Welsh businesses feed their thoughts and comments on the 2017 spring budget. Funding, apprentices, tax and investment are amongst the hot topics of discussion.
RICS (Royal Institution of Chartered Surveyors)
David Morgan | Policy Manager in Wales
RICS (Royal Institution of Chartered Surveyors) Policy Manager in Wales, David Morgan, responding to today’s Budget, stated the need to ensure the £200 million coming to Wales as a result of the Barnett formula helps enhance Wales’s infrastructure.
David Morgan says: ‘The additional funding is welcome, but it is essential that it is spent in a way that will provide the best outcome for the Welsh economy. Upgrading Wales’s infrastructure will provide an economic boost in the short-term and enhance competitiveness in the longer-term.
We are also encouraged by the Chancellor’s statement in relation to City Deals. The Chancellor has said that government continues to make good progress towards a city deal for Swansea and is working constructively with local partners and the Welsh Governments to achieve this. This could be transformational for that area, alongside the Swansea Bay Tidal Lagoon, and we urge progress towards its achievement in the very near future. The Chancellor has said that the government also looks forward to considering proposals as they are brought forward for a North Wales Growth Deal, which would bring considerable benefits for the economy of North Wales, and its infrastructure. RICS would urge all parties involved to work towards this outcome as soon as possible.”
Matt Southall, Managing Director
Before the budget announcement there were a number of key areas that the sector was keen for the Chancellor to address: labour market policies, apprenticeships and an up-to-date tax system for the twenty first century.
He addressed all of these issues in one way or another and it will be particularly pleasing to see that the government finally seems to be responding to calls by the recruitment and tech industries to close the skills gap.
By ensuring that there is a parity of esteem between academic and technical education, and putting financial steps in place to enable access for all students, it is hoped that this will encourage young people to grasp the opportunities that will be available and narrow the skills gap.
The Chancellor also reiterated the commitment to apprenticeships, which is especially relevant in National Apprenticeship Week. With only a few weeks to go until the Apprenticeship Levy kicks in, the Government is committed to offering an additional 3000 apprentices by 2020.
Suzanne Browne | Head of Independent Financial Advisors
This year’s Budget echoed Mr Hammond’s statement for a ‘fair and sustainable tax system, building an economy that works for everyone’.
The 2017 Spring Budget was neither dramatic nor radical, having excluded any expectations of changes to Capital Gains Tax, Inheritance Tax allowances or the Pension Lifetime Allowance. What’s more, Mr Hammond managed to escape verbally announcing many changes in the 2017 paper with further reviews over the coming months.
Kicking off his first and final Spring Budget, the Chancellor listed the usual OBR figures for growth, commenting that the fall in Sterling over the course of 2016 is expected to push inflation to 2.4% for 2017, before falling back to 2.3% in 2018, and 2.0% in 2019 – threatening the real value of savings for many cash investors.
The Budget brought some good news to individuals with the increase in Personal Allowance to £11,500 and Individual Savings Allowance to £20,000 in effect from next month.
Despite announcing that Corporation Tax will reduce to 19% from April 2017, ‘Spreadsheet Phil’ seemed to target many small business and he self-employed entrepreneurs by confirming that Class 2 National Insurance Contributions will be ditched in April 2018 and Class 4 increasing by 1% to 10% with a further 1% increase in the following year – this is expecting to raise an extra £145m a year for the Government’s social care blackhole.
The Chancellor re-affirmed his announcements in the Autumn Statement, confirming the introduction of a new National Savings & Investments Bond, paying a 2.2% rate on savings up to £3,000.
Although no mention in his speech, the official paper confirmed the move to slash the Money Purchase Annual Allowance (MPAA) by 60% to £4,000 a year from April 2017. This will affect over-55s who have or need to access the taxable part of their defined contribution pension and individuals should seek further advice from an Independent Financial Adviser when making these decisions.
He lastly omitted confirmation of the ‘main residence nil-rate band’, or the ‘family home allowance’ due to come in force in April 2017. This means each individual can pass on £425,000 (£100,000 per person in addition to the existing £325,000 per person allowance) without paying inheritance tax (40pc) so long as it includes the family home and passes directly to children or grandchildren, and not via a discretionary trust. This new allowance will increase by £25,000 a year until it reaches £175,000 in April 2020. That will give each person a £500,000 allowance, or £1m for a couple.
Clarke Willmott LLP
Marc Long | Partner
It has been announced in today’s budget that funding of £5m will be given to support people in the public and private sector returning to work after a career break.
