EY’s Autumn Budget 2017 predictions

Posted On: 
15th November 2017

Chris Sanger, Head of Tax Policy at EY, predicts what he expects to see in Hammond’s first Autumn Budget. 

This Budget, as the first one of a Parliament, would normally be expected to be full of bold moves, where the Chancellor builds a war chest to utilise later in the Parliament.  However, in this case, with a minority Government, and business and citizens struggling to understand what the future of the UK will be following Brexit, the Chancellor may seek to buck this particular trend. 

Even if he does seek to keep this first Autumn Budget for two decades a low key affair, we can still expect it to have elements to address those factors that were identified as reasons for the election result.  And, with the move to a “single fiscal event” and the downgrading of the Chancellor’s Spring appearance to merely an economic statement, the Chancellor may be forced to include some measures he might have wanted to leave for six months.

Business tax

With all the uncertainty, whether from the delayed implementation of the post-election Finance Bill, the complexity of the legislation being introduced to deliver on the G20/OECD Base Erosion and Profit Shifting (“BEPS”) project, or just Brexit, businesses are looking for some stability.  We can expect the Chancellor to update on the Business Tax Roadmap, this time perhaps adding a bit more detail to how he wants the tax system to look at the end of the five year parliament.

The Coalition Government identified four elements of tax competiveness: tax rate, tax base, tax policy making and tax administration. We can expect the Chancellor to focus on all four areas, reinforcing the message that, at 19%, the UK’s corporation tax rate is the lowest in the G20 and that BEPS is leading to an alignment of tax bases across the world.  The move to the single fiscal event (moving the Budget to the autumn and stopping the new Spring Statement from being a mini-Budget) will feature on the policy making side, with greater focus on engagement and rigour in policy making. Finally, on tax administration, the consultation on business risk reviews and the focus on cooperative compliance will feature.

But beyond this explanation, we may also see some initiatives and action. Following the past consultations, and action for smaller businesses, the Chancellor may decide that now is finally the time to address the increase in business rates on all businesses. With the business rates at 47.9% being applied to revalued property, we have seen a significant increase in the burden of this tax, which has averaged 41.4% over the last three revaluations.  Such an increase in tax rate has occurred gradually but nonetheless represents an increase of over 15%, affecting those businesses which require property, such as manufacturing and high street retail.  Cuts now could boost investment prospects but may require additional funding to local government.

With the focus on productivity, the Budget might include some incentives for investing in capital, with increases in the rates of capital allowances or the Annual Investment Allowance (potentially reversing the recent reduction in the annual investment allowance from £500,000 to £200,000, providing the relief up front, something that is included in the latest plans for tax reform in the US).  More substantively, we could see a systematic review of the incentives that the tax system creates towards investment, which could give rise to restoring relief for spending on industrial buildings and potentially going further.  At a time of uncertainty, the UK’s prospect for foreign direct investment could benefit from the boost that these policy changes would deliver.

Housebuilding and property taxation

Another area of concern has been the shortfall in housebuilding, but the Chancellor has not yet felt the pain in his pocket. So far the recent changes to stamp duty land tax (“SDLT”) have generated £8.6bn in SDLT in 2016-17 on just over 1m residential property transactions, 17% up on 2015-16.  However this increase disguises the real story.

On the face of it, the recent stamp duty changes have been a success for the Exchequer. However, digging deeper, the increase in revenue has comes from the additional 3% charge on second homes and buy-to-let properties, and disguises an 8% drop in transactions on average across the country.  This has a particular impact in London, as SDLT on residential property is progressive, with 30% of the SDLT receipts being paid by the 2% of properties that are sold for more than £1m.  London transactions are down 16% and new home starts are 30% lower than in 2015.

With residential transactions now at their lowest level since before the financial crisis, the Treasury should be considering whether the current system is delivering the right support for the housing market both in terms of numbers of transactions and the delivery of new homes.  SDLT can act as a significant impediment to purchasing property and to the development of new and affordable housing stock, something that is a clear objective of the Government and indeed the London mayor.


Bruised from the abandonment of the increase in national insurance on the self-employed at the last Budget, the Chancellor might be more cautious this time.  However, one area of focus could be the extension of the off-payroll worker rules that currently only apply to public sector bodies.  These rules move the obligations for operating the disguised employment rules (the so-called IR35 provisions, named after the Inland Revenue press release that first discussed them) from the personal service company up the contractual chain, potentially right to the public service body.

The Chancellor could consult on extending these rules to all companies, thereby including the private sector. The current rules are proving problematic to operate and are driving the wrong type of behaviour so we might expect a period of consultation and evaluation before the rules come into force, potentially in April 2019.

Another tax increase under contemplation could be an increase in the dividend tax rate.  Whilst we saw a reduction in the allowance in the last Budget, the tax was introduced to offset the benefit of working through a company but the rate was not increased when the corporation tax rate was reduced.

More widely, Matthew Taylor’s review of workers has reported and this provides the opportunity to revisit the taxation of those workers closely connected to particular employers, potentially aligning any tax reform with reform over workers’ rights.

There is the possibility of making the extended definition of a ‘worker’ subject to national insurance contributions (employer and employee). Alternatively we could see more clarification on classes of worker for indirect pay arrangements. Will there be some grandfathering of arrangements?

With a review of modern employment practices already underway, this is an area that looks set to see a fundamental review of its tax and social security treatment. This is a complex area, where tax rules can diverge significantly from employment law. In launching such a review, the Government should start at the ‘green paper’ stage, considering a range of issues rather than jumping straight to the conclusion.