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2018 Budget: Jam today, Brexit tomorrow

After last week’s Budget, this much we know: whether austerity is over or not, the Chancellor has chosen to spread as widely as possible the unexpected fiscal headroom found ‘down the back of the sofa’ by the OBR, in what the Opposition at least suspect is a pre-election splurge. Beyond the headlines, however, the 2018 Autumn Budget maintains a cautious holding pattern as the government feels its way to the Brexit finish line, or at least the first of them. Given the impenetrable economic mists in which the event took place, few bookmakers offered serious odds against this.

The good news for ABI members came, as last year, in the curious incident of the dogs that did nothing: the standard rate of IPT did not rise (put it down to the Britney effect) and, despite loose remarks about the ‘eye-watering’ cost, the Chancellor did not tamper further with pension tax relief. Nor was there radical action elsewhere to make funds available: HMRC lists 400 tax reliefs, but the Office of Tax Simplification has unearthed 1,156, mostly  long-forgotten. Another day, perhaps.

Furthermore, the Chancellor’s mooted ‘Digital Services Tax’ – popular, if currently unilateral, action against tech firms which represents a break from taxation of corporate profits - was targeted carefully enough to avoid collateral damage to, for example, insurance consolidators or investment platforms. Changes to the VAT Specified Supplies Order announced in July and effective from March have, further to consultation responses, been tweaked to target the perceived mischief involving offshore jurisdictions more precisely (rather than hammering the general terrain). In this area, HMRC has since circulated a revised VAT grouping notice in draft for (brief) consultation.

But as the Chancellor warned, this may be a Budget with a short shelf-life: whatever the impact of Brexit at some point either taxes or borrowing must rise if deficit and debt reduction are not to be postponed even more indefinitely. With little room to manoeuvre and most economic and political constraints in place, that decision has not yet been taken.

As the ‘Green Budget’ from the Institute of Fiscal Studies suggested last month, prospects for the UK economy are a landscape in which little is certain, although the biggest unknowns are at least known: whether a deal on the UK’s exit from the EU will be reached; what it might resemble if so; and its long-term effect on the economy. What a post-Brexit trade policy will be; whether a wider trend towards nationalism and deglobalisation continues; whether the City of London maintains its financial pre-eminence.

In relation to Brexit and its tax implications, representatives of the main financial service sector bodies have been meeting with HMRC and HM Treasury since the Summer. It would be a pleasure to advise that every sinew has been stretched to think freely and flexibly to accommodate the urgent needs of a business community operating on worst-case scenario bases, for lack of clear alternatives. Another day, perhaps. But at least at some point soon, some of the larger unknowns will start to become knowns.

Last updated 06/11/2018