Stability, certainty and competitiveness. This is what business was looking for from The Chancellor’s latest Budget, but did they get it?
The Chancellor opened his Budget with talk of creating an environment that allows business to plan and invest with confidence. A positive, confident message, but one that should be tempered by the detail and context in which the measures were announced.
There was a marked shift away from short-term policies towards a more future looking position focussing on a few key points: skills, productivity and innovation. In the context of both Brexit and falling GDP growth predictions, the Budget indicated the Government remains confident in our nation’s prospects by announcing large scale investments, primarily focussed on the growing technology sector.
Infrastructure investment and innovation incentives
The Chancellor restated his desire for Britain to be at the forefront of the technology revolution and, based on the investment measures announced, it would appear that he is willing to put his money where his mouth is.
But how will this money be spent and increase productivity in Britain’s Small and Medium Enterprises (SMEs)?
Businesses need many things, in particular, the right products/services to sell, investment, infrastructure and access to skilled people. In the Budget we saw the Chancellor address each of these areas.
Increasing the R&D Expenditure Credit (RDEC) from 11% to 12% means that after corporation tax, the Government will contribute £10 for every £100 of R&D expenditure by business. Coupled with the £2.3 billion R&D grant boost that was announced on Monday, the increase is a welcome surprise that will send a very positive signal that the UK is an attractive place for innovation.
Doubling the Enterprise Investment Scheme allowance is a positive step in helping early stage businesses attract investment and raise finance. Not only will this help to boost investment in startups, but it potentially plugs a funding gap if the European Investment Fund is no longer available when the UK leaves the EU.
The Chancellor has pledged £1.7 billion to create a ‘Transforming Cities Fund’ allowing cities outside of London to have more control over investments in transport and infrastructure. With housing also high on the agenda, particularly housing in cities, it would appear he is keen to ensure that our cities are attractive hubs of activity for both businesses and homeowners. Furthermore, full-fibre broadband and 5G investment remains on the agenda which can only help businesses keep up with the rest of the world.
The Chancellor is placing more focus on education in science, technology, engineering, maths, and computer science to equip young people with the skills to become innovators of the future. Alongside this there will also be a new partnership with industry and trade unions to deliver a National Retraining Scheme to boost digital skills.
But what’s the catch?
The Chancellor has no doubt been bold and confident, with a focus on investment rather than savings or fund raising. Whilst further anti-avoidance legislation will raise some funding, it is not immediately clear how the majority of these investments will be financed. The announcements talk the talk but will they prove to walk the walk?
Prior to the Budget we urged the Chancellor to focus on certainty and clarity in the tax system, calling for a business tax road map to help business understand the broad direction of travel. Whilst no shocks or major changes were announced, (in particular the VAT thresholds, which were expected by some to change substantially following the recent Office of Tax Simplification (OTS) report, were instead maintained at their current levels for the next two years while the Government consults on their design) the Chancellor did not include much guidance on the future of the tax system. This should be received with mild caution as whilst an upheaval of the tax system is unlikely, perhaps the Chancellor could have been more helpful in giving business more certainty in a very uncertain environment.
How Brexit will affect the day to day operations of Britain’s businesses is still up for debate. Whilst we wouldn’t expect the Budget to address all Brexit issues directly, it is undoubtedly on most businesses’ agendas. With GDP growth forecasts revised downwards, adverse Brexit negotiations could worsen this outlook. Perhaps what the Chancellor hopes for, is that the clear investment push will make the country confident that we can make it on our own.
As is taught in every Economics 101 class, self-fulfilling prophecies do exist. What the Budget tells us is that the Chancellor is hoping his confidence will breed confidence in the business community despite the reduction in forecasted GDP growth.
The foundations are being laid for SMEs to utilise the UK’s generous tax incentives, benefit from the exciting nationwide hubs and have access to highly skilled workers to deliver innovative products to a global market.
The message is more than just ‘Keep Calm and Carry On’, it’s keep calm, carry on and be confident in the future. The proof will be seen in the coming years, but the Chancellor has definitely placed his bets on a virtuous cycle - will we as a nation follow?
Other relevant measures:
An increase in credit means the UK Government will fund circa 10 percent of R&D expenditure
The Chancellor has announced that companies will be able to transfer tax history on the disposal of oil fields.
CT on chargeable gains: Indexation allowance frozen from 1 January 2018 and depreciatory transactions time limit abolished from 22 November 2017.
The Government has announced its intention to consult on the extension to the private sector of the IR35 reforms, introduced in the public sector earlier this year.
A position paper has been issued for taxing the digital economy. This is likely to be a game changer, particularly for social media companies and online marketplaces.
From April 2019 non-residents will be subject to capital gains tax on the disposal of all UK real estate.
Government increases investment allowance and incentives for knowledge-based start-ups but narrows relief for low-risk investments
HMRC plan to extend the assessing time limits for offshore tax non-compliance to 12 years, which is as much as tripling the current limit