PwC’s Spring Statement predictions

Mar 09, 2018

Ahead of the Spring Statement on Tuesday 13th March 2018, PwC experts share their predictions.

Economics

John Hawksworth, chief economist at PwC, said:    

"The Spring Statement is likely to focus on the OBR's new economic growth and public borrowing forecasts. On growth we would not expect any major changes from the projections the OBR made in November, although GDP estimates could be edged up slightly in the short term to reflect a somewhat stronger global economic outlook.

“On public borrowing, the latest figures suggest a significant undershoot in 2017/18 with borrowing likely to come in at just over £40 billion compared to the OBR's November forecast of £49.9 billion. A large part of this undershoot seems likely to carry through to later years, but there could be some offset from higher debt servicing costs, as market expectations of future interest rates have increased somewhat since November. We would still expect projected public borrowing to be lower in the medium term than the OBR forecast in November.

“The Chancellor would be prudent to keep any such windfall in reserve as a buffer against future economic shocks, including uncertainties around the outcome of the Brexit negotiations. We would, however, expect to see more significant tax and spending announcements in the Budget in November."

Tax

Stella Amiss, head of tax policy at PwC, said:

“The Chancellor appears to be steadfast about not announcing any major tax changes on 13 March. This is good to see, from a legislative and practical point of view, it makes sense to have one major fiscal event a year, allowing a decent amount of time to consult and appropriately shape any measures that will be announced at the Autumn Budget.

“Knowing that there should be no unwelcome surprises on Tuesday in the form of immediate changes will provide a degree of comfort for business. In fact, free from the expectation of setting rate changes, the Spring Statement should provide the perfect opportunity for the Chancellor to set out a long-term vision for taxation in a post-Brexit Britain. As traditional sources of tax erode, the country needs an open debate on the different tax scenarios once the UK has left the EU and the trade-offs they would involve.

“While there will be no major tax changes, it seems probable that there will be some developments in significant areas for tax in the form of a series of consultations - a number remain outstanding following the Autumn Budget. These could fundamentally impact future tax policy in a number of areas. The taxation of digital business and a further focus on off-payroll working could well continue to feature high on the agenda.”

Taxing digital

Stella Amiss, head of tax policy at PwC, said:

“The Financial Secretary to the Treasury has reiterated a keen focus on the amount of tax currently levied on certain areas of digital businesses - questioning whether revenues from UK customers are appropriately captured and taxed in the UK under current rules. This is not something that is unique to the UK, the international rules are under review, with an EU update on potential changes expected later in the month. However the Government may well look to build on the paper published last Autumn to consider introducing an interim measure. Initial proposals favoured a revenue based tax aimed at certain digital business models where the gap between the value generated from the UK customers and the tax paid is perceived to be the greatest.

“The Government has said that the digital tax measures - interim and long term -  should have some degree of coordination with other countries. However, an announcement or clarification of the interim measures appears almost inevitable even though it would pre-empt the release  of the European Commission and the OECD’s proposals which are due to be formally published in the coming weeks.

“While the Government is faced with a dilemma on how to tackle the taxation of digital businesses, any unilateral move ahead of the ongoing international efforts to agree a collaborative and joined approach could send a negative signal to businesses which will be looking for clear direction of travel on policy, open and thorough consultation, appropriately targeted measures and full cooperation with the international community.

“As the digital is economy is becoming all encompassing and the boundaries between the digital and non-digital economy become more blurred, it makes sense that the long-term measures are discussed at a global level to avoid ending up with an unworkable hodgepodge of rules that are difficult to navigate and could result in the same income being taxed many times over.”

Off-payroll working

Julian Sansum, employment partner at PwC, said:

“The tax treatment of off-payroll workers has been an area of significant focus in recent months. At last Autumn’s Budget Statement, the Government announced it would consult on how to tackle non-compliance in the private sector with the existing IR35 rules - which address the taxation of workers providing their services through intermediaries.  The consultation is likely to extend the recent IR35 public sector reforms to the private sector.

“The full proposals are most likely to be published at the time of Tuesday’s Spring Statement, with implementation expected in April 2020. However, the Chancellor may see the changes already made in the public sector as setting out a clear path and choose to accelerate the timetable, with a view to extending them to the private sector as early as 2019.

“At a time when the flexibility of the contractor workforce is key to the changing world of work and future growth, it’s important that any proposals are appropriately targeted and businesses have the opportunity to feed into the process.”

Business rates

Phil Vernon, head of rating at PwC, said:

“Further movement on the freezing of business rates is unlikely since the Chancellor already committed at the 2017 Autumn Budget to calculate the annual increase in line with CPI inflation index rather than RPI from April this year.

“A number of consultations remain outstanding following announcements made at the Budget. It’s possible that the Treasury could see Tuesday as the time to publish a response to the outstanding consultation on ‘delivering more frequent revaluations’. This will require more regular information to be submitted by taxpayers and could herald the transition to a self-assessment rating system by 2022.”

Ends.

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