Published: 25 November 2016
Chancellor Philip Hammond has announced he will invest in digital infrastructure and faster 5G broadband, and introduce more tax breaks for small businesses.
Chancellor Philip Hammond has delivered his first Autumn Statement and Spending Review, promising a host of funding towards the digital, tech and science industries, but neglecting to mention the creative and arts industries.
Digital and tech
In his Statement, Hammond praised the “cutting edge British businesses which are leading the world in disruptive technology”, and said the country “does not invest enough in research, development and innovation”.
He also said he wants to tackle the productivity gap, stating that the UK falls behind other European countries such as Germany and France in terms of how productive workers are.
So he has announced a £23 billion national productivity investment fund which is aimed at science and tech development over the next five years to help build “innovation and infrastructure”.
Hammond did not mention any funding aimed at the creative or arts industries.
He also praised the UK’s “world class digital infrastructure”, and said that his ambition was for “the UK to be the world leader in 5G”.
5G is expected to launch in 2020 and will be significantly faster than 4G, with download speeds estimated at 1000 times faster.
He will be investing over £1bn in digital infrastructure to develop fibre networks and complete 5G network trials.
Hammond says he intends to make it easier for UK businesses to export, stating that he wants to make it clear that “Britain is open for business” following Brexit.
He aims to put more money towards developing management skills in businesses, and wants to help small start-up tech firms to develop and grow rather than being “snapped up by bigger companies”.
He has therefore promised £1bn of finance for new companies, and also wants to increase economic growth and productivity in UK cities outside of London through devolution.
“My priority is to ensure that Britain remains the number one destination for business,” he said.
Tax breaks for small businesses and low-paid workers
He has also promised to increase tax breaks for small businesses in rural areas, giving them a break of £2,900 per year, and will be cutting corporation tax for companies down to 17%.
By 2020, he will be increasing the wage at which people start to pay tax to £12,500 per year – which may affect those undertaking design internships, for instance – and will raise the wage for the higher tax bracket to £50,000 per annum.
National Living Wage will also increase by 25p per hour by April 2017, going up to £7.50, which is the equivalent of a £500 pay rise per year for a full-time worker.
Conservation of historical sites
Hammond did not mention preservation or conservation of any museums or historic sites, apart from Wentworth House, a Grade I listed privately-owned house based in Rotherham, for which he pledges £7.6 million towards “to save”.
Last Autumn Statement
This will be the last Autumn Statement, as Hammond announced it will be scrapped and the HM Treasury will no longer make two sets of announcements per year based on economic forecasts.
The annual Budget will now take place in Autumn, and a Spring Statement will respond to the forecasts from Autumn. “No other major economy makes hundreds of tax changes twice a year, and neither should we,” he said. But he added that if there were “unexpected changes to the economy”, he would change the rules if necessary.
Mike Hayes, tax partner, Kingston Smith LLP
Many employers allow employees to reduce their salaries and take benefits instead, with the benefits taxed more favourably. This is to be stopped from April 2017 with the exception of pension contributions, child care, Cycle to Work schemes and low emissions cars.
Agencies that provide staff with tax exempt benefits, such as mobile phones, under a salary sacrifice scheme will now lose the ability to offer this perk. The changes suggested will create an imbalance between existing staff and new recruits. New recruits may be able to negotiate the package they want, so start with a lower contractual salary and benefits package; whereas existing staff will be prevented from changing the way in which they are paid without falling into this new anti-avoidance regime.
Businesses in the design sector which provide flexible benefits will find that their employees will have increased tax bills.
The rules on domicile will change as expected from April 2017. Currently, non-domiciled individuals – UK residents who have their permanent home outside the UK – do not always have to pay UK tax on foreign income. Now, they will be treated as being UK domiciled if they have been resident here for 15 out of the previous 20 tax years.
Businesses employing individuals from overseas who have been here for a number of years will need to be aware that the UK tax liabilities for these employees may well increase. In some cases, it might mean that such workers find that they will better off leaving the UK. This could lead to some companies losing valuable staff.
Change to R&D relief
An additional allocation of £2bn per annum for research and development (R&D) tax relief has been announced. Details have not been published on whether this is simply an increase in the relief or a widening of the scope. Hopefully, a widening of the scope to cover innovation will be forthcoming, as that will be important for design businesses. Even so, R&D relief can be available as it stands – and some businesses don’t appreciate that they already qualify.”
Deborah Dawton, chief executive, Design Business Association (DBA)
“We’re delighted to see that our three key requests of Government in this Autumn Statement have been addressed.
A review of the tax credit environment for R&D gives us the opportunity to lobby more vigorously for an expansion in their scope to capture areas of investment that are currently missing from the system – we’d like to see the full scope of design’s intervention in business recognised. This review will also allow us to put forward solutions to overcoming the ambiguity that exists in the market about eligibility. Many more design businesses, and their clients, should be taking advantage of this tax break and aren’t.
Public investment in R&D also sends a positive message to business about growing their level of investment in R&D, given the current caution being exercised.
The Government’s pledge to support the market to roll out fast broadband is critical for DBA members’ clients to compete in markets that rely on their products and services being fully connected. The opportunities open to business with the internet of things, augmented reality and other technologies are there for taking and the Government’s commitment will enable innovation in this space to happen at a faster rate.”
Sally Benton, director of policy and communications, Design Council
“Today’s announcements by the chancellor on growth, innovation and infrastructure are welcome. Design will be central to turning these proposed investments into tangible successes. To create the conditions for economic growth, we must pursue a relentless focus on innovation.
To do this we must build the nation’s skills base and create environments for people to live, work and thrive in. Innovation doesn’t succeed without designers and the new funds announced today and on Monday must recognise the value of design across the economy in order to have the most impact.
Good design has always driven prosperity in the UK. It is now time to value it, understand it and truly connect it into long term strategies for growth.”
Katie Gallagher, managing director, Manchester Digital
“The government’s proposed £1bn investment into digital infrastructure is a welcome move.
If we are to compete globally, and our infrastructure is to be the ‘gold standard’ envisioned by government, then this innovation will play a crucial part. It is worth noting that currently only 2% of premises have access to full fibre broadband so there is a huge task ahead.
There is still no publicly agreed standard for 5G but the chancellor’s announcement and commitment of funding to roll out trials is great news.
We are in agreement with Hammond that for too long investment has been focused on London. We look forwards to hearing more detail on what this will mean for the North and specifically Manchester.”
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