Prime Minister Theresa May said during PMQs, funding for returnships will mainly affect women returning to work after having children.
Marc Long, a Partner in the Employment and HR team at Clarke Willmott LLP, said: “‘Returnship’ is short-hand for a ‘Returning Professional Internship’, which is typically a paid short-term employment contract designed to facilitate a senior person returning to work after a long break from their career. Usually, returnships are taken up by women and the better ones offering training and support for the returning employee.
The difficulty with this proposal is that only £5m is on offer and it is hard to see how such a sum could make an effective impact. While returnships are to be encouraged, to avoid valuable talent being lost from the workplace, nonetheless it is likely that a tax-break or similar incentive would be more effective than the £5m offered by the Chancellor.
Lloyds Bank Commercial Banking in Wales
Allan Griffiths | Regional Director
Many companies in Wales will welcome the Government’s commitment to boosting skills among 16- to 19-year-olds through the creation of ‘T-levels’.
Businesses have struggled to find people with the right training and skills, with our latest Business in Britain report showing more than a quarter of Welsh firms that recruited in the second half of 2016 had difficulty finding staff with appropriate skills.
The new ‘T-levels’ will particularly aid manufacturing companies across Wales, helping to provide both employees and employers with the specific skills that they need to thrive.
Companies will also have been monitoring changes to business rates to see how it will affect them. Although they will not get full clarity until the announced consultation, the three measures that were confirmed will have been well-received by some small firms.
Marcus Wright | Economist
The famous Budget Red Box will have felt light in the Chancellor’s grip yesterday. The measures announced were small beans in the grand scheme of public spending, to say the least. Total public spending in the UK in the next financial year, covering everything from defence to healthcare through to welfare, is set to total over £800bn. By comparison the policy measures announced in the Budget total £1.7bn in the next financial year.
But what about the measures themselves? The changes to self-employment will impact the whole of the UK. But in terms of Wales specifics there is the additional £200m the Welsh government is set to receive over the next four years, including £50m for capital projects. The Welsh Government will need to consider where it allocates this spend. Elsewhere a city deal for Swansea is yet to be reached with the Treasury stating that negotiations are still ongoing.
The big challenge for the UK – improving productivity – is one facing every region of the UK. While there were a number of measures announced in yesterday’s Budget and the Autumn Statement to address this problem there is a nagging feeling that more radical surgery will be required. The new, once-a-year Budget will take place in the Autumn. There may be some more substantive measures then.
Finally, if the changes to national insurance for the self-employed was not a sufficient reminder that the Treasury remains firmly engaged with attempting to reduce the deficit then the details in the Office for Budget Responsibility outlook certainly was. There are substantial cuts to public spending to come in the remainder of this Parliament and beyond. Austerity has not been put to bed. That’s a challenge for all regions of the UK
ACCA (the Association of Chartered Certified Accountants)
Chas Roy-Chowdhury | Head of Tax
While it is great to see that the government has listened to the concerns of the business community with regard to business rates and the upcoming rollout of Making Tax Digital (MTD), ACCA is concerned that an increase in the NIC for the self-employed will be harmful for UK growth and entrepreneurship.
Raise benefits before taxes when it comes to self-employed
Self-employees are subject to a lower national insurance contribution (NIC) because they do not receive the same entitlements and benefits as their employed counterparts – such as holiday and sick leave. Before this tax is raised, the government needs to think carefully about ways to align the level of benefits. The government still has time to do this, as the increase will be phased in over two years. I look forward to hearing more about how it intends to address the issue of parental entitlements. In a time when we are trying to encourage innovation and create a Britain that is ‘open for business’, we should not be creating barriers to entrepreneurship and self-employment.
Business rates relief welcome, but not enough
I welcome the news that the government has listened to the serious concerns of the business community around the upcoming revaluation, and has allocated reliefs accordingly. However, I am not sure that these measures will go far enough to address the pressures on our bricks and mortar small businesses. There is just not enough money in the relief fund (£300 million) for local authorities to significantly help hard-hit businesses in their community.
Tackling avoidance, evasion and non-compliance
This sounds like a good measure in theory, but there is an existing Professional Conduct in Relation to Tax (PCRT) code of conduct. Tax professionals who are subject to this existing code, which has been developed in conjunction with HMRC, should not be subject to this new measure.
Making Tax Digital: a step in the right direction
It is good to see that the government has listened to the concerns of ACCA, amongst others, about the undue burden on small business that MTD would create. We welcome the move to delay the implementation of MTD for one year, for businesses with turnover less than £83,000. However, we would encourage the government to continue with this carve-out indefinitely: excluding businesses within this threshold altogether as they are most impacted by the additional administrative burden that MTD filings would create.
