#Budget2018 - Reflections
October 30, 2018
Yesterday we were given a budget where the Government tried to convince us that austerity is really coming to an end - so did it work?
It’s fair to say that there was more in yesterday’s announcement than many expected, the main outcome being some clear loosening of the purse strings with a raft of giveaways that were not all funded by tax rises - our first budget that was not fiscally neutral for a while.
Going to the country with fiscal projections is always tricky but going at a time of such uncertainty is clearly a real challenge - and massively helped by the wiggle room afforded by a change in the OBR’s projections around public spending and tax receipts.
The Chancellor took this lifeline and responded with an attempt to provide pretty much something for everyone - you can’t, after all, ignore the politics. Let’s not forget the Government have the slenderest of margins in Parliament and this budget needs to be done and dusted as soon as possible to allow for the focus on all things Brexit.
As the Chancellor rattled through his shopping list of measures and giveaways we patiently waited for the ‘Big Bang’ measures, and we got a few on the tax front;
The announcement that the so called IR35 measures would indeed be extended to the private sector will signal a real shift change in the treatment of the self employed. The measures which shift the burden of determining employment status onto the employer has yielded real revenue dividends in the public sector and will likely have the same impact as it’s rolled out across the private sector. This moves a real burden on to businesses but doesn’t go the heart of addressing the shift change we are seeing in the way that people work and the shape of the tax system that is needed in response.
The Chancellor offered some response to the cries for relief from business rates, but his measures do not address the woes of the retailers on this subject. Whilst the changes will make some difference to SME’s occupying properties valued at less than £51k this doesn’t come close to addressing the issues faced by many household names occupying the high street. That would require real reform.
In a move that saw the introduction of yet another new tax, we now have our very own Digital Services Tax (“DST”).
With the new DST, the Government are proceeding with a degree of caution. This is clearly set up as an interim measure - with a built in review period, it’s narrowly targeted - structured to catch only tech giants, a low rate of 2% - restricted to revenues generated by UK users, and won’t actually apply until 2020. By which time we may well have a better international proposal anyway! As careful as they have been, this may well be seen as an anti-competitive measure at a time when the Chancellor is desperate to portray the UK as “open for business”.
This has been on the cards for a while and, despite the fact that the International Community are looking to garner some form of consensus on how to tackle taxing the digital economy, the UK has made a pre-emptive first strike. In an area that has highlighted the inefficiencies of our tax system it serves as little more than a nod to the need to revisit the way we tax the digital economy at large.
This was never going to be a Budget of reform and simplification - which is a crying shame, because that’s exactly what we could do with. However the Chancellor has left the door open for us to come back and do this all again in the Spring once we know what the deal is around Brexit.
There is an opportunity then rip all the sticking plasters off and really put some energy into reforming the areas of our tax code that are creaking - from business rates, to taxing employment, to building a tax system that really is fit for the digital age. A post Brexit Britain may be just tonic the Chancellor needs to look to much more radical changes and to deliver a tax system that is fit for our future.