Digital war for Hammond

THe early budget date of Monday meant a mad scramble for the Treasury and the Office for Budget Responsibility (OBR), which provides the main forecast.

it will be delivered amid considerable uncertainty. after a long bull run, equity markets are running out of steam and have experienced their worst few weeks in five years. stock markets, as nobel-prize winning economist Paul samuelson quipped, ‘forecast nine of the last five recessions’ so are not a reliable indicator.

But it is self-evident that even with record low interest rates, the upswing in the economic cycle will not last forever.

Brexit is the other very big unknown. But in spite of the current manoeuvring in Brussels and within the Tory Party, the Chancellor Philip Hammond would appear to be in the glass-half-full camp.

a cautious forecast by the OBR in the spring underestimated the strength of tax receipts from a near full-employment economy and the spending discipline inside departments.

The result is a £13bn windfall for the Chancellor and public borrowing of £25bn, the lowest this century.

That will be whittled down as a result of policy changes. These include the break on business rates for small firms, the need to provide fixes for universal credit and the Prime Minister’s pledges to end austerity and find an extra £84bn for the nHs in this Parliament.

There are other possible windfalls. should a Brexit deal be completed, the OBR might move to a more upbeat economic forecast, which on some estimates could deliver a dividend of up to £15bn.

a Brexit deal might also allow the Chancellor to dig into the reserve of £10-15bn for contingencies in case of a no-deal.

in spite of the institute for Fiscal studies negative medium term view that taxes will have to rise to pay for the nHs and care for the elderly, the Chancellor may not have to bite the bullet too hard in the current Budget. But we can expect him to fiddle with the tax dials. among the widely discussed options are freezing personal allowances and fiddling with ‘eye-watering’ generous pensions tax relief which could be much more complex than it may seem.

Hammond is also scheduled to announce that iR35, which requires contract workers to go on the payroll, be extended to the private sector.

The usual sin taxes on booze, cigarettes and most significantly offshore gambling sites are also on the agenda. OUTSIDE bets include a further rise in insurance premium tax and lowering the VaT threshold from the current £85,000, bringing it more in line with the rest of europe.

The big opportunity for the Chancellor is to rapidly introduce a tax on digital companies. The chances of getting european agreement have faded.

But Hammond is enthusiastic and stands ready to do a turnover tax, on a temporary basis, until a more sophisticated levy based on clicks can be implemented.

such a levy would have the support of business and a public with no time for tax cheats. Hammond should take the gloves off and go for it.

Dividend deadlock

IT is astonishing to think that a decade after the financial crisis Royal Bank of scotland is still having to put money aside to cover rotten loans at its Ulster Bank offshoot at the heart of the meltdown.

Much of the focus at RBs during the third quarter was the decision to put aside £100m in case a hard Brexit should cause bad debts to rise. RBs is the first of the UK banks to cite Brexit. although unnoticed to many, HsBC has provided £185m against unspecified political uncertainties, which could include President Trump’s trade wars with China.

The underlying picture at RBs is improving, with all major disputes with the Us Justice Department cleared away.

an upsurge in personal protection insurance claims in august may have been caused by the mistaken view of some customers that the final deadline for claims was the summer of 2018 rather than 2019.

The most important figure at RBs is the strength of its capital – now at 16.7pc – which suggests that it has the capacity to pay a further dividend at year end.

But the shares will need to move out of the current pit before the Government dare offload another tranche.

That will depend on global market conditions, which have taken a turn for worst.