Deloitte's preview of Spring Budget 2017

27 February 2017

  • Good economic growth provides good news ahead of Budget
  • Limited tax changes expected
  • Challenges facing social care loom large

Deloitte’s team of tax experts, its chief economist, head of infrastructure and public sector team consider key potential announcements, the economic outlook and the state of public finances ahead of the Spring Budget.


Economy
Ian Stewart, chief economist at Deloitte, says:
“Good growth and better-than-expected tax revenues provide Mr Hammond with some good news ahead of this Budget.

“But the long grind of public sector austerity has much further to run. After seven years of deficit reduction, annual borrowing still accounts for 3.5% of UK GDP. The squeeze on public spending is stepping up, this Budget is unlikely to see any let up on that, and by the end of this decade the tax burden is likely to be at a 30 year high.

“As such, rebalancing the public finances after the global financial crisis is likely to be a three Parliament process and Mr Hammond’s first Budget could mark only the halfway point in the long journey to eliminating the deficit.”


Tax changes
Bill Dodwell, head of tax policy at Deloitte, comments:
“My hope is that we shall see limited changes in the Spring Budget. We are in the middle of very substantial changes to the tax system, from Making Tax Digital, changes to employment taxes and changes driven by the G20/OECD Base Erosion and Profit Shifting project. The move to a single, autumn Budget is welcome – which means that this Budget should not contain too many changes.

“The corporate tax changes – limiting tax relief, and the use of tax losses - are expected by the government to bring in over £1.8 billion annually from April 2017. In Deloitte’s pre-Budget survey, 41% of tax directors said that the tax impacts of the BEPS project are the most significant issue for them – compared to 31% principally concerned by tax changes from Brexit.”

“Changes to employment tax will also bring in several hundred million pounds, as public sector bodies will take on responsibility for assessing whether services are provided by quasi-employees through their personal service companies, and many salary sacrifice arrangements cease to offer tax/NIC savings. It is clear that the challenges to the tax system of new ways of working will need to be considered and it is possible that the Chancellor could use the Budget to launch a high-level consultation, alongside the Taylor Review of employment law and worker benefits. It is also possible that he could signal a move to asking private sector engagers to follow public sectors engagers in assessing whether or not PAYE should be operated on personal service companies. This would be a highly complex change and would need some time to implement.”


Business Rates
Gerry Biddle, Assistant Director in Deloitte Real Estate, comments:
“We do not expect the Chancellor to announce any significant changes to the implementation of the 2017 Business Rates Revaluation. Any changes now would cause significant problems as the new Business Rates liabilities come into effect from 1st April 2017 and the bills are already being prepared and issued by the local authorities. However, it’s likely that the Chancellor will spend some extra money to help those businesses facing the steepest increases by making the transitional relief scheme more beneficial to those occupiers. In addition it is very possible that he may raise the £12,000 RV threshold for 100% relief from Business rates to assist smaller businesses.”

“The valuation date for the previous revaluation was 1st April 2008. The Government wants to reform the current system in order to facilitate more frequent revaluations and is currently considering a move to self-assessment for Business rates to achieve this aim.”


Making Tax Digital
Making Tax Digital will bring a major change in the way that taxpayers, particularly small business and those renting out property interact with HMRC. They will need to make quarterly returns of their income and expenses to HMRC. It was scheduled to apply from April 2018 for those with turnover over £10,000 per year.

Patricia Mock, tax director, says:
“We are waiting for two important announcements - the turnover threshold and whether the start date will be deferred for all or some of those affected. Such a radical change needs time for thorough testing and we hope that the final start date allows time for this.”

A survey of tax professionals by Deloitte ahead of the Spring Budget* showed that 47% of respondents thought the VAT registration limit of £83,000 would be the right threshold for having to report digitally.


Infrastructure
Nick Prior, global head of infrastructure at Deloitte, said:
“The Chancellor has an opportunity to flesh out the interim plan he set out in the Autumn Statement and move the UK towards his goal of spending 1.2% of GDP on infrastructure by 2020. That is a good target to aim for but conditions at the time meant he could only get to 0.8%. Now we need to see more detail on how we go the extra distance.

“Areas like transport and energy are obvious candidates for investment given their role in boosting national productivity. There is also a clear need for investment in social infrastructure – primarily education, housing and social care – given the pressures that these are under.

“With borrowing costs and gilt yields low, the government has an excellent opportunity right now to finance extra investment in UK infrastructure.”


Social Care
Caroline Hope, lead social care partner at Deloitte, said:
“The challenges facing social care loom large over this Budget. Increasing demand puts NHS and social care budgets under intense pressure and presents providers with difficult a financial backdrop to carry on delivering services.

“The reality is that, while a short term injection of cash from the Chancellor would be welcome, it would not be a long-term solution.

“Government and providers need to keep transforming the system, integrating health and social care, supporting people before they need hospital or residential care, better exploiting new technology and connecting as effectively as possible with the wider public sector. In the long term, it means looking for opportunities beyond the existing system, where the constraints are well known, and thinking about novel and unimagined ways of responding to need.

“These are challenging times for pressurised public services. Beyond additional funds, transformation and constantly evolving to meet societal change are the best ways to forge more sustainable health and social care.”


Spring Budget survey

Deloitte surveyed 219 tax professionals from small, medium-sized and large businesses between Friday, 10 February and Wednesday, 22 February 2017.

The survey was conducted across sectors (media, technology & communications; real estate; public sector; manufacturing; life sciences & health care; financial services; energy & resources; consumer business; business & professional services) and focused on current tax issues

Which tax measures would incentivise your company to increase hiring?

82% of respondents said lower Employer NICs would incentivise them to increase hiring, compared to 13% who preferred lower business rates and 5% who would like to see increased R&D tax credits.

 

Should the focus of any tax increases be on goods and services taxes, or on taxes on profit and income?

Nearly 60% of tax directors surveyed by Deloitte thought tax increases should be on profits and income, compared to 40% who would prefer any tax increases to be on goods and services.

 

Which of the following issues is likely to bring about the greatest change to your tax function over the next five years?

Asked about the issues bringing about the biggest change to their tax function over the next five years 41% referred to the OECD/ BEPS action, 31% named Brexit, 24% said tax innovation and 4% mentioned the gig economy.

 

Making Tax Digital - What threshold for reporting and deferral would you like to see?

47% of respondents thought the VAT registration limit of £83,000 would be the right threshold for having to report digitally, 40% would like to see compulsory adoption deferred to 2019.

Ends

Notes to editors:

Follow us online
Deloitte’s Budget coverage will be on our dedicated website www.ukbudget.com. You can also follow us on Twitter: @ukbudget where Bill Dodwell, head of tax policy at Deloitte, gives regular views.

Deloitte spokespeople
The following experts from Deloitte are available now and on the day of the Budget for comment. From 12pm on Wednesday 8th March, please call the Deloitte Media hotline on 020 7007 3333, where you will be directly connected to one of our spokespeople:

Tax spokespeople:

• Ian Stewart, chief economist - Economics

• Bill Dodwell, head of tax policy – Business taxes and general topics

• Daniel Lyons, tax partner – Indirect taxes

• Patricia Mock, tax director – Personal taxes

• Mark Groom, tax partner – Employment taxes

• Gerry Biddle, business rates consultant – Business rates

• Rebecca George, UK public sector lead – Public sector


About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

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The information contained in this press release is correct at the time of going to press.

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