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Wales’ Reaction to Yesterday’s Budget

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Following news that The Welsh Government will receive an extra £550m over the next three years as a result of Monday’s budget, business leaders across Wales have been sharing their views.

Services overseen in the Welsh capital will get £115.7m in 2018/19, and £425.9m in 2019/20 with the chancellor also announcing backing for the North Wales Growth Deal with £120m of separate funding. The UK Government will also review whether to extend Welsh ministers’ £1bn borrowing powers by up to £300m to support the M4 relief road.

North Wales Economic Ambition Board response to the Autumn Budget Statement:

“Confirmation of UK Government support for the North Wales Growth Bid means we can now enter into the final stage of discussions to secure the best possible Growth Deal for the region.

“Today’s announcement gives us a strong basis on which to move forward and attract extra funding from the Welsh Government and additional sector programmes and finance streams.

“After so many months of planning by our partners we are of course delighted to have achieved this acknowledgement and recognition of the hard work which has taken place, and can now make firm plans to implement the strategy developed by the Board.

“The Growth Bid is just part of the overall Growth Vision for North Wales, but a vital part that will kick-start a new phase of economic prosperity and build on the incredible industry, skills and talent we have on our doorstep, world-leading businesses and organisations that will benefit from today’s decision.

“We are on track to create thousands of jobs and vastly improve infrastructure across all six counties under nine key programmes in a range of areas, from transport and adventure tourism to digital connectivity, smart energy and land and property.

“We will now look to put a dedicated team in place focused on leading the priority projects to fruition, alongside our partners in local government, education and the private sector.

“We are ready for the hard work that lies ahead in negotiating the best possible Growth Deal, to fulfil our aim of delivering a Smart, Resilient and Connected region. We expect the final Deal to be in place later in 2019.”

Commenting on the UK Government Budget, Ben Francis, FSB Wales Policy Unit Chair, said:

“This budget is one that seeks to be pro-business and tries to create the space for business confidence to increase, which has taken a significant hit in Wales as Brexit negotiations continue.

At such a critical time UK Government has a key role in providing small businesses with the certainty that they need to plan and take decisions for their business. Recent FSB research showed that Welsh firms were delaying decisions in some circumstances due to pervading uncertainty. Despite some significant missed opportunities, we welcome the moves taken by the Chancellor to provide stability through this budget.”

On the North Wales Growth Deal

“We welcome the news that the North Wales Growth Deal has been given a vote of confidence and £120 million in this budget. The deal is the culmination of years of work between businesses, local authorities and stakeholders who have worked together to ensure that the region is given the support it needs to deliver a thriving, ambitious economic deal.

There is now an urgent need to take this deal forward, to be signed by the partners involved so that it can deliver for the local economy.

We were also pleased to see a mention for the Mid Wales Growth Deal. This crucial economic region holds significant potential that could be unlocked by a targeted and successful growth deal, and we look forward to working alongside partners as the thinking behind this develops.”

On Air Passenger Duty

“We are disappointed that despite our call, UK Government have chosen not to devolve APD at a time when Wales will need to project itself in the world.

Devolving APD would help Cardiff Airport be seen as even more competitive on the international stage, developing new routes and helping to attract new business prospects.

Wales is a proud and outward facing nation, and we are dismayed that despite a very strong case and these powers being available in Northern Ireland and Scotland, the Chancellor has chosen not to move on this issue.”

On Barnett Consequential for Welsh Government

In receiving £550 million in Barnett consequential from the announcements in the budget, FSB argues that Welsh Government should look to invest an appropriate amount of this in business rates relief – akin to the announcement that the Chancellor made for England in the budget – and on improving the state of our Welsh roads.

We need to see action from the UK Government and Welsh Government to support our Welsh towns and high streets. Upcoming FSB work on Welsh towns demonstrates that there are many ways in which high street businesses can be supported, with business rates being an important issue for many. We hope to see Welsh Government looking closely at how they can increase relief for small businesses, following on from the action taken by the Chancellor.

The cross-party Economy, Infrastructure and Skills Committee in the National Assembly for Wales has produced a report on the state of Welsh roads which identifies the need to urgently upgrade the state of our roads following evidence to the committee from FSB Wales.

Welsh Government should follow the Chancellor and announce money to improve upon the state of Welsh roads, so that businesses can rely on a good standard on the network irrespective of their location.

Severn Crossing Tolls

FSB has welcomed the news that the Severn Crossing tolls will be scrapped in December this year. Businesses will always seek opportunities wherever they are, and will be seeking to exploit new opportunities from the removal of the tolls when they come into force this year.

