London’s top firms react to chancellor Philip Hammond’s ‘countdown to Brexit budget’
‘I can report to the British people that their hard work is paying off’, chancellor Philip Hammond told the commons today, flexing his fiscal muscles as the country’s countdown to Brexit gathers pace.
Although ‘Spreadsheet Phil’ promised that the ‘era of austerity is finally coming to an end’, top wealth management firm Charles Stanley describe the announcement(s) as ‘uninspiring’.
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The big takeaways this year include an increase in spending on mental health services in England by at least £2 billon a year; a £30 billion package for England’s roads including repairs to motorways and potholes; £900 million in business rates relief for small businesses and £650 million to rejuvenate high streets; £60 million on planting trees in England and another freeze in fuel duty.
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There was a small offering of positive news from the Office for Budget Responsibility – upgrading the UK forecast for GDP growth in 2019 from 1.3 per cent to 1.6 per cent, then 1.4 per cent in 2020 and 2021; 1.5 per cent in 2022; and 1.6 per cent in 2023.
Hammond also promised to get tough on tax dodging tech giants with a Google/Facebook tax: ‘We will now introduce a digital services tax’ to be paid by companies with £500m in global revenues. The scheme will launch in April 2020 and is set to raise £400m a year.
Paul Mumford, Fund Manager at Cavendish Asset Management told Spear’s that on the Amazon tax, ‘while the new proposed tax is unlikely to have any concrete effect, this is probably for the best – it means it can serve a useful psychological function. More traditional retailers feel understandably hard done by in what they perceive not unfairly to be an unlevel playing field. This move will hardly stop the Amazons of this world from bringing what they bring to the UK economy, but it does signal to other struggling brick and mortar businesses that the government has heard their concerns, and is on their side.’
On the easing of rules for retail businesses Mumford adds ‘the easing of rules allowing firms to switch retail units to residential use is very welcome, and is one of those seemingly small tweaks that could have a big positive effect, and essentially lead to a win-win for both tenants and owners. Many household firms like Debenhams have a lot of leaseholds in their portfolio, and will now have the opportunity to structure more favourable deals or even get out of the leaseholds entirely where appropriate.’
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Richard Coleman, partner at Charles Russell Speechlys on the changes to Entrepreneurs’ Relief. ‘This is a more significant change. ER qualification has traditionally been a simple test which has required that share rights could be structured to enable employees to qualify for ER who do not hold 5 per cent of distributable profits or net assets, he tells Spear’s. ‘Those who have put that structuring in place will need to consider those arrangements, but many could simply now fall outside of the relief. The measure takes effect today (29 October 2018), so there will be little or no time to take action before the opportunity to claim the relief is lost.’
Tom Elliott, head of private clients at Crowe UK told Spear’s that the changes to Capital Gains Tax (CGT) reliefs for the sale of main residences look like an attempt at modernisation.’ He adds, ‘lettings relief has changed so as not to apply to the AirBnB model – relief applies only for shared occupation. The shortening of the “period of absence” from 18 to nine months for Principal Private Residence relief will need to be monitored closely, as any slowdown in the housing market (where it may take more than nine months to sell) may result in an overall reversal.’
Claire Trott, head of pensions strategy at St. James’s Place Group, adds: ‘We are pleased that, for once, there were no changes to the pension legislation and there has been a much-needed period of calm since the major changes in 2015. It is disappointing that the tapered annual allowance wasn’t scrapped and the contribution rules weren’t simplified in general, but no change is better than added complexity. We hope this will allay fears of a raid on pension tax relief at least in the short term, to allow people to plan for their retirement, a long-term investment.’
Chris Groves, partner in Withers private client and tax team told Spear’s, ‘In one of the most febrile political environments in living memory, the chancellor introduced a welcome note of certainty, emphatically stating that “I didn’t get into politics to put up taxes”. This will be welcome relief to HNWI’s, but there remains considerable uncertainty as a result of the Brexit negotiations, which could see a new Chancellor in No 11 or a change in government and considerable scope remains for changes in the future.’
Arjun Chopra, head of private capital UK at Investec private bank responds to the chancellor’s announcement that Entrepreneurs’ Relief will remain: ‘Whilst we’re pleased that the chancellor has decided to keep Entrepreneurs’ Relief (ER) – it does go some way in encouraging entrepreneurs to start businesses, aiming to provide an environment in which they are able to take risks, grow and ultimately create jobs and value for the UK economy – in Investec’s opinion, the ER scheme as it stands is expensive, too narrow in scope and benefits only a small proportion of UK entrepreneurs.
‘We would like to see the government set out new legislation that supports entrepreneurs in the way that it was intended to do – benefitting the numerous entrepreneurs in the UK who help to maintain and advance the UK’s reputation as a highly innovative country.’
Rebecca Durrant, private clients partner at Crowe UK told Spear’s It was pleasing to see the personal allowance and higher rate tax brackets raised a year early, but it will be interesting to see whether the chancellor treats this as a ceiling. She said: ‘rates could now be frozen for following years, which would turn the tax cut into a hike very quickly. In the mid to long-term, this may not protect the inflationary impact that a no deal Brexit may have.’
Tim Mills, investment director of the Angel CoFund adds that the budget is good news for start ups. ‘I’m very pleased to see a Budget that seems to be expressly designed to be kind to small businesses, startups and entrepreneurs, Mills says. ‘The chancellor thankfully resisted calls to scrap entrepreneurs relief and made a point a stating that the new digital services tax will only affect tech giants with over £500m in revenue – startups will not be affected. In a positive move, he increased annual investment allowance, which should free up more funding for startups.’
Mike Cherry, Federation of Small Businesses National Chairman, told Spear’s: ‘This is the most small-business-friendly budget that this Chancellor has delivered. He has listened to our requests across many areas of tax and public policy, putting him firmly on the side of Britain’s small businesses.’
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