With politics in tumult over the direction of Brexit negotiations and allegations of sexual harassment in Parliament, it’s easy to forget that there is an event coming up that would normally be drawing all of the media attention. On 22 November the Chancellor, Philip Hammond, will be delivering a Budget that is his big chance to lay out his plans for the next five years.
The first Budget of a new Parliament is known for being the time that Governments set the tone for their time in office, for better or worse. In his 1997 Budget, shortly after New Labour came to power, Gordon Brown cut corporation tax, but also introduced the graduated stamp duty, creating extra bands for more expensive properties. Stamp Duty has since been returned to politicians of all stripes as a way of squeezing out more revenue. George Osborne’s 2010 so-called “emergency Budget” introduced wide-ranging austerity measures, including a public sector pay cap and a hike in VAT to 20%, which will forever be associated with him.
After a March Budget in which Hammond played safe, making few bold moves, will he use the first Budget since the snap election in June to take more dramatic action? Pre-Budget speculation has always been a game for the brave, or foolhardy, but this time round, reading the runes of what will be in the Chancellor’s speech seems even harder than normal.
According to a ‘senior government source’ quoted by the Sunday Times a few weeks ago, this is going to be a “big, powerful and revolutionary” Budget, possibly including a major boost to house-building through more public sector borrowing and by allowing construction on the green belt. The problem is that allies of the Prime Minister within days came out to say there was going to be no flexibility on the green belt, and the Chancellor himself ruled out a borrowing binge.
While trying to predict what will be in the Budget is probably a waste of time, we can certainly say what IoD members think should be in there. Over the course of 2017, the gap has widened between how confident members are about their own organisation’s prospects, and where they see the economy as a whole going. There is a net positive balance of 28% (the number feeling optimistic minus those feeling pessimistic) for their own businesses, but a negative balance of -18% for the economy.
What’s concerning is that this appears to be feeding through to firms’ investment plans, with companies saying they are as likely to cut spending on items like equipment, machinery and IT as they are to increase it over the next 12 months. Decision-makers don’t feel in a position to commit their cash to expansion at the moment, and there is a risk that this becomes a self-fulfilling prophecy, with lower investment weakening confidence further.
Clearly business would like to see more progress in the Brexit negotiations, with the talks moving on to sorting out our future trading relationship with the EU, but it seems that companies will be kept waiting for the details they need to allow them to plan. This makes it all the more important that the UK Government does what it can now to tackle the investment chill.
Knowing that there aren’t vast sums of money lying around in the Treasury, the IoD focussed its Budget submission on targeted measure to encourage investment in mid-sized and entrepreneurial companies, such as raising the Annual Investment Allowance to £1m per year, and liberalising tax incentives for putting funds into growing companies, including Venture Capital Trusts and the Enterprise Investment Scheme.
The IoD has also urged the Chancellor to take action on business rates, an issue for many members. The current small business relief only applies to the cheapest properties, but we’ve called for the threshold to be substantially raised so that companies in premises with rateable values up to £100,000 get some relief.
You can read the IoD’s full wish-list here, not just on tax, but also key changes we are asking for on infrastructure and skills. Business are keeping their end of the bargin, with economic growth and employment holding up, now it’s time for the Government to lend them a hand.
Edwin Morgan, Interim Head of Policy, IoD
Edwin Morgan is Interim Head of Policy at the Institute of Directors. He joined the IoD shortly after the 2010 General Election.
He has represented the interests of the Institute’s 30,000 members through the ups and downs of the Coalition Government. Alongside the IoD’s team of policy experts, Edwin is responsible for making the case in the media for competitive markets and a business environment which enables job creation and economic growth.
Previously, Edwin worked as a civil servant at the Office of Fair Trading and the Department for Transport. He studied English at Bristol University, and holds a Masters in Creative Writing from Goldsmiths, University of London.