversial measures that caused such a car crash in the March 2017 Budget, while at the same time staring down the barrel of the Brexit gun and hampered by the fact that the UK is still running a substantial budget deficit. It was a tall order to pull this off but, in the event, he made a good show of rising to the challenges while this time around shying away from any areas that spelt trouble.

Personal tax
There was very little new on personal tax changes. The manifesto commitment to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020, has been retained. As steps towards this goal, the personal allowance for 2018/19 will increase to £11,850 and the higher rate threshold to £46,350. There are no significant changes to rates and allowances; notably, there are no changes to the tax treatment of dividends or to tax relief for pension contributions and the ISA subscription limit remains at £20,000.

Business taxes
Once again the Budget was surprisingly light on smaller business tax changes, something that will be welcomed given the extensive changes made in recent years. After the furore about the proposed rises in Class 4 NIC announced in the March 2017 Budget, only for the announcement to be reversed a week later, he stayed well clear of making controversial policy announcements on NIC. Nevertheless, buried away in the detail is a proposal to consult on the possibility of extending the amended IR35 rules for those in the public sector to those in the private sector.

There had been considerable speculation that the VAT threshold might be reduced but, after the experiences of the Class 4 debacle, the Chancellor obviously thought better of that proposal. However, he clearly has the VAT threshold in his sights, as it has been frozen for two years and there will be a consultation on the design of the threshold.

Business rates remain a major concern of business and he announced yet further measures to help and support businesses, including switching the inflation measure from RPI to CPI, the removal of the so-called staircase tax and a consultation on moving from five to three yearly revaluations.

Indexation relief used in calculations of chargeable gains by companies will be frozen from 1 January 2018. The rate of the R&D expenditure credit will be increased from 11% to 12% and will help to support certain businesses.

Tax avoidance and evasion
After the so-called ‘Paradise papers’, it was inevitable that there would be some focus in the Budget on tackling tax avoidance and evasion. So it proved, with a further raft of proposed measures designed to raise £4.8bn between now and 2022/23, adding to the £160bn the Government claims to have secured since 2010 although how this figure has been calculated is not immediately clear. In relation to international tax planning Mr Hammond, like his predecessor, demonstrated that the UK is willing to take unilateral action to tackle international tax planning problems rather than wait for the OECD to catch up. Specifically he announced a proposal to deduct withholding tax on royalty payments to low tax jurisdictions where the royalty relates to UK sales. This is an interesting proposal and we wait to see the detail and how it might comply with our existing tax treaty obligations.

There is an extremely large elephant in the room in the shape of Brexit, and the Chancellor has announced an immediate allocation of £700m with a further £3bn of further funding. It wasn’t as much as Jon Thomson, the CEO of HMRC, suggested was needed when he appeared before the Public Accounts Committee recently, but it will help. Earlier in the week the Government published a Customs Bill which will provide the basis for the UK’s withdrawal from the EU. Although the Brexit clock is ticking, it does appear that the UK is now starting to gear up and get ready for these important changes. 

Housing and stamp duty land tax
The Chancellor took steps to address the difficulty of the younger generation to get a foot on the property ladder by removing stamp duty land tax for first time buyers on the price of a property of up to £300,000, with relief available for the first £300,000 on property up to a value of £500,000. The total potential saving is £5,000.

The public finances
The task of bringing the UK budget back into balance, let alone surplus, remains a huge challenge made much harder by the uncertainty over Brexit. Given that the fiscal estimates for November 2016 and March 2017 made by the Office for Budget Responsibility differed widely, all eyes were on what would be their position this time around. The OBR forecast that growth would be considerably lower than forecast in March, with a consequent knock-on impact on the public finances. The Red book figures show that although the net borrowing for 2017/18 will be £5.6bn lower than that estimated in March 2017, thereafter the borrowing requirements are much higher over the remainder of the forecast period and there is no end in sight, with a budget deficit now forecast into 2022/23 and presumably beyond.

In conclusion
This was the Chancellor’s third Budget, and the stakes have never been higher, for him and the country as a whole. The Chancellor struck a positive tone and was careful not to send small businesses running for the hills. To conclude by returning to the musical theme, time will tell whether the Chancellor had a Handel on his Opus 3, but he gave a bravura performance that may mean he will at least be called back for an encore!

  • What annoys me is the habit of successive Chancellors' effort to make an unpopular measure acceptable by giving an inadequate reason for it. The one that caught my eye was the reason for freezing the indexation allowance for companies, (therefore clubs and charities as well). If he wanted to charge in line with personal capital Gains, why not introduce a nil band?