Following speculation that Chancellor of the Exchequer Philip Hammond could only fail in his Budget statement – whether he remained cautious, adopted the dramatic option to go out in a blaze of glory, or simply tried to find a middle path – it all started so well. Once he had found his pace, there were welcome flashes of statesmanship and leadership. But suddenly, and regrettably, we were back into jokes about cough sweets and references to “long economicky words” in the OBR report which seriously downgraded the UK’s growth forecasts.
Growth forecasts are fundamental to any chancellor’s Budget, although to be fair they have been proved consistently wrong since the financial crisis. If forecasts are downgraded so are the levels of tax revenues. In a Budget which seemed increasingly like a major giveaway, the welcome given to each new incentive was accompanied by a nagging doubt: if spending is to be increased and tax reliefs boosted, then how will it all be paid for? Surely there must be tax increases to come?
But no, the overall picture is astonishingly generous. Over the period to 2022-23, the chancellor promised net spending increases of almost £18bn, and tax reductions of £7bn. Far from “stealth tax” increases, the Treasury Red Book confirmed a giveaway Budget of almost £25bn.
So, looking at the tax side of the Budget, who the winners and the losers?
Apart from the hardy perennial fuel duty freeze (no Budget would be complete without one!) the SDLT relief for first-time buyers is the biggest tax relief. Worth £3.19bn for the period to 2022-23, it offers a £300,000 threshold to first-time buyers. Those claiming the relief will pay no SDLT on the first £300,000 of the consideration and 5% on any remainder. No relief will be available where the total purchase price exceeds £500,000.
At around £2.5bn, the previously announced decision to maintain Class 4 NICs at 9 per cent and to delay the NICs Bill by one year reflects the political turmoil which has accompanied Mr Hammond’s occupation of number 11 Downing Street.
By my reckoning, business rates mark the third-biggest tax giveaway. Although much was made of extending the pubs discount to 2018-19, the cost the Exchequer of this proposal is only £30m. By contrast, the adoption of CPI in uprating calculations from 2018-19 is worth £2.335bn.
So if those are the three biggest winners, who are the tax losers?
Under the headings of tackling avoidance, evasion, fraud and error and of developing a fair and sustainable tax system, the chancellor is both ushering in bringing forward new tax measures in and providing greater funding for HMRC.
Addressing funding first, the greater use of real-time information to tackle fraud, error and debt, along with additional compliance resource for HMRC, is estimated to bring in around £2.38bn over the period covered by the Budget. For a Parliament desperately short of time for new legislation, this is exceptionally good value: these additional resources will allow HMRC to be more rigorous in applying the legislation which it already has. With the Tax Gap now reduced to around £34bn, and only £1.7bn of that being accounted for by tax avoidance, HMRC is sure to be devoting greater resources to tackling the hidden economy and tax evasion (costing £8.7bn a year) as well as taxpayers who fail to take reasonable care so underpaying taxes to the tune of £6.1bn. This latter area, of course, is where the Treasury hopes that the Making Tax Digital project will really pay for itself.
Proposals aimed at tackling avoidance, evasion, fraud and error are estimated to bring in £3.17bn. Notable among these is the proposed new tax on royalty payments made to low-tax jurisdictions. This withholding tax, which would come into force in 2019-20, is estimated to yield a total of £800m by 2022-23. Interestingly, by combining low headline rates of corporation tax with an IP-friendly tax regime, the UK has succeeded in attracting IP to the UK. There is a serious risk, therefore, that this new IP withholding tax will trigger harmful tax competition with other low-tax jurisdictions so reducing the yield of the new tax.
Of course, there is much else to consider. One of the other features which is developing in my thinking is the challenge to the tax system of new technology and ways of working. Obviously we have the question of employment status and the use of platforms for online selling, but one of many consultations mentioned in Treasury documents is a review of rent-a-room relief and whether or not it is achieving its objectives. That seems to be a reaction to Airbnb. Rent-a-room relief was intended for lodgers and I suspect that it is now being used for short-term lets under Airbnb while the owner is temporarily absent.
A blaze of glory? Not really. But a solid performance in which the Chancellor tried to tick as many electoral boxes as he could. While his supply of ink may be depleted, my impression is of a Chancellor who has at least one more Budget left in him.
George Bull is RSM’s Senior Tax Partner