‘I am pleased to report to the House on a UK economy that has grown in every year since 2010.’
Philip Hammond, Chancellor of the Exchequer
First Spring Statement heralds the ‘light at the end of the tunnel’
Chancellor Philip Hammond has presented his first Spring Statement, with something of a spring in his step.
Responding to the latest economic forecasts from the Office for Budget Responsibility, Mr Hammond revealed that the economy is expected to grow at the slightly faster rate of 1.5% in 2018, compared with the 1.4% forecast in the Autumn Budget.
Debt and borrowing have been revised downwards, with the budget deficit now set to reach £45.2bn this year and debt expected to start falling as a share of GDP from next year. Inflation is also predicted to fall back down to the Bank of England’s 2% target over the coming 12 months. The Chancellor suggested that the UK’s public finances have reached a ‘turning point’.
While openly challenging his own reputation as a pessimist, the Chancellor rejected calls to ease the squeeze on spending, asserting that UK debt remains ‘too high’ and heralding the government’s ‘balanced approach’. However, he did pave the way for potential increases in public spending from 2020 onwards, revealing plans for a detailed Spending Review in 2019.
Mr Hammond also used the Spring Statement to report on the progress made on a number of the measures previously announced at the Autumn Budget.
Having previously announced that business rates revaluations will take place more frequently, the Chancellor has now brought forward the next revaluation by a year, to 2021. He also revealed that an estimated 60,000 people have so far benefitted from the stamp duty land tax exemption introduced for first-time buyers in the Autumn Budget.
With Brexit negotiations ongoing, the Chancellor confirmed that over £1.5bn has been allocated to departments and devolved administrations in preparation for the UK’s exit from the EU. He also announced the first allocation of funding from the Challenge Fund, which will provide money to support the roll out of full-fibre broadband to 13 areas of the UK.
The Chancellor also committed more than £500m a year to support the new post-16 T-Levels, with £50m a month being made available to help employers prepare for T-Level work placements.
Turning to future changes to the tax system, the Chancellor launched consultations on a number of key areas, including the impact of the VAT registration threshold on small businesses, tackling single-use plastic waste, and new incentives to encourage the ‘great British white van driver’ to go green.
Although the Spring Statement is not intended to be a major fiscal event, the Chancellor did announce some business and investment measures.
At the Autumn Budget 2017 it was announced that business rates revaluations will take place every three years, rather than every five years, following the next revaluation. At the Spring Statement the Chancellor announced that the next revaluation will be brought forward from 2022 to 2021, meaning that the first change to three-year revaluations will take place in 2024.
Following the launch at the Autumn Budget of the £190m Challenge Fund to help roll out full-fibre broadband to local areas, the Spring Statement allocates the first wave of funding, providing over £95m for 13 areas across the UK.
The government has a target of raising the supply of homes to 300,000 a year on average by the mid-2020s. In the Spring Statement it was announced that the Housing Growth Partnership, which provides financial support for small housebuilders, will be more than doubled to £220m. London will receive £1.67bn to start building a further 27,000 affordable homes by the end of 2021/22.
Improving transport in English cities
The government is now inviting bids from cities across England for the remaining £840m of the £1.7bn fund announced in the Autumn Budget for improving transport in English cities.
The Chancellor announced that up to £80m of funding will be released to support small businesses in engaging an apprentice.
Increase in the pensions Lifetime Allowance
The Lifetime Allowance represents the maximum amount that an individual can save into their pension pot and still benefit from tax relief at their marginal rate. As previously announced, it will increase in line with CPI for 2018/19, rising from £1,000,000 to £1,030,000.
New National Living Wage (NLW) and National Minimum Wage (NMW) rates
From 1 April 2018 the NLW for workers aged 25 and over will rise to £7.83 per hour. The NMW rates will also increase, rising to £7.38 for those aged 21-24 and to £5.90 for workers aged 18-20. The rate for 16 and 17-year-olds will go up to £4.20, while the NMW for apprentices (those under 19, or 19 or over and in the first year of their apprenticeship) will be set at £3.70.
The Chancellor announced various consultations on future changes. These can be found online under ‘Consultations’ at gov.uk.
VAT registration threshold
Last year a review by the Office of Tax Simplification recommended that the government examine the current approach to the VAT threshold, suggesting that the existing design of the threshold may be disincentivizing small businesses from growing their business.
A new consultation examining the effect of the current threshold on small businesses will run until 5 June 2018. Businesses can contribute their views online at www.surveymonkey.co.uk/r/W7TLCZ7.
Tax relief on training and skills
The government is to consult on extending the current tax relief to support self-employed people and employees when they fund their own training, particularly retraining or upskilling for those changing career.
The government is inviting views on changes to Entrepreneurs’ Relief to ensure that it does not discourage entrepreneurs from seeking external finance for their companies. Currently, entitlement to the special 10% rate of capital gains tax may be lost when an entrepreneur’s company issues new shares and as a result causes their personal stake to fall below 5%.
A new proposal allows an individual in this position to elect to be treated as if they had disposed of their shares and reacquired them at their market value just before the time the company issued new shares. The individual may claim Entrepreneurs’ Relief on that gain either at the time of election, or on a future disposal of shares.
Cash and digital payments
With the rise in recent years of digital payments, the government is consulting on ways to support people and businesses who use these methods. At the same time it will examine ways to ensure that those who need to are still able to pay with cash, while preventing the use of cash to evade tax or launder money.
VAT, Air Passenger Duty (APD) and tourism
Concerns have been raised about the impact of VAT and APD on tourism in the UK, and particularly in Northern Ireland. The government is, therefore, seeking evidence on the significance of any impacts that VAT and/or APD have on tourism.
Single-use plastic waste
The government is seeking views on using the tax system to encourage the ‘responsible use of plastic’. It intends to use some of the money raised from any tax changes to encourage the creation of new, greener products and services. In addition, £20m from existing budgets will be given to businesses and universities to research ways to reduce the impact of plastics on the environment.