- Feb 17, 2018
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Yesterday, Philip Hammond delivered his last budget before Brexit. What should you know about the budget for your law firm interviews?
General
General
- This Budget is the biggest boost to public spending since 2010, ending eight years of austerity measures.
- It's a political budget. The UK government will need MP support when it comes to voting in Brexit. The message is that the Conservative party back Theresa May, they can secure a Brexit deal and luck greater public spending.
- It's a very pro-business budget. Theresa May wants businesses and investors to invest in the UK despite Brexit. The government is also showing that they listen to business leaders.
- Before setting a budget, the government is given a set of forecasts from the Office for Budget Responsibility (OBR). In the past, lower than expected tax revenues has limited the amount of money the government can spend.
- However, this time, the Office for Budget Responsibility revealed it had underestimated tax revenues in its last Spring forecast. The government had also borrowed £10bn less than it had expected.
- This gifted Philip Hammond with extra cash to play around with.
- The UK government will also raise money through a digital tax (discussed below)
- Annual investment allowance (AIA) increased from £200,000 to £1m. Those of you who have studied the LPC will know this one. The AIA is a form of tax relief which encourages businesses to invest.
- A one-third cut in business rates for pubs, shops, restaurants and cafes (venues with a rateable value of less than 51k). Business rates are a tax on business properties. Many businesses struggle with the cost of business rates. This cut will help the high street including shops, pubs, restaurants and cafes.
- A £2bn increase for UK Export Finance's lending facility. This will encourage firms to export overseas. It provides loans to foreign buyers, helping them to purchase goods and services from UK exports.
- A £1.6bn investment in research and development to promote science and tech innovation.
- £50m for artificial intelligence fellowships. This aims to encourage AI researchers to come to the UK. Note, AI is a hot topic in legal services delivery at the moment.
- A two-year freeze on the VAT threshold.
- A fall in the apprenticeship levy (normally a 10% fee) for smaller firms.
- The launch of a new Future High Streets Fund. There will be a £675m investment to support councils to transform their high streets. As you'll know -- many high streets are struggling to compete with e-commerce platforms.
- The personal allowance for income tax will be increased to £12,500. So from next year, households can earn £12,500 before they need to pay income tax. This gives households more disposal income which may increase consumer spending.
- An increase in the higher rate taxpayers' band to £50,000. The point at which the higher rate of tax begins is now increased. This will give individuals earning £50,000 year an extra £860 a year (which is relevant to some of you when you'll be on high trainee salaries).
- An additional £1.7bn to increase the work allowance (the amount people can earn before Universal Credit begans to be withdrawn) and an additional £1bn funding for those being switched to universal credit Universal credit was introduced to simplify benefits. It replaced six-means tested benefits with a single monthly payment. This reverses cuts made by the last Chancellor of the Exchequer, George Osborne. In other words, the budget is helping those on both higher and lower incomes.
- A new digital tax will be imposed on the sales of "tech giants" earning over £500m of revenue a year in April 2020. By 2020, this is expected to bring in £400m per year.
- The UK has taken a tough approach on large tech companies like Google, Facebook and Amazon who pay little tax because of the way they structure their business.
- This is more severe than many tax regimes around the world (apart from Spain).
- There are many implications to the fact that this tax targets large US tech companies.
- It comes at a time when Big Tech has suffered a series of scandals.
- The US -- especially Donald Trump -- is likely to react badly to the UK penalising US tech companies. The problem is the UK may need the US after Brexit.
- Rising costs could impact technology and innovation.
- Smaller businesses will be pleased by the news. There has been a growing public outcry over the limited tax paid by large tech companies.
- The FT says the European Commission could end up investigating this proposal. It could be argued that this is a protectionist measure because US businesses are being targeted (and not British).
- An additional £1bn will be invested in the defence budget between now and the end of next year. Philip Hammond explicitly mentioned some of this will be used to boost cyber capabilities. Note, cyber security is a hot topic for law firms at the moment.
- The Help to Buy scheme will be extended by two years from 2021 to 2023. This scheme provides a 20% loan (40% in London) to purchase newly built homes with deposits of only 5%.
- An additional £500m will be available for the housing infrastructure fund.
- Stamp duty will be abolished for first time buyers using shared ownership.
- An extra £500m is set aside for a no-deal Brexit (total is now £4.2bn)
- There will be £15bn set aside as a buffer in the event of a no-deal Brexit
- However, there were few additional plans or guidance for Brexit.
- Wage growth is at its highest level for a decade
- However, the UK has been suffering a productivity crisis since the 2007-8 financial crash.
- The UK was one of the slowest growing economies in the G7 (a group of the largest advanced economies) in the first three months of 2018
- The OBR raised the forecast for growth next year from 1.3% to 1.6%
- The OBR recently said uncertainty over Brexit would reduce business investment even more than expected.
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