Embattled Hammond’s offer to business
BUDGET2017
WITH enemies in front of him and even fiercer foes behind, who’d be Philip Hammond? The lugubrious “Spreadsheet Phil” could be forgiven for donning a flak jacket under his suit at the dispatch box tomorrow as he attempts to square an almost impossible circle.
His shadow on the Opposition benches, John McDonnell, is the least of the Chancellor’s worries. His more pressing need is to set out a vision for a badly drifting government, without spending too much and incurring the wrath of the fiscal forecaster, the Office for Budget Responsibility (OBR). And he has to do it while sounding optimistic enough about the UK’s post-Brexit prospects to stop the Leavers in his own party — and the Cabinet for that matter — flinging more daggers his way.
So what will — or can — he do?
Hammond’s exercise in political and fiscal gymnastics is governed by the likely strictures heading his way from the OBR. Ever since Robert Chote’s watchdog said that it would be sharply downgrading its forecasts for the UK’s productivity growth after years of disappointment, its forecasts have been a torpedo heading towards the hull of the Chancellor’s Red Box. Growth forecasts — a toppy 2% this year in particular — will be downgraded, with longer-term forecasts also likely to edge lower, bringing knock-on effects on the public finances.
There are some factors working in his favour, such as the assumption of lower unemployment and longer hours, for example. The deficit has been lower than expected this year, and a bit of inflation — while bad news for households — is good news for the tax take, which depends on nominal GDP. But the OBR says our poor productivity performance will have “the largest quantitative impact”, hitting the figures further out. All else being equal, Hammond will have alarmingly low headroom against his fiscal target of cutting the deficit to 2% of GDP by 2021. That breathing space stood at £26 billion in March.
Hammond is expected to unveil a raft of measures that will affect homebuyers, builders and estate agents. The Government plans to get 300,000 homes built every year — the equivalent of a city the size of Leeds. This could be aided by new powers and planning rules to ensure companies start building on sites that already have planning permission.
Speculation is also mounting that changes to stamp duty will be unveiled, including cutting it for firsttime buyers. Grant Lipton, a director at developer Great Marlborough Estates, says the move could help “reboot the economy”. The Chancellor was burnt by plans to reform national insurance contributions for the self-employed last time out, so he could play it safer tomorrow. One move could be funding tax breaks for the under-25s — to address perceived unfairness towards the young — by raising the National Insurance contributions threshold. Public-sector tax rules for contractors and freelance workers could also be pushed into the private sector to help tackle bogus selfemployment. That would pinch workers paid a salary via dividends to a personal services company.
Hammond could also take aim at small businesses by slashing the threshold that they have to charge VAT on sales. The current level is £85,000 but that could fall to as low as £25,000 if the Chancellor has the political nerve.
The Chancellor is poised to announce reforms to help bolster the country’s credentials as a leader in technology post-Brexit. He will allow driverless cars to be tested without any human drivers inside or outside the vehicle, and without some of the legal barriers that apply in many other EU countries. He hopes to get autonomous cars on roads by 2021.
Hammond is expected to hand out £75 million for artificial intelligence, £400 million for electric-car charge points and
£160 million for 5G mobile networks.
However there will remain fears, as with many tech initiatives, that the plans will be heavy on PR and light on spending.
Scotland’s North Sea oilfields are in line for a new range of tax breaks to help spur up to £40 billion in investment into the moribund sector.
A long called-for clutch of tax reforms would allow producers flogging oilfields to hand over existing tax breaks to the buyer.
The idea is to make buying and selling oil assets in the North Sea easier by cutting the cost of decommissioning fields and wells when they run dry.
More money for retraining of oil rig workers and engineers in the sector, which has slumped in step with the global oil price since 2015, could also be on the cards.
Pubs, restaurants and retailers in the capital will be hoping that chatter about changes to business rates are true. Some reports have claimed that Hammond is poised to offer an olive branch to companies that have been crippled by higher rates bills, and scrap plans to raise business rate tax by 3.9% next April.
Another measure being mooted is a shake-up in how firms pay their rates, including a potential selfassessment style system.