BWF Budget Summary: The Good The Bad and The Other

Ultimately despite the headline that this is a Budget targeted at the next generation, it has a strong emphasis on competitiveness and definitely delivers a boost to the small and medium sized woodworking business and business owners.  Whilst generally business friendly, as with any Budget, the headlines and the reality do not quite line up, there is a little bit of short termism and some more fundamental gaffs that had the Chancellor flip-flopping in the following days.

In a backdrop of slower global economic growth and significant uncertainty, it is clear that the Chancellor has missed bringing the GDP debt ratio down as planned and is unlikely to hit his targets in this government (even with some real financial wizardry linked to time stamping of corporation tax returnin 2019-2020).  This means that it was always going to be a budget of cuts, but perhaps more generous on the tax cuts than had been anticipated.  

Straight from the off, the Chancellor used the platform to reaffirm the importance of EU and Union, a better together rant, that was slightly out of place and uncomfortable in the Budget and likely means that an “out” vote in June would make this his last Budget.  That aside, there is good news in that despite all the uncertainty, the Office of Budget Responsibility (OBR) forecasts GDP growth of 2.0% in 2016, 2.2% in 2017 and 2.1% to the end of the forecast period – this is a bit slower than prior predictions, but still growth. Employment to be 31.5 million in 2016 and is forecast to rise each year to 32.1 million in 2020. CPI is forecast to be below the 2.0% inflation target in 2016, returning gradually to 2.0% in 2018.  

For Individuals

In terms of delivering for individuals there are some clear and rapid tax savings, the Budget included a commitment to reduce tax on working people further by increasing the personal allowance to £11,500 and the higher rate threshold to £45,000 in 2017-18.  The fuel duty freeze is also good for the individual and anticipated to save the average driver £75 every year compared to pre-2010 fuel duty escalator plan, it is also clearly good for business.  The impact of this should be pretty quickly felt and with increases in employment, this could be a useful tonic for consumer spending.

There has been a marked switch in attitude from incentivising debt to encouraging savings in this Budget.  The overall annual ISA subscription limit will be increased to £20,000 from 6 April 2017 and from 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in. The bonus will be paid up to aged 50 and saved funds can be used to buy a first home with the government bonus at any time from 12 months after opening the account. Funds can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement. The government will set the limit for property purchased using Lifetime ISA funds at £450,000, applied nationally. Further consideration will be given to allowing withdrawal of funds for other specific life events.

As a business owner there are a few nuggets in there, from April 2018, Class 2 NICs will be abolished. This will unlikely make you rich, but the average saving will be around £134.  Further reforms on Class 4 NICS are heralded and consultation anticipated.  Self Employed Tax credits are a good concept (and seem to build on the Finish flexicurity model) and will help to drive start-ups. 

Another clamp down on personal service companies is again no surprise and since IR35 was introduced in 1999 has been the mainstay of most budgets.  It remains to be seen if reform will have any meaningful impact – at the end of the day the breathability that this model provides to many businesses is really what drives contracting.

Business Taxation

Business taxation is generally on the slide with a commitment now to cut the rate of corporation tax to 17% in 2020.  This is the latest in the line of a concerted effort to reduce headline taxation for business.  In the last Parliament, the government cut the main rate of corporation tax from 28% to 20% and simplified by unifying for businesses of all sizes. This unified rate will be cut to 19% in 2017 and 17% in 2020 to support small and large businesses alike.  This is unequivocally good news (if you are making a profit!).

Changes to corporation tax loss relief is likely to have more impact on owners of football clubs and banks than your average woodworking company, but may cause some to look at how they structure their affairs.

There is also some positive news on cutting the higher rate of Capital Gains Tax from 28% to 20% and the basic rate from 18% to 10% from April 2016 (except for residential property and carried interest), and to extend entrepreneurs’ relief to long term investors in unlisted companies.  

Increases to the National Living Wage (the new mandatory National Living Wage (NLW) are already set to come into effect from 1 April 2016, set at £7.20 an hour for workers aged 25 and above and the main rate of the NMW, which applies for workers aged between 21 and 24 will be set at £6.95 from October 2016).  With auto-enrolment and increasing apprentice costs (either through the levy or reduced support) and a 0.5% increase in Insurance Premium Tax (IPT) this will put a dent in the reductions in coproate taxation. 

Shared paternity leave and other socially focussed consultations announced are laudable, but realistically is pushing social costs onto business.  In small teams this flexibility can create huge challenges and these need to be factored in when consulting further on this – the support must be available to the businesses as well as the employees.  

Changes to termination payments, currently exempt from employee and employer National Insurance contributions will impact some, but I suspect impact will mostly be on the employee exiting the business.   There will be further consultation on salary sacrifice benefits, but again unlikely to hit too hard on the wider sector (although certainly worth keeping an eye on).