The Secretary of State for Wales has been an influential voice on this issue, and we hope that this is only the beginning of the Secretary of State working with FSB to create and maximise new opportunities for smaller firms as a result of the free crossing.

Ian Larkin CEO of Target Group reacts to the UK Budget and economic uncertainty:

“The Budget today shows that the Chancellor expects GDP growth to be weak.  With only five months to go before the UK exits the EU we are facing an uncertain financial future, and firms of all shapes and sizes are needing to prepare for what may lie in store.  While the exact nature and scale of impact are unclear, businesses are preparing for the worst while hoping for the best.

Should the UK suffer economic decline we can expect to see house prices fall, unemployment rise and currency-driven inflation prompting further increases in interest rates.   In this context many more borrowers would struggle to service their debts.  Last week we saw RBS setting aside £100m in anticipation of increased defaults.  Once loans are issued lenders have limited ability to influence the incidence of default, but their actions can have a big bearing on the scale of losses ultimately incurred.  Now is the time for lenders to be preparing to handle increased levels of borrower contact and the smarter lenders will be gearing up for proactive contact.

In recent years there have been big advances in the ability to use technology and data to develop pre-impairment indicators that help identify signs of potential borrower strain before a payment has been missed.  As the old adage goes – “there is no such thing as bad weather, just unsuitable clothing”.  Time to get those raincoats ready.

Keith Cooney, Head of Rating at Knight Frank

“The promised business rates reforms have proven to be as elusive as Godot with the Chancellor once again leaving this draconian £31 billion tax burden largely unchanged.

Despite the weekly closure of household names in the retail industry, the Chancellor has only offered relief to small retailers who have a Rateable Value of £51,000 or less.

Furthermore, around 60% of retailers in that band will fall below the exemption threshold of £10,000, meaning they do not pay business rates anyway. As such the Chancellor’s gesture will support the few rather than the many.

This is set against an overall increase in business rates of £680 million from April next year. Given the market and economic uncertainty there is a strong argument that The Chancellor should have grasped the nettle and frozen the tax at the current level.”

Karen Kirkwood, EY’s Head of Tax in the South West and Wales, comments on this year’s Budget:

Autumn Budget 2018: Chancellor has a lot to say, but saves the big decisions for the Spring Budget

“As the second Budget of this parliament and the final speech before the UK exits the EU, the Chancellor might have been expected to deliver a big Budget. But, whilst this had 86 Budget measures (15 more than last year), only 33 related to tax measures and there was only one measure that raised, and one that gave away, over £1billion in any one year.

“The net effect was a cut in taxes of just over £5billion across the six year period, with the largest cut being the increase in income tax personal allowance and higher rate threshold, and the largest raise being the extension of the off payroll rules to the private sector.

“With so many small measures, this can be seen as clearing up before the Spring Budget, which will respond to whatever the outcome is of Brexit.  To this extent, it clearly was a caretaker Budget, delivering a lot of smaller tax changes which, whilst important, might not have got the attention in a normal year.”

Entrepreneurs need to be in it for the long term

“With all the speculation in the run up to the Budget that Entrepreneur’s Relief (‘ER’) might be abolished, the Chancellor today went for double not quits. Entrepreneur’s relief allows individuals to benefit from a reduced capital gains tax relief of 10% on qualifying assets.  Previously individuals would only need to hold their asset and meet the qualifying criteria for one year in order to qualify for the relief. This qualifying period doubles to two years from the 6th April 2019.

“As part of the focus on closing the tax gap, the Chancellor has also introduced measures which tighten the qualifying criteria for shares which will qualify for ER. Although badged as ‘anti-avoidance’ these changes may affect many individuals with slightly unusual share rights, meaning that they will no longer benefit from the relief, with effect from Budget Day.  The Chancellor expects to raise only £10m from this measure, meaning what could be a large tax bill for some affected individuals will have a small impact on the country’s coffers.”

A ‘taster’ of the end to austerity, with more to come if Brexit allows

“A modestly brighter picture of the UK economy comes with the Office for Budget Responsibility (OBR) raising its GDP growth forecasts for 2019 and 2020, while also making downward revisions for expected public borrowing over the next five years, especially for the current fiscal year 2018/19. This largely reflects the OBR coming to the conclusion that it has systematically been under-estimating income tax and corporation tax receipts. This implies that growth is more tax receipts-rich than the OBR had previously reckoned. It also suggests that the Government has got better at collecting tax receipts.

