Nov 01 2018
On 29 October 2018, Philip Hammond delivered his third Budget, and possibly the final one prior to Brexit, although it was announced that the forthcoming Spring Statement could be upgraded to a Budget should the need arise. Whilst Brexit continues to dominate the headlines, with an additional £500 million being earmarked for preparations for 2019-20, the Budget is likely to have a notable effect on a range of sectors, outlined below.
The Autumn Budget outlined the United Kingdom’s tax and spending plans for the next year, and includes approaches to raise real disposable income, boost the housing market, support the armed forces, and increase NHS funding. Although, duties on beer, cider and spirits are to be frozen, the cost of a bottle of wine duty is set to rise by 8p in February, in line with inflation. Tobacco duty will continue to rise by inflation plus 2%, and a duty on a packet of 20 cigarettes increased by 33p, effective immediately. Additionally, the planned reduction in the maximum stake to £2 on fixed-odds betting terminals has been pushed back to October, having previously been expected to come into force from April. Below, IBISWorld has identified key sectors from our collection of over 400 industry reports that will be most affected by the announcements.
Welfare reform & business rates relief
Since the launch of universal credit in 2013, many media outlets and the thinktanks, such as the Institute for Government, have criticised the system for its high operating cost, delayed execution, and effectiveness. However, the Chancellor insists the controversial system is here to stay, proposing that work allowances are to increase to £1,000 before people start losing benefits, at a cost of £1.7 billion a year.
The Autumn Budget also highlighted cuts to business rates by one third for smaller retailers, those that generate a rateable value of £51,000 or less, to be implemented immediately. The reduction in business rates ultimately means that small high street businesses will make an annual saving of “up to £8,000 for up to 90% of all independent shops, pubs, restaurants and cafes."
Industries most affected:
Personal taxation, and wages
The Budget also highlighted changes to the personal allowance threshold, the point at which people start paying income tax of 20%. Currently set at £11,850, this will be increased to £12,500 in April 2019, a year earlier than planned. Additionally, the higher-rate income tax threshold, the point at which people start paying tax at 40%, will rise from £46,351 to £50,000 in April 2019. Following this, both income tax rates will rise in line with inflation, potentially hindering income tax revenue. However, such changes are anticipated to increase real disposable income for those affected, which could potentially benefit the retail sector. Tax rates and thresholds remain different in Scotland, with the plan for Scotland expected to be set out on 12 December.
The National Living Wage, introduced in April 2016, for those 25 and over in full time employment, will increase by 4.9% from £7.83 to £8.21, commencing on April 2019. The minimum wage for apprentices, under 18s, 18 to 20, and 21-24 year olds is also set to increase, raising disposable income for many employees. On the other hand, the change will increase operating costs for firms in the retail, wholesale and takeaway and fast food sector, in addition to firms in the administrative and support service activities sector, where the majority of employees are low-wage workers.
Sectors most affected:
Stamp duty and housing
Over the past five years, high levels of demand have driven considerable expansion in the housing market, but under-supply remains a concern. Currently the UK is facing a shortage of housing, as the number of homes on the market is a 10-year-low, and fewer people are taking out mortgages. In order to rectify the predicament, and thereby boost productivity and living standards, the Budget abolished stamp duty for shared-ownership homes with a value of up to £500,000. The Chancellor also pledged an additional £500 million for the Housing Infrastructure Fund for councils, to promote the building of 650,000 more homes, bring the total spend for the Housing Infrastructure Fund to £5.5 billion. Government initiatives have already had a notable effect on the Residential Building Construction industry (IBISWorld report F41.202), with revenue expected to rise at a compound annual rate of 9.7% over the five years through 2018-19, and ongoing support is expected to be similarly beneficial.
The Autumn 2018 Budget also addresses how the government plans to support first time buyers, extending the Help to Buy scheme by two years to 2023. Furthermore, the maximum price of a Help to Buy property has been increased - in London, first time buyers purchasing properties of up to £600,000 are eligible, with the figure standing at £437,600 in the South East, and £186,100 in the North East. Following the initial introduction of the Help to Buy scheme, housing starts (see K2840) rose rapidly, and the Autumn Budget is expected to continue to support residential housing construction and residential property transactions, although supply is expected to be constrained by ongoing labour shortages. Consequently, and supported by the shift in tax thresholds, many new homeowners are expected to refurbish, renovate and furnish their new properties, thus boosting demand in the retail sector.
Industries most affected:
Following the Budget of 2018 many large tech giants will be forced to pay a tax on sales they generate in the UK. A new 2% digital services tax on revenue will be enforced as of April 2020, for profitable companies with global sales of more than £500 million. Critics of the tax, such as industry body TechUK said the proposed £500 million threshold was too low and risks capturing more smaller companies than anticipated. The 36-member OECD and European Commission have attempted to reach a consensus on imposing a digital tax on internet marketplaces, search engines and social media platforms. However, progress has been slow, and the Chancellor has stated that it is unsustainable and unfair that digital platform firms generate significant value in the UK without paying reasonable tax. Currently, these digital firms pay taxes on UK profits, which is a much smaller figure than revenue, as many tech companies utilize base erosion and profit shifting to exploit gaps and mismatches in tax rules. The introduction of the tax is expected to affect the digital services sector, with engines, social media, and e-commerce platforms are expected to affected the most. There has been speculation that Deliveroo and Just Eat could, come 2020, be subject to the new tax, although currently neither firm makes a profit, and Deliveroo does not generate the required revenue.
For a printable PDF of 2018 Spring Statement, click here.