Autumn Statement 2016: Tax predictions
In this first of two articles, Donald Drysdale looks ahead to Philip Hammond’s Autumn Statement on 23 November 2016.
Philip Hammond, Theresa May’s new Chancellor of the Exchequer and the first Minister she appointed to her Cabinet, will deliver his anxiously-awaited Autumn Statement to the House of Commons on Wednesday 23 November.
In this article I shall set the scene for the Autumn Statement. In my next I shall look at the latest tax recommendations which ICAS has submitted to HM Treasury.
Uncertainty and change
Hammond has taken office at a difficult time and will find it hard to cope with the multitude of demands made to him by lobbyists from all sides. The vote for Brexit has created a wide backdrop of uncertainty.
The Bank of England took early steps to react to the referendum result, lowering official interest rates and increasing quantitative easing. With Brexit set to be felt in the months and years to come, this year’s Bank of England updates in Edinburgh, Glasgow, Tayside and Inverness will provide ICAS members with invaluable insights into the key economic issues raised by the vote, including an ‘off the record’ update on the current economic outlook based on the Bank of England’s forecasts.
In spite of the Bank’s actions, the government has been criticised for failing to come forward swiftly enough with its own plans to stimulate the economy. Many commentators thought, for example, that the Autumn Statement should have been brought forward by two or three months, but this never materialised.
With tax, like Brexit, change is the only constant. Some ongoing tax reforms are likely to have a fundamental impact on all practitioners, businesses and individuals. Increasing devolution is afoot across the UK, bringing change and potential differentiation. At the same time HMRC are pursuing controversial plans, on what many regard as an over-ambitious timescale, to force businesses to move to digital record-keeping and quarterly online reporting.
Brexit and economic policy
Soon after his appointment, Hammond indicated his intention to ‘reset’ the government’s economic policy in response to any slowdown expected as a result of Brexit. While no-one yet knows exactly what this will mean, it heralds a clear move away from the policies of his predecessor George Osborne.
The new Chancellor has acknowledged that business and consumer confidence could suffer during the long Brexit process and that some turbulence may be expected. He agrees that businesses will need extra support during transitional years in which there are continuing uncertainties about the UK’s future trading relationships with the EU and with non-EU countries. The challenges involved in trying to conclude free trade deals are put into harsh perspective by the apparent collapse last week of negotiations on a trade deal between the EU and Canada.
At the recent Conservative Party conference, Hammond affirmed that budgetary discipline remains crucial for the UK, but also acknowledged a need to build a ‘fairer economy’ – whatever that may mean. He undertook to come up with a new plan for the new circumstances Britain faces.
He has promised to deliver a clear, credible fiscal framework to reduce the UK’s budget deficit by controlling public spending while also focusing on investment that is needed for long-term growth. He is expected to relax the government’s target of eliminating the deficit by 2020, but his revised timetable for this is still unknown.
He has laudable ambitions – wanting to support the economy, support jobs, support economic growth and make Britain more productive. To help achieve these aims he wants to keep the lid on public spending, make government more streamlined and efficient, and invest in economic infrastructure. Taken as a whole, this sounds a tough balancing act.
The new devolved tax landscape
Since 2015 Scotland has had its own land and buildings transaction tax (LBTT) and Scottish landfill tax (SLfT). The Holyrood Parliament already sets the Scottish rate of income tax, and from April 2017 will have full control over its income tax rates and rate bands. Scotland is also preparing for the devolution of air passenger duty.
By 2018 Wales will have its own land transaction tax and landfill disposals tax. The Welsh Assembly also has power to introduce Welsh rates of income tax at some future time.
From 2018, the Northern Ireland Assembly is expected to set its own rate of corporation tax, giving it the opportunity to create a level playing field to encourage corporation tax rivalry with the Republic where the tax rate has been traditionally low.
Divergent rates of income tax, corporation tax and other taxes across the UK are introducing internal fiscal competition of a kind that was unknown before 2015. Decentralisation of taxes complicates business decision-making and will have increasing impact too on individual taxpayers. Although introduced to meet the demands of devolved governments within a defined fiscal framework, it tends to make tax administration more expensive for the state and compliance more challenging for taxpayers.
Making Tax Digital
Much has already been written about Making Tax Digital (MTD), and the ICAS summary of the MTD consultations is a helpful reference page drawing all the threads together. HMRC’s misguided MTD agenda promises to impose heavy transformational burdens on SMEs, taking their eye off the ball at a time when their key priorities should be maintaining and improving productivity, profitability and employment.
What lobbyists want
It would be beyond the scope of this article to offer a balanced cross-section of recommendations which have been made to Hammond. The demands are many and varied, and here I refer to only two examples.
Among business representatives, the British Chambers of Commerce (BCC) has reportedly called for investment in infrastructure including housing, roads and broadband, believing that these could be financed by government borrowings at historically low interest rates. It wants incentives for business investment, and a moratorium on new taxes or other burdens on business until at least 2020. It has also called for the burden of the apprenticeship levy on employers to be reduced.
The Confederation of British Industry (CBI) reportedly wants to hear more on how government will work with business to build an inclusive, long-term industrial strategy. It supports the adoption of a more flexible approach to fiscal policy at this point, but states that public finances must be sustainable over the economic cycle. It calls for specific action on housing, support for technical innovation and investment in national infrastructure.
In my next article I shall look at tax recommendations which ICAS has submitted.
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