“Modestly upgraded GDP growth forecasts in 2019 and 2020 also contribute to the improved public finance forecasts. It is also notable that the OBR has improved its forecasts for the labour market, revising up the expected participation rate and lowering its estimated equilibrium unemployment rate. This means that employment is 400,000 higher at the end of the forecast period than the OBR had expected in March.

“However, while expected public borrowing has been revised down substantially for the current fiscal year 2018/19, the projections thereafter are only revised down modestly. This reflects the fact that, in the words of the OBR, the budget has largely “spent the fiscal windfall rather than saving it”. The OBR specifically comments that the “overall effect of the Budget measures is to increase the deficit by £1.1 billion this year and £10.9 billion next year, rising to £23.2 billion in 2023-24. This is the largest discretionary fiscal loosening at any fiscal event since the creation of the OBR.” Much of this is related to the extra spending on the NHS.

“It is notable that the OBR has not made any adjustments to its Brexit assumptions in its forecasts. The Chancellor has talked about a “Brexit dividend” but the OBR is not delivering one in its forecasts for now at least. Indeed, whether or not the OBR eventually does deliver some form of Brexit dividend in its forecasts will be dependent on what form of long-term relationship with the EU that the UK eventually agrees.”

Chancellor’s ‘tales of the unexpected’ Budget speech points to another full fiscal event in Spring

“Much of the Budget/Brexit commentary leading up to today’s speech was on the basis that the Chancellor was facing the once in a year chance to set the shape of the tax system prior to leaving the EU on 29 March 2019.  Whilst this is the implication of moving to “single fiscal event”, with an Autumn Budget and Spring (Economic) Statement, the Chancellor had been careful to make sure that he has enough wriggle room to once again hold a Spring Budget if warranted. The Chancellor has today confirmed that, if there is a no-deal Brexit, there will be another full fiscal event early next year, upgrading the Spring Statement to a Spring Budget. It’s clear that Brexit might satisfy the ‘economic circumstances require it’ but perhaps the “unexpected” might be a little more debatable.”

Chancellor focuses in on Digital Tax, but draws away from the EU model

“The Chancellor committed today to delivering a new turnover tax on Digital Services. In moving away from the EU blueprint, the Chancellor set the rate at 2% (compared to the EU proposal of 3%) and targeted the tax at social media platforms, internet marketplaces and search engines.  He also committed to a review in 2025, clearly indicating that he thinks that it may take quite a while for the OECD to gain any consensus on the international stage. The new tax will raise £440m per annum by the end of the Budget period, but will include elements to protect those with low revenues and margins – namely technology start-ups.

“In drawing distinctions from the model under discussion in Europe, the Chancellor can be seen to be, once again, leading the debate in this contentious area, and we now wait to see which other countries follow in this battle over who should have the right to tax the profits of the internet giants.  Caught up in the disputes between governments, businesses face the risk of double taxation and complex rules. That isn’t the best environment to encourage innovation at a time when the Chancellor is looking to the digital sector to boost the economy.”

No magic spell for housing

“With housing stubbornly remaining near the top of the public’s list of concerns, we saw the Chancellor offer a few tricks and treats but no magic spell to make the crisis disappear. The measures announced, while positive, unfortunately will not, individually or collectively, solve one of the most pressing problems faced by the country.”

Private Residence Relief (“PRR”) restrictions make for a less flexible workforce

“The Chancellor’s changes to PRR announced in today’s Budget could make the UK’s workforce less flexible and less able to react to changes in the jobs market – or at least leave them with a tax bill for being flexible.

“PRR takes the gain on the sale of an individual’s main residence outside of capital gains tax. At present, where a home has met the conditions to qualify for this relief at any time, it is assumed to do so for the final 18 months. This was already reduced from 36 months from April 2014 and has now been further reduced to nine months. For those having difficulty selling a property and needing to move home for work or other reasons, this may prove an expensive change to this relief.

“Furthermore, those affected will no longer be able to benefit from tax relief if they let out their home. Currently, any gain relating to the letting of a main residence can benefit from an exemption up to a maximum of £40,000. Its abolition could mean an additional £11,200 tax bill for some.

“The PRR grace period at the end of ownership was originally introduced to recognise the time it can take for individuals to sell properties. Its reduction to nine months potentially leaves those needing to move home exposed to capital gains tax for the first time. To compound the issue, capital gains on residential property is 28%, even for basic rate taxpayers.”