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October

A Budget to end austerity?

Published: Friday 26 October 2018

By Adrian Bishop 

Prime Minister Theresa May has said austerity is ending, now Chancellor Philip Hammond is expected to deliver it in the autumn Budget.

Relief from Brexit blues

Many UK businesses are already going through tough times battling Brexit uncertainty and a shaky economy. But they are hoping that Monday’s Budget will bring some relief. One prominent think tank, the Resolution Foundation suggesting that Mr Hammond would need to find an extra £31 billion by 2022/23 to ensure no departmental cuts are made, work allowances are strengthened and borrowing is further reduced.

Businesses want practical help

Businesses around the country are all hoping they will also benefit from the end of austerity and will receive practical help from Monday’s Budget.

Improvements in skills and training

The UK’s five big business groups – the British Chambers of Commerce, the Confederation of British Industry, the EEF manufacturing lobby, the Institute of Directors and the Federation of Small Businesses – all want improvements to the Apprenticeship Levy. This is designed to help with skills and training needs, by being spent on apprentices, but only 14% of businesses say it works well, according to Institute of Directors figures.

More investment required

There is also strong support for more business and infrastructure investment and changes to business rates. More support and clarity is demanded over Brexit and particularly with attracting skilled workers.

What are the views around the country?

However, as well as ending austerity, companies around the country have different priorities depending on the state of the industry and regional needs. Halo Financial provides a snapshot from around the UK of what businesses want from the Budget:

East Midlands, England
Sector: Accountancy
Priority: Manufacturing and engineering R&D/investment


Richard Powell, Partner at MHA MacIntyre Hudson in Northampton, says that the Chancellor should shift from a scattergun approach and deliver more support for UK manufacturers and engineers.

“Greater funding for research and development tax credits may be a big ask in the current economic climate, but the scheme’s focus can certainly be improved. To be a real success, these reliefs need to move away from the open-door approach, where businesses from any sector can claim. By targeting relief at certain sectors ripe for growth, for example, electric vehicle research, and companies developing automation solutions, the government could have much more impact.

“We also need decisive action to encourage investment into the UK. One of the biggest concerns for manufacturing and engineering companies is the impact of Brexit on their supply chains, and many want to build their UK supply chains to counteract this. Any steps to encourage investment into the UK will help make this a reality. Whether it’s greater tax reliefs for inward investment, or a better capital allowance regime, promoting the UK as a business destination should be high on the Chancellor’s agenda. 

“The skills shortage is an ongoing problem for manufacturers and engineers and must also be addressed. We believe a tiered approach to the apprenticeship levy should be considered. Industries important to the future of the UK yet struggling to attract talent should be prioritised. Reliefs could be banded accordingly, with 100% apprenticeship funding for key industries, and lower allocations, for example 50% funding, elsewhere.”

Mr Powell says funds are tight, and that is why they must be maximised. “If we’re to deliver the infrastructure, automation and innovation this country requires to prosper post Brexit, resources must be thoughtfully allocated to the sectors where there’s most need.”

West Midlands, England
Sector: Accountancy
Priority: Stability


Chris Barlow, Partner at business advisors and accountants, MHA MacIntyre Hudson, in Birmingham, says it is important in this, the last Budget before Brexit, that the Chancellor does not rock the boat.

“We need as much stability and pro-business sentiment to come through in this Budget. There is considerable uncertainty among both individuals and businesses as to what will happen next, and this is having the effect of declining consumer and business confidence overall.

“There are rumours circulating that there will be changes to Entrepreneurs’ Relief, which would be seen as an unwanted anti-business move, particularly in the current climate. On the other hand, reductions in the rate of Corporation Tax that have previously been promised, if delivered, would assist businesses and help reinforce the UK’s position as a place to do business.”
 
Canary Wharf in London at Sunset - Halo Financial

London and South East
Sector: Legal
Priority: Corporation Tax reduction


Natalie Payne, Private Client lawyer from international law firm, Mackrell Turner Garrett, says, “There are a few predictions as to what the Chancellor will deliver on Monday, some which could be good for our clients, but some, not so welcome.

“Many of our business clients hope to see a reduction in Corporation Tax to keep the UK with the most competitive corporation tax in the G20.”

From an individual perspective, although it would be welcome to have a period of stability in pension tax relief allowances, it is expected that some tightening of reliefs may be brought in, and that it the cause of some concern, she says.

There is also a rumour that Inheritance Tax will be simplified. “Many agree that a comprehensive review of IHT is long overdue, and whether Monday’s Budget tackles this, we will have to watch this space....

“The current tax rules are very complicated, as the interaction between the various rates and dividends are complex. It is hoped that this budget will bring some simplification, but it is a huge task. Hopefully, future Budgets will bring simplification.” 

Wales
Sector: Property
Priority: Cut Stamp Duty


The high rates of tax – including the newly-announced additional Stamp Duty Land Tax for foreign buyers – is dissuading buyers and slowing up the market, says Carol Peett, managing director of West Wales Property Finders.

