News
Raymond Doherty 13 Mar 2019 05:26pm

Spring Statement: business sounds the foghorn

Following today’s Spring Statement, the business community agreed with the chancellor that there is Brexit fog, and it is thick

630SpringStatement2019
Caption: "This pea-souper Brexit fog"

“As to be expected after last night’s vote, the chancellor’s statement provided little sunshine to cut through the Brexit fog,” said ICAEW chief executive Michael Izza

Howard Archer, chief economic advisor to the EY ITEM Club, said, “The chancellor could not have faced a more uncertain backdrop as he presented his Spring Statement, as he was surrounded by a thick Brexit fog.”

"This pea-souper Brexit fog also surrounded the Office for Budget Responsibility," he added.

Melissa Geiger, head of international tax and tax policy, KPMG UK, said, “As expected there were no major tax announcements in the Spring Statement, the chancellor preferring to keep his head under cover amid the Brexit storm clouds.”

For his part, the chancellor Philip Hammond began by warning of the “dark cloud” of uncertainty hanging over the economy.

Economy

He then went on to reveal a sharp cut to UK economic growth forecasts over the next few years and warned of no deal consequences.

He also warned that a no deal Brexit would deliver a significant short-to-medium term hit to the UK economy, increase unemployment and result in higher prices in shops.

This year, according to the Office For Budget Responsibility (OBR), UK economic growth will fall to 1.2% – down from its previous prediction of 1.6%. Over the next few years the OBR predicts, a growth rate of 1.4% (2020), 1.6% (2021), 1.6% (2022), 1.6% (2023).

Izza added, “If there is a managed deal, we can expect a significant Brexit dividend with businesses investing, consumers more confident and an uptick in the market. However, much damage has already been done as a result of the ongoing uncertainty. Businesses have taken decisions to relocate assets and cancel planned investments, which are unlikely to reversed even if a deal is reached.”

Paul Falvey, tax partner at BDO, said, “Given the current uncertainty regarding the UK’s proposed exit from the EU, we weren’t expecting any fireworks, and this rang true.”

The borrowing figures were a lot more positive for the chancellor. Borrowing will fall from £29.3bn in 2019-20, then £21.2bn, £17.6bn, £14.4bn and finally £13.5bn in 2023-24 – its lowest level in 22 years.

Hammond pledged to spend a £26.6bn “Brexit dividend” to boost the economy, but only if there was a smooth exit.

Paul Johnson, Institute for Fiscal Studies director, said, “Despite growth bouncing back from 2020 onwards, the medium-term outlook for the economy remains unusually weak. Even so, the chancellor has had yet more good news on the public finances.

“The chancellor has kept his powder dry in terms of potential extra spending in the face of this good fiscal news, waiting for outstanding Brexit uncertainty to dissipate before making his spending review decisions.”

Making Tax Digital

Hammond confirmed that Making Tax Digital (MTD) will not be mandated for any other taxes or businesses in 2020.

HMRC had previously announced that to allow for delivering EU exit responsibilities, it was slowing the IT delivery of some elements of MTD relating to income tax and corporation tax.

Caroline Miskin, ICAEW tax manager, said, “We are encouraged that HMRC is adopting a very light touch approach – one of encouragement rather than compulsion – for at least the first year of MTD and that penalties will not be issued for late filing. It is crucial that HMRC is not heavy handed with businesses during this period of immense change and it has acknowledged the pressures that businesses are under by not extending MTD to include both more taxes or businesses.

“MTD for VAT is a major change in tax administration and it is important for the UK tax system that it is a success: this is too important to be rushed.”

Jayne Harrold, indirect tax director at PwC, agreed that small businesses will be “relieved” about the “light touch”.

Late payments

Hammond revealed that to help tackle the problem of late payments for small businesses, audit committees will now be required to report late payment practice.

“The end of late payments could finally be in sight. It can’t come soon enough, to bolster small businesses at a time when they are in great need of support and a lift in confidence,” said national chairman of the Federation of Small Businesses Mike Cherry.

Spending review

If a Brexit withdrawal agreement is struck, Hammond will launch a full three-year Spending Review before the summer recess, to be concluded alongside an Autumn Budget.

Rebecca George, lead public sector partner at Deloitte, said the timescales were helpful but she stopped short of saying “that it will involve some incredibly tough choices on public spending”.

“His commitment to focusing the Review on ‘high quality outcomes’ was encouraging and we hope that means impact-focused spending conversations in government, as well as getting the best possible bang for the taxpayers’ buck,” added George.

Green policies

The chancellor has announced the mandatory banning of fossil fuel heating systems in homes from 2025. “The direction of travel on fossil fuels is clear, but this will leave a huge hole in the government’s finances. Fuel excise duty is one of the largest single sources of tax revenues and so if the government continues to move towards banning fossil fuels, it will have to work out where the extra money will come from,” said James Hender, head of private wealth at Saffery Champness.

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