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The Spring Budget is being delivered by the new Chancellor of the Exchequer, Phillip Hammond, on Wednesday 8 March 2017. We have a range of predictions about what he might (or might not) include in his first Budget, from our panel of experts.
Jeremy Cape (JC), partner, at Squire Patton Boggs
Adam Craggs (AC), partner, and Michelle Sloane (MS), senior associate, at RPC
Miranda Cass (MC), partner, and Samuel Rippon (SR), senior associate, at Bristows
Alex Thomas (AT), partner, and Julian Feiner (JF), senior associate, at Dentons
Jeremy Goodwin (JG), partner, at Eversheds
LexisPSL subscribers can access further analysis and insight on Spring Budget here. If you are not a subscriber, you can take a free trial here.
JC: The Chancellor has got to say something about Brexit, hasn’t he? ‘Unshackled by Europe we’re going to abolish VAT, start taxing foreign dividends again and re-introduce the concept of a UK group that cannot be parented by a non-UK company?’
He should say something about the plan to deal with the loss of the Parent-Subsidiary Directive 2003/123/EC and Interest and Royalties Directive 2003/49/EC but won’t. On the ‘carrot’ front, what might he announce that will encourage further investment into the UK? Perhaps it’s too early for a detailed reveal, but some measure to counterbalance the Brexit effect looks likely (although maybe this is something that will be saved up for the Autumn Budget).
There is speculation that the Chancellor will reduce, or announce a future reduction of, corporation tax to 15%. He won’t take any measure to reduce corporation tax beyond the 17% it is hard-wired to be at the end of this Parliament, but expect a repeated commitment to having the lowest rate of corporation tax in the G20 and ensuring corporations pay their ‘fair share’.
I expect there will be some measures taken to relieve the planned impact of increases in business rates. A reminder that while we in the City tend to obsess about the rate of corporation tax and base erosion and profit shifting, for many taxpayers business rates is the tax about which they worry the most.
The Times reported in June 2014, Chancellor, George Osborne was looking at merging income tax and national insurance contributions. I don’t see this eminently sensible, but politically challenging, measure getting any traction in this Budget (or indeed this Parliament), although something may be announced to reduce the tax differences between employment and self-employment, which are inappropriate in 2017.
One reason the Brexit vote went the way it did was a perception that globalisation had resulted in the wealthy getting wealthier. At the same time, the government needs to find a politically palatable way of raising more tax. Could we, as a result, finally see a move towards more wealth taxes? My moonshots in this regard would include reform of inheritance tax to reduce the rate but make it harder to avoid, replacement of stamp duty land tax (SDLT) by a non-transactional land tax, fundamental reform of the non-dom rules, and an alignment of income and capital gains tax rates. Politically, I don’t see any real prospect of any of these happening.
And, while I’m not normally a betting man, I’m considering putting £1 on Mr Hammond casting off any allegation of being boring ‘accountant Phil’ in one swift stroke by announcing that on 1 January 2018, the UK will introduce a destination-based cashflow tax. Wonder what odds I’ll get.
AC & MS: This is the final Spring Budget before the government’s plan to shake up the fiscal calendar, moving the Budget to autumn with a statement in the spring. Therefore, with Chancellor, Phillip Hammond, wishing to establish the Autumn Budget as the main event for fiscal policy, it is anticipated there will not be any major changes in Spring Budget, these being saved for Autumn Budget 2017.
The corporation tax rate is already set to fall from 20% to 19% in April 2017, and then to 17% in April 2020. This is a competitive rate and it is unlikely any steps will be taken at this stage to reduce the rate further with Brexit negotiations looming. The government has indicated it will look to cut corporation tax rates to a record low if it does not get the Brexit deal with the EU that it is seeking. Moves towards implementing the Conservative Party’s 2015 manifesto commitments to raise the tax-free personal allowance to £12,500 and the threshold for the 40% rate of income tax to £50,000 by the end of the current Parliament are likely to feature in the Spring Budget. As a step to ease inflation caused by the fall in the pound, it is anticipated that steps will be taken to cut fuel duty or freeze or reduce air passenger duty.
MC & SR: The March 2017 Budget is at an awkward time for the Chancellor having just had an Autumn Statement in November 2016 and having another Budget scheduled for Autumn 2017. Given the swathe of new measures published in Finance Bill 2017 (in December 2016), it is difficult to see how the Treasury would have had time to develop new policies since then.
If anything material is going to come from this Budget, it is inevitable that it will be something on which no consultation has taken place and which is likely to provide the government with some positive news coverage. Prime candidates for this could be:
In the run up to the triggering of Article 50 TEU, the government will no doubt use every tool at its disposal to demonstrate that the UK is a good place to locate business, particularly in the manufacturing sector. Therefore, we might see some further detail on capital spending on infrastructure projects and incentives to attract private investment.
While a reduction in SDLT rates would be generally welcomed, it would be at odds with the steady increase in rates over the last few years and therefore seems unlikely.
AT & JF: It’s only three months since the Chancellor outlined some major business tax measures in his Autumn Statement. After all the excitement of 2016, we are expecting this to be a relatively low-key Budget, following up on the existing proposals and perhaps announcing a few new areas for consultation.
We may, for example, see further changes to the draft legislation on interest deductibility, carried-forward loss relief and the substantial shareholding exemption. As promised in the Autumn Statement, we expect the government to begin consulting on its proposal to bring non-resident companies’ UK income into the corporation tax regime. This would ensure that all companies are subject to the rules that apply generally for the purposes of corporation tax, including interest deductibility and loss relief.
The property market is hoping especially for a reduction in the residential SDLT rates which have significantly dampened the upper end of the London property market. Such a change however, seems unlikely due to political pressures and the consequences of such a step.
As usual there may be a couple of announcements that come as a surprise. Changes to national insurance on partnership profits? It’s a possibility. We do not expect a robot income tax just yet.
JG: We imagine that triggering Article 50 TEU, and the pressures this year on the NHS, may make the Treasury particularly focused on maximising tax receipts. We also expect that pensions tax relief, particularly when combined with the tax relief on ISAs, may be seen by some in the government as the ‘lowest hanging fruit’ in this regard. So, we would expect the government to be looking again at the annual allowance for example (perhaps as part of a general move towards ISAs and lifetime ISAs and away from pension savings).
Having said this, there has to date been little by way of the usual rumours of big pensions tax changes this year. Instead, the pensions industry is not expecting anything more than relatively minor tinkering—for example, the £500 income tax exemption on taking pensions advice or the new £4,000 money purchase annual allowance where people have already accessed their pension savings flexibly. This is helpful—there have been so many changes in recent years, there is a need to stop further increasing the huge complexity that now exists in the pensions tax regime.
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