Wednesday’s Budget will be the first official Budget to take place in autumn for more than 20 years. If the Chancellor keeps his promise to stick to one major fiscal event a year, it will also be the penultimate Budget before Brexit. That means just two bites of the cherry to ensure we have a ‘Brexit-fit’ tax system and to set out a fiscal vision for the UK’s future outside of the EU.
A post-election budget might normally be considered the time to raise taxes, with giveaways kept back until closer to the public next going to the polls.
But the Chancellor faces the challenges of an impending Brexit and a minority Government. While our recent polling suggests that people would be prepared to pay more tax for key public services, the Chancellor will be mindful of the failure and fallout from the recent attempt to increase reform around National Insurance contributions for the self-employed at the last budget.
While significant new legislation is unlikely, there is nothing to stop the Chancellor giving more clarity around a proposed direction of travel to address issues such as the productivity gap, intergenerational inequalities and housing.
So what can we expect?
The economy – how will Northern Ireland fare?
We project UK growth to slow gradually from around from 1.8% in 2016 to around 1.5% in 2017 and 1.4% in 2018. The slowdown will be felt across most major industry sectors, although manufacturing exports may receive a short-term boost from the depreciation of the pound and stronger Eurozone growth.
The forecast slowdown in UK growth will be primarily a result of a slowdown in consumer expenditure, with real spending power squeezed as consumer price inflation increases faster than earnings growth.
Northern Ireland is expected to end the year with annual growth of around 1.1%, the lowest of all 12 UK regions and well below the UK average of 1.5%. Looking to 2018 and, while London has generally had one of the strongest growth rates of any UK region, our latest projections suggest London’s growth rate may fall to close to the UK average of around 1.4% in 2017-18.
This is partly due to the greater exposure of some London activities (e.g. the City) to adverse effects from Brexit-related uncertainty, as well as growing constraints on the capital in terms of housing affordability and transport capacity. Most other regions are projected to expand at around the UK average of 1.4% in 2018, although Northern Ireland is predicted to lag behind somewhat with growth of around 1% next year.
Dr David Armstrong, partner with PwC in Belfast said:
Janette Jones, tax partner at PwC in Belfast said:
The Government has been committed to reducing corporation tax to 17% by April 2020 (it currently stands at 19% - the lowest in the G20). However, speculation abounded when HM Treasury did not dismiss out of hand a recent OECD suggestion to reverse the planned cut and target the additional funds on solving the UK’s productivity puzzle.
Northern Ireland’s long-awaited devolution of Corporation Tax is now looking increasingly remote and certainly won’t be fully in place by the middle of 2018 as originally proposed. In addition, as the UK rate has fallen sharply to the proposed 2020 level of 17%, the difference between that and 12.5% may not be enough to boost Northern Ireland’s international competitiveness.
Stella Amiss, head of tax policy at PwC, said:
A recent PwC survey found that 43% of people consider the implications of stamp duty before buying a property. Despite the recent removal of the ‘slab system’, which cut stamp duty for those buying homes under £900,000, further changes could be on the cards.
Rob Walker, head of real estate tax at PwC, said:
The approach to taxing the digital economy is currently under review by the OECD, UN and EU. HM Treasury is actively participating in these discussions and has indicated that the UK will consider amending its taxation framework to address growing digital activity within the UK economy, particularly in relation to UK taxable presence and VAT.
Alenka Turnesk, partner at PwC, said:
Current opportunities in Northern Ireland
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