What to Expect in the Early Autumn Budget 2018
The Chancellor of the Exchequer has announced that the 2018 Budget will be scheduled for Monday 29 October.
The Autumn Budget has been brought forward by a month by Philip Hammond and several key announcements are expected.
Mike Jakeman, a senior economist advisor at consultancy PwC, has said, “This budget is going to be a very interesting one to watch because there is so much uncertainty around the UK economy at the moment”. This uncertainty is largely due to Brexit concerns, as well as Theresa May’s promise to end Austerity, and the introduction of Universal Credit.
Jakeman also explained how the year’s economic trends will affect the Autumn Budget: “Economic growth picked up in the second quarter of 2018 and looks to have sustained this momentum in the third. And the budget deficit was lower in the first half of the year than the Government expected. These factors could give Philip Hammond some wiggle room to spend more money”.
Here are some of the potential outcomes of the Autumn Budget:
Pension Tax Relief Cut
Hammond has recently hinted at cuts to “eye-wateringly expensive” pension tax relief, and analysts agree that this is likely. Ed Monk, personal investment expert at Fidelity Investments, has suggested that Hammond “take aim at tax relief on pension saving as a way to pay for the extra funding for the health service, local government or anything else he’s under pressure to give more money to”. There is the potential that by making changes to the pension system, which currently benefits higher earners, young workers and lower earners could benefit far more in the future.
Introduction of the ‘Amazon tax’
At the IMF annual meeting in Bali, the chancellor announced “plans to introduce a new tax on digital firms”, titled the ‘Amazon tax”. Hammond made it clear that he was willing to “make a unilateral British move” should an international agreement not be arranged.
With this announcement, business groups warned that many UK businesses also rely on online trade and need to remain competitive, appealing to Hammond to make sure that these businesses are not harmed by any new tax. Carolyn Fairburn, CBI directory general, cautioned, “Ideas such as a digital tax could backfire on entrepreneurs and the high street if developed without proper consultation and should go hand-in-hand with business rates reform”. Fairburn explained that the UK needs to keep pace with a “fast-changing economy” and develop internationally.
The Universal Credit benefit system has faced criticism by both campaigners and MPs “for leaving poorer families £50 a week worse off”. Consequently, it is expected that Hammond will announce extra funding “to soften” the introduction of Universal Credit.
While the Joseph Rowntree Foundation and Iain Duncan Smith, architect of the new benefit system, have called for the Government to put £2bn back into the benefit system, the actual figure “is more likely to be in the millions”.
Help to Buy
The Help to Buy scheme is scheduled to end in 2021 and the Autumn Budget will be an opportunity for Hammond to discuss how the future of the scheme will be handled.
Gemma Harle, managing director of Intrinsic mortgage network, has said, “While the scheme has heralded some results, it is under pressure and has been widely accused of serving to inflate housebuilder share prices, alongside some unintentional consequences resulting in homebuyers ending up as ‘mortgage prisoners’”. Therefore, the Government might decide to end the scheme “and instead favour the Lifetime ISA as a means to boost home ownerships”.
Last year, Hammond “scrapped stamp duty for properties costing up to £300,000” for first-time homeowners.
To make up for lost revenue, a 3% stamp duty surcharge could be applied to foreign buyers looking to purchase property within the UK. According to the Prime Minister, this additional revenue “would be used to help rough sleepers”. This is likely to be received very positively amidst the Brexit criticism May is currently facing.
The reason for Autumn Budget being brought forward a month is “to avoid any clashes with [Brexit] negotiations and ensure tax and other financial considerations are hammered out before a deal is reached”. This will be the final “major fiscal announcement” before the UK leaves the EU.
Unsurprisingly, the chancellor will likely “want to keep some money in reserve” if the economy is hit badly by Brexit and thus spending will probably remain cautious until there is more certainty around Brexit.