Business Rates is a bit less straightforward, on the surface looks like a cut for most, but it is telling that all of the Impact Assessments have been done on shops and guest houses.  Businesses with a property with a rateable value (the value given on a premises by the Valuation Office Agency, based on likely annual market rent) of £12,000 (up from £6,000) will recieve 100% relief (you can estimate your business rates here). Businesses with a property with a rateable value between £12,000 and £15,000 will receive tapered relief.  The increase in the threshold for the standard business rates multiplier to a rateable value of £51,000 will allegedly take 250,000 smaller properties out of the higher rate.  The switch from RPI to CPI sounds like good news and was widely requested – the fact it doesn't kick in for 4 years less so and somewhat of a disappointment.  Still if you can hang on in there til 2020 then it is good news!

More change is to come on Business Rates and when regional control of rates is ceded locally.  The government will aim to introduce more frequent business rate revaluations (at least every 3 years) and will publish a discussion paper this month outlining options on how to achieve this to support both businesses and the stability of local authority funding. BWF members can find out more about their business rates here.  This will as with all things, be good for some, but could impact competitiveness of certain parts of England that are less able to reduce the rates.  All the talk of simplification in the Red Book is unlikely to impact you in real terms, but will help them to pay for the reductions and I imagine that those Personal Service Companies who are IT Contractors will be licking their lips at the thought of linking local authority and HMRC Systems!!

Commercial stamp duty rates will be reformed to a slice system, so that Stamp Duty Land Tax is payable on the portion of the transaction value which falls within each tax band. The new rates will be 0% for the portion of the transaction value between £0 and £150,000; 2% between £150,001 and £250,000; and 5% above £250,000.

Education and Training

Proof of the pudding in the eating with changes to schools, they will no doubt be met by derision from the teaching fraternity that already see too much focus on STEM subjects.  Maths to 18 is all well and good, but how about decent careers advice? Perhaps this will be squeezed into the extra hour that some schools will be funded for (out of the new sugar tax).

Not much to see on apprentices, just a reaffirmation of the commitment and a bit of detail on topping up levy contributions – this is still a huge area of uncertainty.  The lifelong learning stuff is cryptic, there may be something in there to help people retrain to join the woodworking sector, but seems to be more focussed on Masters Degrees, pHD's and academic learning – the detail is skant so judgement reserved, but initial reaction is of limited meaningful support to our industry.  

Housing and Infrastructure

There was a fair bit in the Budget on Infrastructure with HS3, Cross Rail 2 and various other projects across the country announced (although no mention of runways!).  Government's commitment to deliver 400,000 affordable housing starts sounds positive, but it seems less of a commitment than a vague hope. A lack of any real focus on housing is again disappointing – the tactic to stoke demand rather than supply has been woefully inadequate in dealing with the Housing Crisis to date and there appears to be more of this with reformed ISA's blending with Help to Buy.

The delivery of 13,000 affordable homes was a tad quicker than planned early by bringing forward £250 million of capital spending to 2017-18 and 2018-19 is a something, but short of what is a fundamental requirement for a sustainable society.  Planning reforms, garden towns are positive, but repetitive and again tackling a symptom rather than the disease itself.  Releasing public sector land for 160,000 homes again sounds great, but they are not going to build themselves.  Why not realise the value of public sector land by building 160,000 homes – that would be real progress!

The stated fact that people don't invest in pensions because they are too complicated, but being riddled with debt and unable to get on the housing ladder surely contributes.  We need a steady flow of affordable housing onto the market and realistically this needs to be driven by direct government investment.  Had this started at the start of the recession, asset ownership could be flattering the national balance sheet right now, instead housing remains a drain.  Incentivising saving is perhaps more sustainable than fuelling debt, so there are some positives here, and if direct investment is out of the question, then this is probably the best we could have hoped for.  An idea for 2017 is to commit the monies raised from selling off the banks to investment in housing, bailing us out of the housing crisis rather than finding new and inventive ways to prop up the banking sector.

Environment

Really this section could be left blank – the only mention was a plan to abolish “the bureaucratic and burdensome Carbon Reduction Commitment energy efficiency scheme and replace it, in a revenue neutral way, with an increase in the Climate Change Levy from 2019”.  The way in which this was raised by the Chancellor smacked of being very low in his priorities.  This is disappointing – more needs to be done to encourage low energy manufacturing and link carbon and natural capital to economic gain.

 Summary

BWF Statement to the press "More Maths but no careers advice means the Budget just doesn’t add up" can be seen here

See BWF's letter to the Chancellor ahead of the Budget here

See the Construction Product Association's Budget Summary