Budget Statement 2017 - Cicero Group

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Budget Statement 2017 A Cicero Group analysis NOVEMBER

2017

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Foreword The job of Chancellor is a difficult one, and never more so than now. Since Hammond’s last Budget in the Spring, the UK has triggered Article 50, beginning the two-year process of leaving the EU, and economic conditions have changed. Despite Hammond’s attempts to crack jokes over the “economicky” section of the Budget, it is difficult to escape the significant downgrade of the OBR’s growth forecasts, which are now below 2% every year for the first time in decades. Against this environment, Hammond’s announcement that he has set aside £3 billion for Brexit, and is ready to allocate further funds if needed, has not gone down well with those who would rather we were not leaving at all. The political backdrop has also changed immensely. Hammond’s Spring Budget was delivered at a time when the Conservatives were soaring in the polls whilst Labour were divided under Jeremy Corbyn’s leadership. After the General Election in June, Hammond has now been required to deliver a Budget that must appease both sides of an increasingly divided Conservative party which has only a very slim majority (thanks to the DUP), whilst the Labour party wait in the wings, ever ready to use their ‘Government-in-waiting’ line. By nature, Hammond is fiscally cautious and as such, alongside the latest economic outlook announced today, the ‘radical’ Budget called for by some of his colleagues was always going to be difficult for him to deliver. However, Hammond had acknowledged that the public has tired of austerity, pledging more money for the NHS and a ‘balanced’ approach to the finances that allow the Government to help families with the cost of living.

Productivity One of Hammond’s great passions – the productivity challenge – has been tied in with making Britain “fit for the future” as the UK leaves the EU in 2019. Hammond announced £2.3 billion of investment into research and development, including £500 million for artificial intelligence and 5G initiatives. The Government is also investing in STEM and attempting to encourage more pupils into Maths A-levels with a £600 premium for every student, as well as creating a new National Retraining Scheme that will initially focus on digital skills. Hammond’s future? So after weeks of briefings against him, did the Chancellor do enough to save himself? This couldn’t really be described as a revolutionary Budget, but Hammond has attempted to toe a careful line between ‘boring’ and ‘bold’. It’s difficult to see a forced U-turn on any of the measures announced, and the avoidance of another ‘NICs’ moment may well be enough to keep Hammond in his job. For the business community, there was relatively little here to be alarmed about, and they will welcome a number of measures on productivity, infrastructure, skills and taxation. However, ultimately the question of Hammond’s future rests on the reaction of the Conservative party rather than businesses. The Chancellor knows he still has his opponents on his own backbenches, driven by his perceived lack of enthusiasm for Brexit. He will hope this Budget has kept them at bay for now, but he can expect more battles ahead.

Intergenerational fairness With the Conservative party’s eye on how to win back younger voters, Hammond’s more substantive measures announced today focused on housing. The flagship announcement was on stamp duty: this has been abolished for first-time buyers for homes worth up to £300,000, and for people buying a home worth up to £500,000, the first £300,000 will be exempt. Hammond is also channelling a total of £44 billion to support the housing market, including funding for the Housing Infrastructure Fund, and the Home Building Fund to support SME housebuilders. The Chancellor also confirmed the trailed new railcard, which will give 4.5 million people aged 26-30 a third off rail fares.

