Today the Chancellor presented his first Spring Statement. He announced the UK is moving from two fiscal occasions to a single tax and spending event that will take place each autumn.
In the short-to-medium term the forecasts look good – higher tax revenues resulting in government surpluses to pay down the UK’s eye-wateringly high debt. The Chancellor was confident on growth, on inflation and interest rates and as a result, confident that earnings will start to rise in real terms – vital for so many who are ‘just about managing’.
But the devil is in the detail and despite optimism, UK growth is still behind our global competitors and the full impact of Brexit is still unknown – although we now know the UK will still be paying the divorce bill in 2064.
As expected, the statement did not include any significant tax related announcements. Instead, he provided an update on the economy and the progress made since Autumn Budget 2017. He also released a number of consultations inviting views on various changes the government is considering to the tax system.
The government is consulting on a range of issues. Some of narrow interest, while others are an initial call for evidence on how changes to the tax system could tackle wider issues, such as reducing the amount of single-use plastics we waste.
The consultations published today with wide impact or interest include:
- the previously announced proposal to allow Entrepreneurs Relief on capital gains made before a dilution
- a number of proposed extensions and reforms of the venture capital schemes (Enterprise Incentive Scheme, Seed Enterprise Incentive Scheme, Venture Capital Trusts) to encourage investment in innovative firms
- how existing tax relief available for self-funded work-related training by employees and the self-employed could be extended
- online platforms’ role in ensuring tax compliance by their users
- an alternative method of VAT collection, following on from an earlier call for evidence
- calls for evidence to better understand the role of cash and digital payments in the new economy, the impact of the current VAT registration threshold on growth.
In addition, the government has or is consulting on a number of other changes including:
- corporate tax and the digital economy
- employment status
- extension of offshore time limits
- a review of the corporate intangibles fixed asset regime
- changes to the taxation of non-residents chargeable to income tax and capital gains tax.
Some of these represent potentially major changes to the tax system. For example, how online trading can be taxed (a tax based on turnover is a possibility) and on the VAT threshold – high at roughly three times UK average earnings and seen by many as a disincentive to growth.
We have argued for a fundamental review of the UK’s tax regime, which sadly was not delivered today. But let’s wait and see how the consultations go over the summer. We still encourage government to take steps toward a tax system that builds trust and integrity in markets and is fit for the future.
Learn from growth leaders
Despite the comments made by Chancellor Hammond today, and at a time when business optimism remains strong across Europe and indeed the world, it has plummeted in the UK. According to our International Quarterly Business Review, optimism in the UK has fallen to net 12% in 2017 compared to net 26% a year ago. In contrast, global business optimism is at its highest ever level at net 58% in 2017 up from 38% in 2016. It’s not surprising, therefore, that only 16% of UK companies meet the OECD definition of ‘high growth’ by turnover (20% growth per annum for three years).
We have undertaken a comprehensive research programme – surveying 1000 CEOs and business leaders across the UK mid-market, supported by a number of interviews with industry leaders, to uncover the cost of untapped mid-market growth to the UK economy. The report – Planning for growth: don’t let uncertainty hold your business back - will reveal what the UK mid-market can do to overcome barriers, leverage opportunities and claim its ongoing place in the global economy.
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