Business experts assess Osborne’s spending plans

George Osborne has been laying out his plans for the British economy in the Spending Review. Experts from Swindon and Wiltshire’s business community have been casting their eyes over the detail.

Ian Larrard, director of the Swindon and Wiltshire Initiative, part of Business West, says it contained some positive news for the region:

“Once again the ‘builder’ Chancellor has used the tools at his disposal to create a Statement that the majority of businesses will applaud.

“The statement, widely predicted as being gloomy, was surprisingly upbeat in business terms as he started by citing the South West as a well performing region with the lowest unemployment rate in the country.

“The first win for business was the increased funding for much needed infrastructure improvements, for example the £2bn investment to upgrade the A303.

“Businesses can only operate as well as the environment they are in, and the announcement that Britain will be spending a higher proportion of its income on infrastructure than at the start of the parliament will be met with applause. This included big increases in the transport capital investment budget, with a 50 percent rise.

“We then heard the Chancellor turn to ‘huge reform to raise the skills of the nation’. High youth unemployment and business skills gaps are a cause for national embarrassment, and in Swindon we are working with both business and education to bridge this gap.

“A package of reform for education along with details of the Apprenticeship Levy will be welcomed by businesses from the smallest to the largest. Although there are reservations as to how this will work in practice.

“It was also good to see political emphasis on fixing the housing crisis. The doubling of the housing budget was welcome news, but the overwhelming emphasis on home ownership may be a mixed blessing. On the one hand, higher skilled workers are likely to want to own their own home, so making this easier should make them more likely to stay in our region.

“However the lack of lower cost rented options may start to hit the lower part of our labour market. It is also worrying to see that the Office of Budget Responsibility is still predicting that house price rises will continue to outstrip earnings.”

Malcolm Emery, partner at Thrings and a dual-qualified chartered tax adviser and solicitor, said: “In what was effectively his fourth budget speech in less than 12 months, today’s Autumn Statement and Spending Review provided the Chancellor with the opportunity to announce a series of vote-winning giveaways to businesses and individuals.

“Mr Osborne still appears to be in austerity mode, and with a large black hole to fill it is arguably with good reason. The economy is predicted to grow at approximately 2.3 percent each year over the next five years, with debt levels as measured against national income expected to fall from 82.5 percent to 71.3 percent by 2020-21 and the cost of borrowing due to fall to £4.6bn in 2018-19.

“He is also sticking with his forecast that by 2019-20 there will be a surplus of just over £10bn in the Government coffers, a far cry from his first Spending Review which followed the assertion from his predecessor that “there’s no money left”.

“The rise in the basic state pension, protection of police budgets and the increase in financial support for education will have been welcomed by many people in the UK. However it is the Government’s decision to scrap proposed changes to tax credits that will inevitably attract the headlines, with some of the required £4.4bn being met by an increase in stamp duty land tax payable on buy-to-let properties.

“Many businesses will welcome the abolition of uniform business rates, the setting aside of £12bn for a Local Growth Fund and the creation of 26 new or extended Enterprise Zones.

“Meanwhile the introduction of an apprenticeship levy – set at 0.5 percent of the employer’s wage bill – will aim to deliver three million apprenticeship starts by 2020, with each employer receiving a £15,000 allowance to offset against their levy payment.

“Little was offered by the Chancellor on further tax cuts, although this is perhaps not surprising as many are still working through the reforms he proposed in his summer Budget to non-domiciled individuals living in the UK and the taxation of dividend income. Both reforms will impact on the economy, particularly for those families who use companies for business and wealth preservation purposes.

“Mr Osborne also talked about the digital age and its ability to facilitate costs savings within HMRC by creating individual accounts for each and every taxpayer. Earmarking an additional £800m to tackle tax evasion highlights the Government’s commitment in this area, with the new measures forming part of his plans to ensure the UK has the ‘most digitally advanced’ tax system.”

Neil Elsden, director at Banks BHG chartered accountants in Swindon, said the Autumn Statement delivered more on politics than content, and the Chancellor said very little.

“It is good news for businesses in Swindon that the small business rate relief scheme is being extended for another year.

“The uniform business rate is also to be abolished and councils will be able to set and keep their own business rates instead,” he said.

“We note that anti-abuse legislation is being strengthened, and that the taxation system will be fully digitised by the end of the decade. However, this does mean the Government will be able to accelerate collection of Capital Gains Tax after a property sale, as they have previously indicated.

“Couple that with the Chancellor’s announcement of a three per cent increase in stamp duty for second homes and buy-to-lets, and investment in property potentially becomes a lot less attractive.”

That sentiment was echoed by Lucie Hammond, tax partner at RSM in Swindon, who said: “We knew that someone would suffer as a result of the planned cuts to tax credits being scrapped, and in this instance it is buy-to-let landlords.

“In the Budget last July, the Chancellor announced tax increases from 2017 for landlords, and now they’ve been hit again. There’s a real risk here that rents could increase as landlords pass down the additional cost to their tenants, or that the rental property sector in Swindon could shrink as landlords sell up.

“Either way, this could have a seriously detrimental effect on the region’s buy-to-let industry.”

She also commented on the Apprenticeship Levy: “Those who may struggle will be larger companies, in particular agencies in Swindon that supply temporary staff – who will see it as a ‘levy on employment’.

“Clearly this move, which the government predicts will generate £3bn annually by 2021, has been designed to sidestep the ‘lock’ on National Insurance.”

On pensions and savings, Stephen Depla, head of office at the Marlborough branch ofwealth management firm Brewin Dolphin, said: “The basic state pension will be increased to £119.30 a week from April, a rise of £3.35. Pension credit payments will be stopped for people who leave the country for more than a month.

“The starting rate for the new ‘single-tier’ state pension will be £155.65 per week. This will be available to those who reach pensionable age from April next year.

“However, two out of three people who reach retirement age next year will receive less than the full amount. Money will be deducted for any time you were “contracted out” of the second state pension, formerly Serps, an earnings-related top-up to the basic pension. Increases in contribution rates for those automatically enrolled into workplace pensions will be aligned with tax years.

“On inheritance tax, the Government backed down from its threat to crack down on the use of deeds of variation, which allow wills to be altered after someone’s death. It said: “The government will not introduce new restrictions on how deeds of variation can be used for tax purposes but will continue to monitor their use.

“There was disappointment for some savers as the annual amount you can save into an individual savings account (ISA) will remain at its current level for 2016-17. The ISA limit will be kept at £15,240. The Junior ISA and Child Trust Fund limits will be kept at £4,080.

“From autumn next year a new kind of ISA will join the existing cash and stocks-and-shares options. The ‘Innovative Finance ISA’, will allow you to put crowdfunding debt in a tax-efficient wrapper.”