Charlotte Adamson Senior Account Executive Cicero

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Labour’s reaction This is the third Budget to which Jeremy Corbyn has responded as Labour leader, but it is the first since he became the selfstyled ‘Prime Minister in waiting’. June’s General Election fundamentally altered the fortunes of the leaders of our two main political parties, to such a degree that a few weeks ago we witnessed the surreal sight of the left-wing Labour leader receiving arguably a warmer response at the CBI annual conference than the Tory Prime Minister. In his response today, Corbyn stuck to familiar themes as he branded Hammond’s Budget “an advertisement for just how out of touch this Government is with the reality of people’s lives”. He highlighted that wages and living standards are being revised down, the poorest tenth of households will lose a substantially greater proportion of their income than the richest by 2022, the number of rough sleepers has doubled and in some parts of the country, life expectancy is beginning to fall. These lines of attack fit well with Corbyn’s chosen mantra of building a country that ‘works for the many not the few’. The OBR forecasts hand Labour another potent weapon however and Corbyn seized on these immediately: GDP growth, productivity and business investment have all been revised down. On the deficit in particular, Labour will enjoy a strong feeling of schadenfreude. The 2010 General Election was fought largely on the issue of deficit reduction, with the Conservatives pledging to have eliminated the deficit by 2015. Here we are seven and a half years later and it looks like it’ll be another seven and a half years before the deficit is gone. As his political fortunes have improved, so too have many of Corbyn’s performances at the despatch box. While today’s may not go down as the most polished piece of Parliamentary oratory ever delivered, it was an effective performance nevertheless, chastising the Government for a string of broken promises and missed targets. The Opposition leader never makes the headlines on Budget day – for good or bad it is always the Chancellor’s day in the sun. It will be in the days and weeks ahead that Corbyn, John McDonnell and co will look to press home their message that this is a government that is failing even on its own terms. Unlike before the General Election, they can expect to get a hearing for this message. Some day, they may even get the chance to deliver a Budget of their own.

UK projected growth figures March

November

2017

2% 1.5%

2018

1.6% 1.4%

2019

1.7% 1.3%

2020

1.9% 1.3%

2021

2% 1.5%

2022

1.6%

Current account deficit 2016/17

2.3% of GDP

2017/18

2.4% of GDP

2018/19

1.9% of GDP

2019/20

1.6% of GDP

2020/21

1.5% of GDP

2021/22

1.3% of GDP

2022/23

1.1% of GDP

Simon Fitzpatrick Account Director Cicero

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Budget Statement 2017 - Sector by sector

Banking •

There were no new banking or financial services announcements in this Budget but a recommitment to initiatives such as Open Banking and FinTech funding.



The Chancellor announced a further £36m of LIBOR banking fines will be given over the next 3 years to support Armed Forces and Emergency Services charities and other related good causes.



A further £5 million from other banking fines will be allocated to support in Scotland, Wales and Northern Ireland from banking fines.

Pensions and Savings



An ‘Action Plan’, following the Patient Capital Review, will unlock over £20 billion of new investment in UK scale-up businesses including through a new fund in the British Business Bank.



Invest £500 million of public money through the British Business Bank into a series of private sector ‘funds of funds’ to encourage new institutional investment in high-growth sectors.



A new commercial investment programme will be run by the British Business Bank to develop groups of business ‘angels’ outside of London.



Facilitate pension fund access to long term investments and double the EIS investment limit for “knowledge intensive companies” and the annual investment those companies can receive through EIS and the Venture Capital Trust scheme.



The basic State Pension will rise by 3% in April 2018 in line with the Triple Lock.



The lifetime allowance for pension savings will increase in line with CPI, rising to £1,030,000 for 2018-19.



Introduce a new test to reduce the scope for and redirect low-risk investment, together unlocking over £7 billion of growth investment.



The Pensions Regulator will clarify guidance on investments with long-term investment horizons, to give pension funds confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio.



To prevent the avoidance of legislation designed to ensure that asset managers receiving carried interest pay CGT on their full economic gain, the Government will remove the transitional commencement provisions with immediate effect.

Insurance

Tax



Insurance Premium Tax receipt forecasts have been published, detailing the current out-turn at £4.9 billion and is predicted to rise to £6 billion in 2022-2023. However there was no increase to the IPT rate.



VAT registration threshold for small businesses will remain at £85,000 for the next two years, but the Government will consult on the.



An additional £76 million will be spent on flood and coastal defence schemes over the next three years.



The Government is committed to maintaining Britain’s competitive Corporation Tax rates and will freeze the indexation allowance for capital gains so that companies receive relief for inflation up to January 2019 but not thereafter.



Increase the basic rate income tax threshold to £11,850 from £11,000 (the threshold was already due to go up to £11,500) and the higher rate threshold will be increased to £46,350, both are in line with inflation.

Asset Management and long-term investment •

The Government will publish a new long-term strategy – Investment Management Strategy 2. This will include actions on skills, harnessing financial technology solutions, mainstreaming innovative investment strategies, and continuing a coordinated programme of international engagement.