The Chancellor’s reduction in the dividend allowance is a major policy u-turn in less than two years. I would be concerned if this meant that the government is considering removing the allowance altogether when it was originally proposed as an offset for increases in dividend taxation. If it is removed altogether, the taxation on dividends should be reduced
South & Mid Wales Chambers of Commerce
Liz Maher | President
This was a disappointing budget for Welsh businesses with no announcement regarding a Tidal Lagoon nor the Swansea Bay City Deal. Many of the Chancellor’s announcements were specifically for England and while supporting businesses in England may have a knock-on effect in Wales, the £200 million boost to the Welsh Government finances over four years is nothing to get excited about.
A one-year delay to digital tax reporting for the very smallest firms will be welcomed but hikes to dividend taxes and national insurance for the self-employed will be viewed far less positively by entrepreneurs. To help businesses prepare for the new digital tax reporting system, the Chamber of Commerce is holding a Making Tax Digital event with the Executive Chair and Permanent Secretary of HMRC on 22 March.
While businesspeople appreciate a steady hand on the tiller, the government is sending mixed signals by holding investment largely steady at precisely the time that it is exhorting British businesses to double down. More needs to be done in the coming months to improve infrastructure and encourage lagging business investment to ensure the UK is Brexit-ready.
Royal Bank of Scotland
Marcus Wright | Economist
Rather than exit with a bang the Spring Budget left with a bit of whimper. Usually it’s a bit of work deciding what announcements to cram into a one page summary. Not so this time. That famous Budget Red Box will have felt light in the Chancellor’s grip today.
As is now customary the Budget commenced with a growth and public finances check-up, courtesy of the independent Office for Budget Responsibility.
Near-term up, medium-term down. There was good news for the very near-term at least. Growth in 2017 has been upgraded from 1.4% to 2%. It’s a similar pace of growth to 2016 and in line with the Bank of England’s view. After 2017 growth slows. The table shows that compared to this time last year growth is expected to be about half a percentage point less through to 2019 and doesn’t get back up to 2% until 2021. That matters.
A ten year anniversary. A bumper couple of months for tax receipts has seen this year’s budget deficit revised down. At £51.7bn it will be £16.5bn less than projected as recently as November. It means that as a share of GDP the deficit will be a ‘mere’ 2.6%. It’s been ten years since the budget deficit began with a ‘2’. The days of crisis-induced, eye-wateringly high deficits are behind us, for now at least.
The public finances are getting themselves in better shape to take on a slowdown, should one emerge in the coming years. With huge uncertainty over how the economy will perform as Brexit negotiations proceed, this is no bad thing.
Reminder. But those smaller deficit forecasts are a reminder that significant spending cuts are yet to come. As the OBR itself details, real household income growth will grow in the coming years but tax credit and other working-age benefit changes will exert a downward pull each year through to the 2020s. Austerity has not been put to bed.
When’s peak debt? Deficits are the flow of debt year to year. What about the stock that’s been accumulated? It will round off the financial year at 86.6% of GDP. That’s high by the standards of recent decades, but below the average of the past 300. And the next financial year (2017/18) will see public debt peak at 88.8% of GDP.
Into battle. The most important lines in the table above rest in the middle – the outlook for productivity growth. The prospects for reducing the deficit hinge on it. The UK’s post-crisis trouble in beefing up that number is no longer a problem that can be shrugged off with a “it’ll be alright in the end”. The economy needs to be on a permanent war footing with regards to combating poor productivity. The Chancellor announced back in the Autumn a £23bn fund to assist the fight. And today he announced some measures that dip into that pot, including £300m for research talent including 1,000 new PhDs in STEM subjects, £270m for robots, driverless cars and biotech, £16m for a 5G mobile tech hub and £200m for fibre broadband. It isn’t radical surgery, but it’s helpful nonetheless.
It’s happy hour, again. Recent days saw calls to assist business hit by the changes to rates. In response the Chancellor announced a £1,000 business rate discount for pubs with rateable value under 100k (about 90% of all pubs). The Chancellor also announced a £300mfund for local authorities to provide discretionary relief.
Work (and so tax) evolution. The changing nature of work has thrown up a challenge. More people are self-employed and thus paying less tax. As the Chancellor himself outlined, an employee earning £32,000 will incur over £6,000 in National Insurance Contributions between employer and employee. And so the main rate of Class 4 NICs for the self-employed will increase by 1% to 10%, with a further 1% increase in April 2019. The full review in changing employment practices is due later this year. Further tax changes in response wouldn’t be surprising.
