KPMG responds to Hammond’s first Spring Statement

Posted On: 
14th March 2018

Professional services firm KPMG analyses the Chancellor’s first Spring Statement.

The UK needs to address productivity
James Stewart, Vice Chair

The Spring Statement contained few new details, but it was reassuring to see the Chancellor refer to Britain’s productivity challenge in his response to the OBR’s forecasts. Tackling this challenge is vital as we prepare for Brexit and look to improve our infrastructure in important areas such as technology, roads, railways and airports to connect business with employees and customers across the UK.

If UK productivity is going to improve, the Government’s Industrial Strategy must fix these imbalances and offer greater support to the regions and their leadership. We welcome greater investment in the UK’s workforce and encourage investment in new technologies to accelerate growth in our economy.

International consensus needed on digital economy taxation
Melissa Geiger, head of international tax

The Government has clearly listened to the consultation feedback on taxing the digital economy and is taking a bold step in stating its position to help shape the international debate. It is encouraging that the Chancellor will take the issue as a talking point to the upcoming OECD Forum.

Tax authorities are frustrated by the inability to appropriately tax digital businesses and have a real appetite to secure revenues that adequately reflect how and where value arises. At the same time, we can’t forget that businesses are also still getting to grips with BEPS, struggling with complex UK reforms, such as losses and corporate interest restrictions, and responding to the impact of US tax reform.

The way we tax the digital economy must change, but first efforts will need to be made in finding an international consensus so that tax authorities can engage collaboratively with the digital economy.

Dramatic tax hike could erode UK plastic addiction
Barbara Bell, environmental tax director

If the Chancellor really wants to kick the UK’s plastic addiction any proposed tax hike would need to be significant. For example further increasing the cost of a plastic bag from 5p to 10p would do little to change behaviours but if you suddenly have to pay £1 for carrier bag, I think sales of shopping trollies would rise!

If done properly, tax policies can be effective in changing long-term consumer behaviours. The landfill tax is a perfect example of that. Tax has been the driving force for reducing the amount of waste dumped on landfills as well as the multitude of recycling initiatives we are now familiar with.

The Chancellor will also want to remember that a truly successful environmental tax will erode itself in time. So, whilst initially a one-use plastic tax could fund green research, if executed with care, it won’t be a long-term source of income. Anything less than a dramatic tax hike would appear a fund-raising exercise for the government rather than a real attempt to clean-up our act.

VAT reform unlikely until after Brexit
Simon Shaw, partner and head of indirect tax

“Efforts to address small business concerns over VAT are welcome. But, any radical reform to the VAT system will be held back by European Union directives until after Brexit. For the time being, we are unlikely to see anything major. This is a shame because the burst of entrepreneurism that the UK needs to unleash after March 2019 will rely on small businesses standing on the best possible footing.

“For smaller businesses, the VAT threshold is not as straightforward as taking the VAT bill on the chin when taxable turnover reaches £85,000, which is a limit that the Chancellor announced last year and will be frozen for two years.

“Difficult decisions need to be made by business owners as to whether they should even consider pushing sales beyond the threshold, or whether the extra cost can be passed on to customers and woven into the business model. The answers to these questions will differ greatly between sectors, products and services.

“A consultation on smoothing the current registration cliff edge and a call for evidence has been issued today. It includes many financial and administrative options that could encourage entrepreneurs to seek out growth opportunities and not have their ambitions limited by a hard threshold.”

Housing announcements will boost investment in West Midlands
Karl Edge, Midlands Regional Chairman

A real boon for the West Midlands is the announcement of a £350m investment for a major housebuilding programme in the region. It’s no secret that the housing shortage is a major issue in our local community, and in our recent productivity report, it was one of the top four priorities in need of addressing to help boost productivity.

With the fractured economic landscape the UK is currently facing, this investment will not only help address the urgent housing need, but also boost the region’s confidence and attractiveness for investors.

However, housing is just the start, and some questions remain. For example, how many of the 215,000 homes will support inclusive growth through initiatives like social housing? We’ll need to take a closer look as further details emerge over the coming days. Nevertheless, this is a positive step forward for the West Midlands – our time really is now.