As always, October brings us Halloween parties, the start of Christmas shopping and the Budget 2018. On Monday 29th October, Chancellor Hammond delivered the largest giveaway budget in eight years, indicating improved forecasts for both borrowing and growth (as long as we receive an advantageous Brexit deal).
Hammond began his speech by highlighting that the time of austerity is “finally coming to an end”. His proposal for the budget is one “that shows the perseverance of the British people finally paying off”, according to the Chancellor. The budget promises to work for “the strivers, the grafters and the carers.”
This idealistic outlook will only be achievable with a smooth Brexit transition, however, with the budget in jeopardy of being reformed in light of post-Brexit challenges next year. The Chancellor expressed his concerns that disorganised Brexit plans could prove a significant challenge to Britain, and, in particular, its public services. His budget speech also served as a purposeful plea to the Conservative Eurosceptic MPs to push forward with a soft exit so that he could be generous with his reviews for next year.
British organisations were also keen to hear more about Hammond’s plans for the future, especially as businesses had told the government that they needed to work harder to help their companies thrive. The Confederation of British Industry warned the Chancellor that it was time to “put warms words for business into action”, calling for a package of incentives equating to £2bn.
Hammond called British businesses “the real engine of growth”, but did they get what they needed from him to develop? In the following article, we’ll summarise the main points from Monday’s big Budget announcement.
A topic that is always included in almost every political speech since the referendum, Brexit plans were the most anticipated part of Hammond’s speech. He remained upbeat about Brexit, with the mention of a “double deal dividend” for our economy should a full agreement be formalised with the EU. Forever the realist, Hammond also stated that he would remain watchful throughout the negotiations should Britain leave the EU without a deal. Should this be the result of negotiations, the spring statement will become a “full fiscal event”, and a reformed budget could spell for some significant changes for organisations up and down the nation.
For now, Hammond has proposed:
• An additional £500m for Brexit preparations in government departments (on top of the £3.7bn announced previously).
Growth forecasts look optimistic for the next couple of years, according to Hammond, increasing from the estimations declared in March. Of course, the fallout from Brexit will play an influential role in determining the actual results achieved, but for now, Hammond has predicted the following figures:
• 1.3% growth in 2018
• 1.6% growth in 2019
• 1.4% growth in 2020
• 1.4% growth in 2021
• 1.5% growth in 2022
• 1.6% growth in 2023
The budget for schools is a double-edged sword. Whilst any money being trickled into the education system is welcomed, the budgets are considerably lower than those proposed for potholes (some £20m less). To add to the sting, Hammond stated that the money would help “to buy the little extras that they need”, but with many establishments struggling to pay for the essentials, this statement is likely to see Hammond receiving some backlash.
Hammond has proposed the following budgets for education:
• £400m will be assigned to schools this financial year.
• This comes in at an average of £10,000 per primary schools and £50,000 per secondary school.
Retail has been a growing concern among business communities and MPs of late, with many worrying about the survival of British high streets. Despite the healthy budgets being funnelled into retail, Hammond did issue a warning to retailers that shopping patterns are, in fact, “irreversible” and that businesses need to consider adapting to the decline rather than focusing on trying to reverse it.
Regardless of his pessimistic view, Hammond announced the following budgets for retail:
• £675m for a “future high streets fund” that local councils can access to improve high streets.
• For a retail business with a value of £51,000 or less, business rate charges will be cut by a third (up to a business rates valuation determined by the government). This update will be in place for the next two years and will see around 90% of shops, cafés and restaurants benefitting.
• The £1.5bn spending pledge will help to save high streets stores from the threat of ecommerce giants, such as Amazon.
• A review into relaxing the town planning rules so that underused retail units are more frequently occupied.
Hammond issued many updates to business taxes that companies will need to be aware of, covering plastics tax, digital tax and tax relief. The objective? To ensure the tax system is fair for all.
The UK digital services tax is a revolutionary idea that many have advocated, although its success will be determined when a revenue figure is realised. Protectory figures indicate an extra £400m. This is a relatively safe new tax to impose as there won’t be many MPs wanting to voice complaints about big corporations burdened with small taxes. Unless anyone objects, or an international agreement is raised on the issue, the tax is planned to be implemented from April 2020.
Hammond proposed the following for tax:
• A new plastics tax will be implemented on the manufacture and import of plastic packaging which is made of less than 30% recycled plastic.
• Introduction of the UK digital services tax for larger corporations. Tax rates will be 2% of the money made from UK users.
• An increase of the Annual Investment Allowance – tax relief on the purchase of business equipment.
• No further cuts to dividend tax allowance or changes to venture capital trusts and enterprise investment schemes.
Unfortunately, there was no good news for the fleet industry. The Chancellor failed to provide any clarity on the future company car tax rates following the implementation of WLTP. The sector is left in the dark about how BiK rates will be calculated from 2020 onwards.
On the subject, the Budget Red Book states: “The Government will review the impact of WLTP on Vehicle Excise Duty (VED) and company car tax to report in the spring. WLTP aims to provide a closer representation of ‘real-world’ fuel consumption and CO2 emissions.”
• We’ll be reviewing more about how this news has been received by the sector and what this means for business preparation later in November.
In summary, the budget spells good news for some industries and uncertainty for others. What these budgets and tax changes mean for your company will depend on the nature of your business and its operations. Additionally, the fulfilment of these budgets is also contingent on what type of Brexit deal is reached. Should a no-deal departure occur, you can expect the entire budget plan to be reformed in the spring.
To determine how to prepare your business for the external pressures and changes happening in Britain, look toward procurement companies like Expense Reduction Analysts. We work alongside your team to identify opportunities for improvement in your supply chain and operations, utilising our industry knowledge and supplier networks across a wide range of sectors to ensure your company is optimised and streamlined to work at its full potential.
Get in touch with us today for a no-obligation talk and discover how we can help your business make substantial savings.