She calls on the Chancellor to cut Stamp Duty and free up the property chain.

High tax rates stop older people from downsizing and selling their homes to the next generation who find it costly to move up the property ladder. This has a knock-on effect right down the chain to first time buyers.

“Pensioners are rattling around in houses far too large for their needs and which cost more than they can afford to run, while younger families, for whom the properties would be ideally suited, cannot raise the large Stamp Duty tax on top of the purchase price. 

“Older people are also deterred from selling and moving into smaller properties because of the prohibitive cost of Stamp Duty on any property they may wish to purchase should they be able to sell their homes.  This creates a vicious circle as the lack of properties suitable for growing families on the market pushes prices of this type of property up, meaning more Stamp Duty is payable on them.”

Additionally, the Treasury currently faces a £1 billion drop in tax raised from property sales this year. This is clear evidence that the hike, imposed by former Chancellor George Osborne, has backfired badly.

In Wales, where the Welsh Labour Government imposed huge increases in the amount payable in Land Transaction Tax, their version of Stamp Duty, on properties over £400,000 in April this year. That, too, shows signs of backfiring, with a severely depleted housing stock for growing families.
 
The construction of Glasgows International Technology - Halo Financial

Scotland
Sector: Biomedicine
Priority: Tay City Deal investment


Businesses across Dundee, Fife, Angus and Perthshire await news on how much the UK government will contribute to the £1.8 billion Tay Cities investment deal.

Mr Hammond is set to announce how much cash the UK government will set aside for the job creation and investment programme. It is hoped that up to £200 million of projects will be approved by the UK government and that the Scottish parliament will match the amount.

The important region, which is home to half a million people, is already the third largest economic area in Scotland and the new money would help secure jobs in important sectors, including biomedicine.

The Tay City Deal could finance up to 50 vital projects, including the planned Cross Tay Link Road in Perth and create up to 10,000 jobs. As well as the biomedical sector, other industries that hope to benefit include tourism, engineering, health and eco-friendly companies.

The University of Dundee is hoping that investment will be made in the Tayside Biomedical Cluster skills, innovation and commercialisation infrastructure. Its vision is to create wealth, sustainable job opportunities and improved health outcomes for the people of the Tayside region, and beyond.

“The Tayside region is home to some of the world’s leading life sciences researchers.  They are committed to ensuring their research has a significant impact on the quality of people’s lives – their health, the economy and the environment. Their global impact for delivering promising new medicines and technologies combines with an enviable track record of translating science into company formations and new job opportunities.

“Put simply we want to harness more of this life sciences powerhouse for the economic and health benefits of Tayside. Our vision is to optimise our unique infrastructure in professional drug discovery, and exemplary partnerships between industry and academia to deliver a step change in the growth rate and sustainability of biopharmaceutical and biotechnology spin out opportunities in the region.”
 
Northern Ireland
Sector: Services and Manufacturing
Priority: Training and productivity growth


Skilled labour shortages are being felt across the UK, but particularly in Northern Ireland where eight out of 10 firms are finding it difficult to recruit, according to new Chamber of Commerce figures.

Those struggling most are companies in services and skilled trades in manufacturing who want professional/managerial level staff, the Quarter 3, 2018 Economic Survey, from the Northern Ireland Chamber of Commerce and Industry and financial services specialist, BDO, states.

In fact, the share of manufacturers having difficulties recruiting skilled workers is highest on record and this is leading to growing pressure on manufacturers around pay settlements.

At the same time, half of firms report that difficulties around recruitment is having the greatest negative impact on business productivity.

Ann McGregor, Chief Executive of Northern Ireland Chamber, says, “With a lack of government here, the upcoming Budget must deliver immediate localised actions to boost growth and productivity, such as City Deals, at a time when the economy here needs it most.”

The uncertainty over Brexit and the inability to address regional issues are staring to impact businesses. “Those businesses that are hiring are finding it increasingly challenging to fill vacancies. There are some serious skills gaps opening up for firms and we urgently need to find a way to resolve this. Many firms are deeply invested in developing home-grown skills and talent within their company, however this alone is not enough to fill the skills gaps, at all levels that businesses face right now.”

Also crucial to businesses, investors and British expats living abroad will be how Sterling reacts to the Budget. Will the Pound receive a boost from increased confidence, or will it slump under continued uncertainty? Ricky Nelson, Head of Corporate Dealing at Halo Financial, thinks, “Any sense of stability provided by this Budget may soothe sentiment and in turn strengthen Sterling. However, any big shifts in policy will undoubtedly undermine the Pound, just as any negative news or ongoing uncertainties from the Brexit negotiations chip away at Sterling strength.”

For expert guidance on what happens next, contact your Halo Financial currency specialist, watch the latest rates and keep an eye on our news updates.