Five reasons we could be in a for a ‘boring’ spring budget
With the spring budget just over a week away, Moore and Smalley’s head of tax, Tony Medcalf, explains why the chancellor’s speech may be an uneventful one.
The public finances are improving
I expect this to be one of the least eventful budgets we’ve had in decades. There a number of reasons for this, but a major one is that the deficit is coming down and recent tax receipts have been better than expected.
Forecasted GDP figures for 2017 are expected to be revised upwards and public sector net borrowing is also expected to have fallen significantly, according to the respected EY ITEM Club. If the Office for Budget Responsibility confirms this on March 8, then it’s a sign the economy doesn’t need any major corrective jolts.
The full effects of Brexit are still not known
We’re still in a relative honeymoon period as far as life after the Brexit decision is concerned. It hasn’t been as bad as feared so far, but there is still uncertainty about what news might come out in the coming months after Article 50 is triggered.
The chancellor won’t want to create further uncertainty or do anything that might spook the markets. Furthermore, with the main budget being moved to the autumn, I think the chancellor will want to save any major policy announcements until November.
Mr Hammond has a different style as chancellor
The 2016 autumn statement was Mr Hammond’s first big speech since moving to the treasury and we haven’t seen that much of him since.
On the other hand, George Osborne was never off our screens and was known for his budget theatrics and pulling the proverbial rabbit out the hat. Of course, it sometimes backfired and Philip Hammond will be wary of that.
Just as Teresa May hasn’t been as visible as David Cameron was, I think Mr Hammond is shaping up to be a different kind of chancellor. He’s known for being a safe pair of hands and has suggested that ‘budgets should be boring’. I suppose that’s what we need at the moment. Why should a budget be exciting?
Tax changes are likely to be tweaks not tremors
With rising inflation, the chancellor won’t want to spark any panic about a cost of living crisis by doing anything drastic with headline tax rates. I think any changes would be tinkering around the edges with thresholds, such as raising the tax-free personal allowance further to £12,000, which has been a long-term Conservative manifesto commitment.
The incremental reduction in corporate tax rates over the last few years has been largely welcomed by the business community and we’re now seen as a relative tax haven when compared to some of our European counterparts. However, I can’t see corporate tax rates coming down any further than they have already.
Businesses have enough on their plate
As my colleague Graham Gordon suggested in his budget preview comments, businesses are already dealing with lots of issues. The chancellor has to be very careful about doing anything that could lead to a backlash from the business community.
I think one area where the chancellor may act is by looking again at the fallout from the business rates revaluation. To be fair the vast majority of businesses will see rates stay the same or reduce and I don’t expect it to have a major impact in the North West region where commercial property values have been relatively static.
That said, Mr Hammond has hinted in recent days that he’s keen to listen to the views of those business owners who will see rates go up. That may mean some kind of interim relief for those businesses whose rates are going to go up.