In terms of other measure in this slimmed down Budget; a reduction of tax free dividend allowance form £5,000 to £2,000. There was £2bn announced for social care, spread over three years. The Welsh government is to get £200m over four years and £350m for Scotland; cigarettes up 35p for a packet of 20, beer up 2p a pint, cider 1p, whiskey 36p a bottle and wine 10p. Oh, and vehicle excise duty was frozen. Again.
Where’s the largesse? The long-term project of reducing the budget deficit remains the name of the game. Brexit negotiations may well be a bumpy path for the UK economy. If there’s damage to growth the Chancellor wants some room for manoeuvre. But when he returns in the Autumn with his now once a year Budget show, it’s just as likely that low productivity is the biggest headache.
Jelf Insurance Brokers
Julian Hilton | Regional Director
Ahead of the Budget, there was a strong feeling that the Chancellor would use this as an opportunity to shore up the economy ahead of Brexit, which he certainly did. There were none of the big giveaways that we have seen in previous years.
Locally, while he did announce an extra £200million for Wales over the next four years, there was no direct mention of the Swansea Bay City Deal. However, Phillip Hammond did reemphasise his commitment to the devolution of powers outside London and I’m hopeful that means we will see the City Deal come to fruition in due course.
There was also no further mention made of the Insurance Premium Tax. I am hoping that this means that the predicted rise from 10-12% will not be forthcoming.
Clarke Willmott LLP
Carol Cummins | Private Client Consultant
Reduction in dividend tax allowance from £5000 per year to £2000 per year from April 2018
This will mean older people who rely on dividend income to supplement their pensions may face an extra tax demand, and could mean more of them having to submit tax returns. In addition, the introduction of the dividend tax allowance has increased the work involved in the administration of many trusts and estates.
Inheritance tax residence nil rate band (as previously announced)
To be phased in from next month – although this will reduce the inheritance tax burden for many, it will also introduce another layer of complexity into individuals’ wills and their estate planning.
Additional funding for social care system
This is very welcome and will go some way to dealing with the demographic challenges which faces this sector in the coming years.
Stuart Price | Partner
National Insurance Contributions
The government stated its intention to bring taxation for the self-employed more in line with employees. Self-employed people will pay 1% higher National Insurance contributions from 2018, then 1% higher again from 2019.
Stuart Price, Partner at Quantum Advisory, said: “This change could cost a self-employed person up to £750 per year with no immediate benefit. It is offset in the longer term by the flat rate State pension which the self-employed are now entitled to. This may, however, just be the first step in the government’s plans to level the playing field between the self-employed and employees.”
Pensions annual allowance
Despite opposition during the consultation period the government will reduce the amount someone can save tax-free into a pension, if that person withdraws just a cash sum from a defined contribution arrangement, from £10,000 to £4,000 per year.
Stuart Price, Partner at Quantum Advisory, said: “This was announced in November 2016 but was generally opposed by the pensions industry. It reduces the pension savings allowance for some individuals to a very low level, and will require careful thought from anyone thinking of taking just a cash sum from their defined contribution pension while still working. Taking a lump sum for example to pay for a holiday, could severely restrict someone’s ability to save again into their pension for the rest of their working life.”
Nikki Flanders | COO
It is good to see the Government championing training after the age of 16. A university degree is not the be all and end all for everyone or all careers and in today’s competitive talent market, qualifications or school grades are not the only areas of interest to an employer. We have found our apprentice scheme to be highly rewarding, both in terms of the talent and the skills harnessed and developed, but also to the business, in terms of personalities recruited and motivation to learn. It is important to recognise that gaining a qualification whilst earning and with on the job experience is a valid alternative to going to university and hopefully the Chancellor’s T-Levels will help to encourage young people to follow their interests into the world of work.
“Productivity relies on a strong, diverse and skilled workforce, and with the baby boomers reaching retirement a potential employment gap is emerging which needs to be filled. Encouraging young people into skilled employment earlier is therefore a bold and sensible move.
Nick Harrison | Head of Products
An increase in NI for the self-employed could impact not only those who are new to self-employment but also put off those who might be considering taking the plunge.
The economy is expected to grow at 2% this year and we’re still seeing strong consumer spending but the key test will happen in the coming months, when the tax hikes start to bite and if inflation hits 2.4%.