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Budget Statement 2017 - Sector by sector





From April 2019, the Government will freeze short-haul Air Passenger Duty rates and long-haul economy Air Passenger Duty paid for by an increase on Premium class tickets and private jets. From November 2018, the Government will introduce ‘Transferable Tax History’ for transfers of oil and gas fields in the North Sea to encourage new entrants to bring fresh investment to a basin that still holds up to 20 billion barrels of oil.



The Government will Increase R&D Tax credits to 12% to drive up R&D investment, allocating a further £2.3 billion for investment.



On corporate capital gains, the Government will amend the Substantial Shareholding Exemption legislation and the Share Reconstruction rules to avoid unintended chargeable gains being triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company.







The Government is piloting 100% business rates retention in London next year.

Business support •

There will be action to unlock the potential of UK exporters and their suppliers through a new UK Export Finance product to support export supply chains.



Enterprise Finance Guarantee will be extended to March 2022.



The Government will increase the National Living Wage for those aged 25 and over from £7.50 per hour to £7.83 per hour from April 2018.

Infrastructure

With effect from April 2019, withholding tax obligations will be extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located.



The Industrial Strategy will be presented in a White Paper in the “next few days”.



The Government will provide more than £1 billion of lending will be available to councils to fund highinvestment projects.

The Government will launch a call for evidence in 2018 seeking views on how the tax system or charges could reduce the amount of singleuse plastics waste, building on the success of the existing plastic carrier bag charge.



The National Productivity Investment Fund will be extended to 2022/23 and expanded to be worth more than £31bn.

Business rates •

which the VOA revalues non-domestic properties by moving to revaluations every three years following the next revaluation, currently due in 2022.

The Government will bring forward to 1 April 2018 the planned switch in indexation of business rates from RPI to the main measure of inflation (currently CPI).



The Government will legislate retrospectively to address the so-called “staircase tax”.



The Government will increase the frequency with

Housing •

The Government has abolished stamp duty for firsttime buyers for homes worth up to £300,000. For people buying a home worth up to £500,000, the first £300,000 will be exempt from stamp duty.



A consultation will be launched on the barriers to longer-term tenancies and ways to encourage landlords to offer longer tenancies.



Over the next five years the Government will commit a total of £44bn to support the housing market. By

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Budget Statement 2017 - Sector by sector

the mid-2020s there should be 300,000 homes being built every year. •

For housing, the Government will: • • • • • •



Invest £1.5 billion in Home Building Fund to help SMEs. Invest £630 million in a small sites fund. Provide an additional £2.7 billion investment to more than double the Housing Infrastructure Fund. Invest £400 million for estate regeneration. Invest £1.1 billion fund to unlock strategic sites. Invest £8 billion of new financial guarantees to support private housebuilding and the purposebuilt private rented sector.

Oliver Letwin MP will chair a review into the gap between planning permissions and housing starts, which will report in time for the Spring Statement next year. If land is withheld for commercial reasons the Government will intervene.

and £660 million more for Northern Ireland. Welfare •

A £1.5bn package to address concerns about the operation of the Universal Credits system. Claimants will not have to wait seven days before they are entitled to money, and the repayments period for advances will be extended from six months to 12 months.



The government will also reset the welfare cap for the new Parliament.

Skills and productivity •

The Government will create a new National Retraining Scheme, run in collaboration with the CBI and TUC, which will focus on STEM skills to become innovators of the future.



Investment in STEM including £40m for maths teachers; expand the Teaching for Mastery of Maths to a further 3,000 schools; £600 premium for maths students in A-levels; further £20m to support FE colleges; launch a new national centre for computing.

Technology and innovation •



The Government will invest £500m in new technology such as artificial intelligence, 5G and full fibre broadband. The Government will provide a new £400m charging infrastructure fund, invest an extra £100m in PlugIn-Car Grant, and £40m in charging R&D for electric and autonomous vehicles.

