The Chancellor appeased Conservative backbenchers and the vocal small business lobby with £435 million reliefs on business rates. However, he’s potentially gone to battle with the self-employed – breaking a manifesto pledge by raising National Insurance Contribution rates.
Overview
It was a mixed bag for businesses, with the main announcements addressing business rates and the self- employed.
After the sustained campaign from small businesses protesting rate increases, it was no surprise that the Chancellor had to make some concessions here with a rate cap for businesses coming out of small business rate relief and a discretionary £300 million fund for councils to address local discrepancies.
This will be seen as an olive branch to Conservative backbenchers who vociferously protested rate rises, and the 90% of pubs with a rateable value of £100,000 will be pleased with their £1000 discount. However, business groups such as the British Chambers of Commerce have been quick to say that the £435 million funding is only a short term solution and more should be done to ensure a sustainable solution, but the Chancellor has hopefully deferred criticism until the next re-evaluation in 2022.
A more politically challenging measure will be his move on the self-employed through changes to the national insurance contributions regime. The Chancellor spent a large portion of his speech on these changes which affect 5 million people but raises just £145 million. Presumably he hopes to ensure that the gig economy does not erode the tax base, but he’s potentially created a bit of a political headache – he’s broken the Conservative manifesto pledge not to raise NICs. It’s worth noting too that the self-employed account for a third of the jobs growth since 2010.
Policy announcements - Taxation
Business rates
Hammond recognised that business rates raise £25bn a year and said that therefore they cannot be abolished. He stated that the system should be fairer though – outlining that the government will set out plans for its preferred approach to business rates before the next revaluation.
Hammond acknowledged that this year’s rates revaluation raise some difficult cases. To address these concerns, Hammond announced three measures amounting to extra £435m cut to business rates. These measures state that:
Corporation tax
Hammond announced that Corporation Tax will fall to 19%, the lowest rate in the G20. In 2020 this will fall again to 17%.
Making tax digital
In response to concerns raised about small businesses reporting taxation, the Chancellor announced that for businesses with a turnover below VAT threshold, the quarterly reporting requirement will be delayed for one year.
Tax avoidance and evasion
The Chancellor set out action to stop businesses from evading and avoiding taxation – stating that from July 2017 the Government will introduce a tough new financial penalty for professionals who enable a tax avoidance arrangement that is later defeated by HMRC. There are also measures to ensure the effectiveness of the Promoters of Tax Avoidance Schemes (POTAS) regime by preventing reorganisation intended to circumvent the rules.
The Dividend Allowance
Hammond outlined plans to reduce the tax gap between an employed worker and one who has set up their own company. Hammond stated that to address the unfairness around Director/Shareholders’ tax advantage, he will reduce the tax-free dividend from £5,000 to £2,000 with effect from April 2018.
Policy announcements - Self-employment
The lower National Insurance Contribution rates for the self-employed cost the taxpayer £5bn a year, Hammond said. To reduce this gap, Class 4 NICS will increase from 2% to 10% in 2018, with a further 1% in 2019. Hammond stated that extra tax on the self-employed will help the Treasury to raise an extra £145m by 2021-22.
Policy announcements - Consumer protection
There will be a Consumers and Markets Green Paper to identify markets that are not working effectively. This will empower the CMA and other regulators to take action against firms that mislead or mistreat customers and will look in particular at unfair subscription renewals and ensuring fair and clear terms and conditions.
Policy announcements - Infrastructure
The Government will commit £300m to fund the brightest and best research talent. This will include 1,000 new PhD places and fellowships focused on STEM subjects. £270m was also announced to keep the UK at the forefront of disruptive technologies, whilst £16m will be set aside for a 5G mobile broadband hubs. £200m will also be set aside for local projects to leverage private sector investment for full fibre networks.
Policy announcements - Devolution
There was additional funding for national governments - £350 million for the Scottish Government, £200 million for the Welsh Government and £120 million for the incoming Northern Ireland Executive.
The Chancellor announced that the Midlands Engine Strategy will be published tomorrow. He noted the agreement reached for further devolution of powers to London which will cover criminal justice, congestion, infrastructure and health and social care, as well as some flexibilities regarding business rates, apprenticeships and careers and employment support services. He also highlighted ongoing work on City Deals for Edinburgh and Swansea.
