Budgets are not only when the Chancellor raises or lowers taxes or agrees to fund particular schemes, they are also a moment when the nation’s finances are laid bare. Yesterday saw the Chancellor produce a budget in circumstances which were both difficult and surprisingly favourable. The difficulty, of course, results from the continuing slow growth of the UK economy and the uncertainty around Brexit. However, there was an important piece of good news for him in the run up to the event as Tax returns proved unexpectedly buoyant giving him a practical bit of elbow room.
Personal tax cuts were largely confined to the raising of the personal allowance to £12,500 pa and the higher rate threshold to £50,000, which doubled as a neat move to skewer Labour, who are split as to whether to support or oppose it.
For manufacturers – and indeed business more widely - the best news was the expansion of the Annual Investment Allowance from £200,000 to a whopping £1,000,000 for the next two years. This was a specific ‘ask’ from the MTA and we are very pleased that the Chancellor agreed with us that it was wise move to boost investment in a difficult climate. The change, which will apply to any purchase agreed on or after the 1st of January 2019, is a potentially huge boost for machinery and equipment suppliers over the next two years and should encourage more of our industry’s customers to invest in the latest technology.
There is also to be a new allowance for industrial building which will be eligible for a 2% straight line deduction. The previous Industrial Buildings Allowance was abolished in 2007, in one of the least comprehensible fiscal moves of recent years, and this new measure should also stimulate investment.
Perhaps the most innovative move was the introduction of a new Digital Services Tax which looks to levy a charge on digital service providers. This is actually a big change in the way that the Treasury approaches business taxation – hitherto the central idea has been that Government taxes profit not activity. Against a backdrop of outrage at the tax practices of some Tech firms the Chancellor felt the need to do something, but a tax which may take up to £400m per year from the likes of Facebook and Google in five year’s time is pretty small beer – especially as it comes with a proviso that, if international measures currently under discussion are enacted, they may supercede it. The question of how to tax Tech firms is one which all western countries are wrestling with. They argue that they create most of their value in California where they develop their products and services but Government’s contend that they are deriving value from their networks of customers and should pay tax where those customers are – just like conventional retailers or media companies.
More quietly, the biggest revenue raiser in the book looks like a plan to reform off payroll working, meaning yet more changes to IR35, although not until 2020/1.
The biggest beneficiary of the largesse that was enabled by the extra headroom in the public finances was the Health Service in a move that had already been more or less announced. There was a modest boost for the MoD, which will prevent short term measures such as scrapping the UK’s amphibious capability and some eye catching smaller sums to spend on things like repairing potholes.
The Apprentice Levy has been widely criticised as being bureaucratic and onerous to use. By cutting the threshold for co-investment the Chancellor has made it, in theory, more attractive to smaller companies but there must be questions about how much effect a relatively small change will make in the real world.
One key spending commitment that we strongly support announced as part of the Budget was that the Made Smarter initiative has been successful in securing £121m of funding through the Industrial Strategy Challenge Fund to support the uptake of digital technologies. The scheme will be rolled out first in the North West of England before, hopefully quite quickly, going nationwide.
Two of institutions set up to increase lending to business, the British Business Bank and UK Export Finance have had more credit made available to them – so it is opportune that we are sponsoring a webinar with UK Export Finance next week about how to use them better. There is support for the Productivity Agenda too with funding to increase Business Schools activities with SMEs and more places for KTN students. On a Regional level there were commitments to refresh both the Northern Powerhouse and the Midlands Engine in 2019 (although no further money, yet).