Health and social care •

The Government will provide £6.3 billion additional funding for the NHS. This includes £3.5 billion of capital investment in estates transformation, and improvement and efficiency schemes, and £2.8bn to NHS England in resource funding, £335m of this immediately to allow NHS England trusts to prepare for winter.



The Government will also provide extra funding for NHS pay and will submit evidence to the independent pay review body shortly.

Devolution •

£1.7 billion Transforming Cites Fund will be available.



The Government announced plans to negotiate a Belfast city deal, with plans for similar deals across Northern Ireland.



Begin negotiations towards growth deals for North Wales and Mid-Wales.



Greater Manchester and the Government will work in partnership to develop a local Industrial Strategy.



Government plans involve £2 billion more for the Scottish government, £1.2 billion more for Wales

Tax avoidance and evasion •

The Government will publish a consultation response on the proposed requirement for designers of certain offshore structures, that could be misused to evade taxes, to notify HMRC of these structures and the clients using them. This work will be taken forward in conjunction with the OECD and EU.



The Government will extend offshore time limits for

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Budget Statement 2017 - Sector by sector

non-deliberate offshore tax non-compliance so that HMRC can always assess at least 12 years of back taxes without needing to establish deliberate noncompliance, following a consultation in spring 2018. •

The Government will introduce a VAT domestic reverse charge to prevent VAT losses, shifting responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen. Changes will have effect on and after 1 October 2019.



The Government will crack down on the abuse of the Employment Allowance to avoid paying the correct amount of NICs by requiring upfront security from employers with a history of avoiding paying NICs in this way. This will take effect from 2018 and raise up to £15 million a year.



In 2018 the Government will consult on the best way to prevent UK traders or professionals from avoiding UK tax by fragmenting their UK income between unrelated entities.



The Government will remove the 6-year time limit within which companies must adjust for transactions that have reduced the value of shares being disposed of in a group company.



The Government will amend the Double Taxation Relief targeted anti-avoidance rule to remove the requirement for HMRC to issue a counteraction notice, and extend the scope to ensure it is effective.



The Government will amend the powers giving effect to double taxation arrangements to allow the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting to be implemented.



The Government will look at a split payment model to reduce online VAT fraud and improve how VAT is collected, following the call for evidence launched at Spring Budget 2017.



The Government expects digital platforms to play a wider role in ensuring their users are compliant with the tax rules. The Government will publish a call for evidence in spring 2018 to explore what more digital platforms can do to prevent non-compliance among their users.

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BUDGET2017

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136,673 TWEETS

TOP ISSUES Housing

NHS

Infrastructure

Universal Credit

Fuel duty

11,546

7,123

4,293

3,939

2,247

Most Used Emojis

33.7 % 4.0 %

2.3 % 1.9 %

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MOST RETWEETED Kate Flood @KateFlood

2.9 %

1.5 %

773 Retweets 1,366 Likes

MPs tweets per minute

Caroline Lucas @CarolineLucas

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Price of travelling since 1997:

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car down by 16% domestic flights down 16% train up by 23% coaches and buses up 33%

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There’s no war on motorists. There’s a war on ppl who can’t afford a car, or want to leave it at home. #Budget2017

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724 Retweets 1,068 Likes

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HM Treasury @hmtreasury So, with effect from today for all

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12:40 12:41 12:42 12:43 12:44 12:45 12:46 12:47 12:48 12:49 12:50 12:51 12:52 12:53 12:54 12:55 12:56 12:57 12:58 12:59 1:00 1:01 1:02 1:03 1:04 1:05 1:06 1:07 1:08 1:09 1:10 1:11 1:12 1:13 1:14 1:15 1:16 1:17 1:18 1:19 1:20 1:21 1:22 1:23 1:24 1:25 1:26 1:27 1:28 1:29 1:30 1:31 1:32 1:33 1:34 1:35 1:36 1:37 1:38 1:39 1:40 1:41 1:42 1:43

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I want guaranteed working hours, proper employment contracts and a minimum wage that covers everything from council tax to heating to a pint after an awful shift. I don’t want a railcard that isn’t even valid on commuter fares #Budget2017

first-time buyer purchases up to £300,000, I am abolishing stamp duty altogether #Budget2017

598 Retweets 420 Likes

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