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UK Budget: Foretale of end of austerity, but at what cost?

Will Philip Hammond deliver on spending promises Theresa May made at the Tory Party conference earlier this month?

UK Budget: Foretale of end of austerity, but at what cost?

Chancellor Philip Hammond will announce his Budget for the 2018­–19 financial year on Monday, 29 October – earlier than usual, likely in order to avoid clashing with key Brexit deadlines.

While some see the new fiscal plan as a way of appearing to be “pro-business”, others say it is hard to understand how a pledge to end austerity will materialise if not through raising taxes.

Thankfully, the latter may not be needed just yet.

Tricky tax

The Office for Budget Responsibility said on 19 October that stronger central government receipts and less spending mean the Chancellor of the Exchequer may leave any big tax moves until next year. By which point he hopes that Brexit angst will have subsided and the economy could be benefitting from a “deal dividend” — if UK Prime Minister Theresa May lands an exit deal based on her Chequers plan.

Brexit will, no doubt, continue to dictate the political agenda, as well as have a considerable impact on the UK economy – something the Conservative government is well aware of and planning for.

With that in mind, Hammond will set out the UK’s spending and tax plans for the following 12 months, which the Treasury has said will help “build a stronger, more prosperous economy”.

End of austerity

Analysts and politicians on both sides of the Brexit divide will wait to hear how the government will balance the books while sticking to its commitment to end austerity. Speaking at the Conservative Party’s conference at the beginning of October, May said that people should know the austerity the financial crisis triggered 10 years ago “is over and their hard work has paid off”.

Plans to increase funding to the National Health Service (NHS) and the number of council houses built will also be scrutinised.

But the main focus will turn to Brexit and what will the ramifications be for UK tax and spending in what is likely to be the final Budget announcement before Britain leaves the European Union next March 2019.

Open for business

All of this is important but what does it mean for companies as they are looking to plan for Brexit and beyond?

To maintain a pro-business environment, Hammond is likely to stick with his plans to cut corporation tax to 17 per cent by 2020 – a move he believes would send the “clearest possible signal that Britain is open for business”. This is great news for UK corporates who have seen the tax rate cut from 28 per cent in 2010.

But watch out for a new “digital services tax”, which Hammond plans to impose on big media and technology companies like Facebook and Google.

Speaking in Birmingham, the chancellor said global internet giants “must contribute to funding public services”.

 

Related Insights:

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May wants to extend post-Brexit transition, angers Westminster

 

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