Fiscal Phil Loosens Up
Chancellor Philip Hammond's Budget delivered the largest discretionary "fiscal loosening" since 2010. While the NHS got most of the money, entrepreneurs weren't ignored. However, it wasn't a perfect Budget.
In response, we were quoted in The Times (￡) on the need to make the welcome increase in the Annual Investment Allowance permanent, and our Research Director Sam Dumitriu wrote for CapX explaining why a special tax for tech giants isn't a smart policy.
I also dug into the documents to give a pretty comprehensive roundup of the tech announcement for UKTN. And we were quoted in SmallBusiness.co.uk on what the Chancellor should have done on Business Rates.
Entrepreneurs running businesses of all sizes will breathe a sigh of relief about what wasn't announced. The predicted scrapping of Entrepreneurs' Relief didn't materialise (just a tightening around the rules), and many of the self-employed will be content with the delay in introducing IR35 to the private sector.
Following are our thoughts on a few of the announcements.
On the increase in the Annual Investments Allowance
To help stimulate business investment, the government will increase the Annual Investment Allowance (AIA) to ￡1m for all qualifying investment in plant and machinery made from 1 January 2019 until 31 December 2020.
This will be a welcome announcement for business owners looking to invest, but by making it temporary the Government is failing to offer businesses the stable environment they need to properly plan for the future. Over recent years the AIA has yo-yoed from ￡100,000 down to ￡25,000, up to ￡200,000, up to ￡500,000, down to ￡200,000, and now temporarily up to ￡1m. This is the epitome of business uncertainty.
On the plan to impose a 2% Digital Services Tax on ‘tech giants’
The Chancellor may live to regret making the tax system even more complex. Corporation Tax needs updating, but any reform should focus on fixing the general rules, rather than papering over the cracks in the status quo. Singling out ‘tech giants’ may lead to UK SMEs paying more to advertise through social media and because the tax is levied on revenue not profits could unfairly disadvantage firms who are still raising money through equity finance.
On additional Business Rates Relief for small high-street retailers
The Chancellor has missed an opportunity to fix business rates. Instead of managing decline, Philip Hammond should have prioritised removing barriers to business growth and investment. Replacing business rates with a business land tax paid by commercial landowners would dramatically cut paperwork for most business owners and create a stronger incentive for businesses to invest in improving their properties.
On increased funding for management training
There’s clear evidence from The Entrepreneurs Network’s Business Stay-Up campaign that improving the quality of management skills in the UK is key to raising productivity. Creating stronger peer-to-peer networks and boosting the Knowledge Transfer Partnership to allow best practices to diffuse is rightly a priority. But the Chancellor should go further and create additional tax reliefs for employee-funded training.
On boosts to R&D spending
A significant amount (￡1.6bn) has been allocated to increasing the Industrial Strategy Challenge Fund. Among other things, the Government is taking a punt on quantum technologies, nuclear fusion, artificial intelligence and distributed ledger technologies. It will also put another ￡115m into the Digital Catapult, which has centres in the North East, South East and Northern Ireland, and the Medicines Discovery Catapult in Cheshire.
While there are strong arguments that at current R&D investment levels increasing Government spending could leads to positive economic spillovers, we need to ensure that we get value for money. For example, just last year the Digital Catapults were heavily criticised in a BEIS commissioned review by Ernst & Young. The devil will be in the implementation.