According to the Institute for Fiscal Studies, Hammond has a choice: keep to his aim of balancing the books by the mid 2020s or deliver on prime minister Theresa May’s promise to “end” austerity.
The IFS calculated that the minimum expenditure needed to end austerity, by its definition, would be an additional £19bn a year by 2022–23. Unless there are substantial tax rises or better-than-expected economic growth this is not compatible with balancing the books.
On top of that he has no idea what type of Brexit deal, if any, the UK will secure, and he won’t want to raise taxes and expend much-needed political capital.
“This year’s Budget is likely to be a curtain raiser for far bigger decisions on spending, tax and borrowing which will come after the UK’s probable departure from the EU next March,” according to Ian Stewart, Deloitte’s chief economist.
Businesses, however, cannot wait until there is certainty around business and need government to make choices now to help them.
ICAEW chief executive Michael Izza, said that this Budget will play an important role in “shaping the UK economy for decades” and ensuring the UK remained supportive of global industries and markets.
This, he suggested, should include the appropriate creation and application of regulation, which would require coordination across government.
Find all the news, analysis, and comment on the Budget here
“The government needs to act in concert to manage the application and timing of new regulations,” Izza said.
This should include slowing down the introduction of new tax legislation. “Pressure on government departments, caused by Brexit, is leaving those responsible for developing and implementing new policy in the tax system under-resourced,” he added.
Melissa Geiger, head of International Tax at KPMG UK, is “fairly optimistic that we could see a relatively ‘quiet’ Budget that maintains the UK’s competitiveness and attractiveness as a place to do business, leaving the chancellor with options to respond at a later date to Brexit in whatever form it takes.
“A boost to productivity and the government’s vision for the UK to be a knowledge economy would be welcome, but the signs are that the chancellor is more preoccupied with the issue of how to tax the digital economy.”
Reports this week suggested that Hammond is considering lowering the VAT threshold for small businesses from £85,000.
Mike Cherry, chairman of the Federation for Small Business, said this speculation is “very concerning”.
“Suddenly dragging more small firms into the VAT regime would be incredibly damaging, placing a huge admin burden on thousands of businesses and bringing them into the scope of Making Tax Digital by stealth,” he added.
The CBI has called on Hammond to help support the sharing economy, which it says will be worth a potential £140bn by 2025. The Budget is a “fantastic opportunity to cement the UK’s position as a global leader for this sector”.
Richard Laughton, Sharing Economy UK Chair and CEO of EasyCar, said, “For the UK to continue to succeed in this sector, we must harness this growth. The current tax allowances for trading and sharing skills have enabled millions to participate and the Budget should increase these allowances.
“It would also be helpful for HMRC to give clearer advice on how providers can meet their tax requirements. Doing so will encourage more people to participate and help cement the UK’s reputation as a thriving tech hub.”
Business rates have been tinkered with by successive chancellors but retail groups say online shopping and rising rates have left many High Street retailers struggling.
Gerry Biddle, Deloitte director of Business Rates, said it is likely there will be “yet another” review, which will focus on their impact in light of recent insolvencies of high street chains. “There may also be a move towards partial self-assessment for the forthcoming 2021 revaluation, which would require occupiers to fill out complex ‘forms of return’, requiring detailed information in respect of both their properties and the terms of their occupations.”
Helen Dickinson, chief executive of the British Retail Consortium, said that if the government is to follow through “on its commitment to back business they cannot penalise retailers for investing in our high streets or dis-incentivise them from investing in new technology to meet the challenge of changing shopping habits. We need a fundamental reform of the business taxation system to make it fit for a modern retail industry operating in the 21st century.”
Tim Walford-Fitzgerald, private client partner at H W Fisher & Company, commented, that local authorities are “desperately short of cash and any further reductions in what they are able to collect is likely to heap further pressure on locally delivered services. Equally, calls for a so-called Amazon Tax are likely to fall on deaf ears. This is not so much about the chancellor’s lack of willingness to act on such issues as it is an inability to do so.”
Digital sales tax
This month the chancellor has warned that reform is needed in the way big technology firms are taxed. Google, Facebook, Apple and Amazon have been criticised for the amount of tax they pay on in the UK.
Daniel Lyons, Deloitte head of tax policy, has predicted that a Digital Sales Tax is “unlikely to feature in the Budget whilst negotiations are still ongoing to introduce such a tax on an EU-wide basis”.
Chris Sanger, head of tax policy at EY, added, “The debate on the taxation of digital companies has now moved onto a debate about which country should have taxing rights over their profits. The aim of the EU level, and indeed the UK, is towards a longer-term change, which reallocates the taxing rights and ensures that the profits are taxed once.
“However, the development of the Digital Services Tax as a turnover tax is a recognition that such a fundamental change is going to take time to agree. In the meantime, governments are acting to seek to tax what they consider to be their share of the activity, moving beyond profit taxes and supplementing them with turnover taxes. This will inevitably lead to activity being taxed twice and sometimes taxes being paid even where there are no profits at all.
“The UK’s confirmation that it will act alone if necessary reinforces the pressure on the EU to develop an agreed approach.”
Geiger said a tax on digital sales would be “well-received by the public but they need to be careful what they wish for. Any tax that is closely linked to revenue may well be passed on to consumers”.