Crunched: The Budget 2018

What’s going on here?

On Monday, Phillip Hammond, the Chancellor of the Exchequer, delivered his Autumn Budget. There was much interest around whether the Budget would reflect Theresa May’s recent announcement that the ‘era of austerity’ in Britain was at an end. In practice, it seems to have done exactly that. However, the shadow of a potential no-deal Brexit is still looming large – the extra spending by the Government this Budget could quickly be undone by an emergency Spring Budget in the event of a no-deal Brexit.

Us here at Littlelaw have summarised some of the key announcements from the budget below:

Digital Services Tax

The UK will implement a tax against large technology companies by 2020. The tax, which targets companies such as Amazon, Facebook and Google, looks to combat recent controversies regarding how little tax these companies currently pay in the UK. By 2022-23, the tax is expected to raise around £400 million annually, but the Chancellor has made clear that the measures would only be put in place until an international agreement is met.

What does this mean?

The tax will inevitably be received poorly by the companies that it targets. There are worries that the US, where the majority of the companies effected are based, will see the tax as a direct attack on their industry. This may be a problem given the uncertainty of Brexit, and the increasing need for the UK to maintain strong partnerships with other countries.

Abolition of the PFI

In an unexpected announcement, the Chancellor announced the end of private finance initiatives as a means of funding large infrastructure projects. Championed by Tony Blair, a PFI involves the government contracting private firms to complete projects. The firms would pay the upfront costs of the projects and would then be repaid annually over a long period of time by the government, preventing the government from spending large sums of money in one go.

What does this mean?

Criticisms of PFI’s have intensified since a major holder of PFI contracts, Carillion, collapsed earlier this year, raising questions over the financial viability of the model. The National Audit Office (the body that checks all of Parliament’s spending) also found that the government had paid billions of extra pounds as a result of the schemes without any clear benefit attributable to the costs. It remains to be seen what will replace PFI, but comments by the Chancellor seem to suggest that future infrastructure contracts will move in-house, with private financing remaining as an option, but only where it ‘delivers value for the taxpayer and genuinely transfers risk to the private sector’.

Saviour of the high street?

Plans were announced during the Budget to put £1.5 billion into the UK high streets to combat its recent decline, where companies have failed to compete with online retailers. This money is split into £650 for direct investment in the high street, and £900 million towards a reduction in business rates (a tax on property used for business purposes) for around 500,000 small business.

What does this mean?

While these measures will clearly help many companies, analysts are not convinced that they will save the high street. The business rates reduction will not benefit many larger high street retailers, which are typically the businesses which have struggled most (read our report on the administration of House of Fraser here). It remains to be seen how much of an effect this money will have on the high street, but early signs suggest that more needs to be done to prevent further store closures.

Report written by Matthew L.

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