What impact will the UK Budget have on us?
Well, the first key message is that UK economic growth forecasts have been cut. This was blamed on lower productivity, but of course Brexit is a key backdrop, with higher prices in the shops due to a fall in sterling cutting spending power and business uncertainty hitting investment, The independent Office of Budget Responsibility has cut its 2017 GDP growth forecast from 2 per cent to 1.5 per cent, with growth to slow to 1.4 per cent next year and 1.3 per cent in the subsequent two years. Slower growth in one of our key trading partners is obviously a concern for us – as is the possibility that it could be worse if there is a hard Brexit.
The budget outlook will not do much to settle nerves about the risks facing the UK economy and thus sterling is likely to remain vulnerable to any bad news on the economy or the Brexit talks - though it may rise if there are signs of progress in the talks. With the currency trading close to 89p against the euro, any further weakness would take it into the 90p-plus territory for poses problems for our exporters.
So was there a lot about Brexit in the budget?
While there were a lot of smaller detailed measures in a bitty budget, this backdrop of slower growth – and Brexit – lies behind it all.The chancellor went out of his way to say it was "not all about Brexit." But with the entire outlook for the UK economy depending on Brexit, it was hard to escape. Increasingly, Hammond started by reiterating the need for what he called an implementation period - after Britain leaves the EU in early 2019, but before a new trade deal is finalised and implemented. Such a transition is of vital national interest to Ireland to avoid the disruption of a hard Brexit. The chancellor also set aside £3 billion (€3.4 billion) for Brexit preparation, though this is unlikely to ease concerns in UK and Irish businesses about whether UK customs will be ready to go when Britain leaves if a new customs regime comes into force immediately.
Were there other moves of direct relevance to Ireland?
Yes. There was one in particular. The chancellor is looking at ways to extract more tax from the big digital companies. This is in line with international moves – the OECD is already studying this issue and the big EU countries have proposed a special tax levied on the sales of these companies, a proposal which Britain says it supports in outline. In the interim, the chancellor signalled a move to impose tax on sales made to customers in the UK, where the proceeds have been transferred to an entity in a low-tax country which holds the company’s intellectual property(IP) assets. This would be via a special withholding tax on a royalty payment made from one subsidiary of a company to another, which is a way big companies have used to legally shelter money from tax. With some big players using Irish subsidiaries to sell into the UK and other markets this may have an impact on some US companies with European HQs in Ireland. The devil will be in the detail, which will be finalised after consultations with the industry and tax experts, and the tax target of just £200 million per annum suggests the initial plan may be modest. However it is part of a general international trend which poses threats to our corporation tax revenue and to the tax system we have used as one factor to attract multinationals to invest here.
Anything else for us to learn from the budget package?
Mainly that the British government is facing some of the same problems as the Irish government, notably shortage and affordability problems in the housing market, the need to promote regional development and the green agenda. Housing was the main source of new measures, including a £44 billion programme of investment and grants, a major building programme on the Oxford-Cambridge corridor and a big increase in the ability of local councils to hit people with vacant properties with higher charges. A muted vacant property charge has also been considered here, but has been shelved for the moment, partly due to fears that large numbers of such properties are owned by elderly people. The Government here will watch what happens in the UK, as it has committed to examine the issue further.
The big budget rabbit was the abolition of stamp duty for first time buyers on properties up to £300,000 – and the exemption of the first £300,000 in on properties up to £500,00. The government was immediately criticised for the stamp duty measure, which the Office of Budget Responsibility said would just lead to higher prices, a similar debate to that surrounding the Irish help-to-buy scheme. Hammond also increased tax on diesel cars and put new funding into electric car charge points . He froze taxes on almost all alcohol products and tobacco, which will do nothing to ease fears of cross-Border shopping here in the run up to Christmas, especially if sterling remains weak.
