On Wednesday 8 March, against a backdrop of considerable uncertainty, Chancellor Phillip Hammond will deliver his first, and last, Spring Budget. In a move previously announced, which will result in there being only “one fiscal event a year”, it is widely predicted that he will leave any significant changes and incentives until his first Autumn Budget.
With the triggering of Article 50 and the beginning of negotiations imminent, the UK looks to a new chapter outside the EU. The government must now turn an eye to boosting the UK’s lagging productivity and proving to the world that the UK is open for business. This will need to be achieved in the context of the government’s commitment to developing an economy that works for everyone.
So what can we expect within Wednesday’s announcements and what impact is it likely to have upon the Northern Ireland economy?
The economic backdrop to this week’s Budget has seen many economists revise their short-term forecasts in the wake of the Brexit vote. The Bank of England have increased their 2017 forecast for the UK from 0.8% in August to 1.4% in November and further again last month to 2%, indicating that the increased forecasts were partly the result of higher spending and investment as announced in the Autumn Statement. Despite these stronger growth forecasts, the Chancellor has already ruled out “huge spending sprees”, reserving such money until the economic effect of Brexit is more certain.
While Northern Ireland has performed robustly in the post-referendum era and equally exceeded initial forecasts, the current forecast from Danske Bank shows our local economy lagging significantly behind with growth of 0.8% forecast for 2017 (less than half that of the UK as a whole).
In seeking to address this productivity gap over the years, a significant amount of work has gone into the devolution of corporation tax. While legislation now exists to facilitate a reduced rate of corporation tax in Northern Ireland, it remains subject to the Executive delivering a sustainable budget. With the current absence of a power sharing government, responsibility rests with the two largest elected parties to form an Executive which can deliver an urgent, sustainable budget to prevent any further delay on the 1 April 2018 commencement date.
Overall, Wednesday’s Budget is widely predicted to be a low key affair with the focus initially on stability for businesses and individuals, while ensuring the UK’s international competitiveness post-Brexit.
One area which is central to this will be funding for our schools, colleges and universities as we seek to be more self-sufficient in developing the skills of a leading economy and in addressing the productivity gap with our international competitors.
Another area is seeking to simplify the UK tax code by giving more power and resource to the Office of Tax Simplification. The UK tax code is now more than 20,000 pages long and is one of the most complex in the world. With so much uncertainty surrounding Brexit, now more than ever, the UK needs to provide business and individuals with the stability and predictability they desire.
Finally, we are also likely to see some announcements on seeking to improve support for R&D in seeking to further enhance the UK’s competitiveness in this regard. Measures could include an increase to the R&D credit available and possible expansion of the definition such that additional phases of development may benefit.
Many of the policies which affect individuals and businesses have already been announced but will only take effect this April.
For individuals these include the increase of the personal allowance to £11,500, the 40% income tax threshold increasing to £45,000, the launch of the Lifetime ISA and the introduction of the new Transferable Main Residence Allowance for IHT purposes.
For businesses these include the introduction of loss reform, corporate interest restrictions, acceleration of quarterly payments for large companies and a reduction in the rate of corporation tax to 19%. While a further reduction to 17% from April 2020 has already been announced, it is unlikely that a further drop will be announced despite calls for this to attract post-Brexit investors.