For the Conservative Party, it was enough that 2017’s Budget announcement passed without much incident. There was a smattering of jokes, and scattered bits of good news: more money for the NHS, house building and Brexit planning, and a suite of protections for businesses.
A couple of days beforehand, however, David Davis seemed to be fighting for Britain’s future. Speaking at a United Bank of Switzerland (UBS) sponsored conference for banks, he must have been aware that UBS plans to relocate its staff to Paris after Brexit. And the consensus from EU negotiators (and some of the UK’s own Non-Profit Organisations) has been damning: the UK isn’t being clear enough about its future.
So with the UK’s economic plans laid out for a year and Brexit negotiations in full swing, where does the UK stand? As always, it’s more a case of sitting on the fence. The signs for some industries are not positive, as much due to continued uncertainty as tangible issues. For others, however, the economic reforms and safeguards are likely to mean business rolls on unabated.
Doing the business
Chancellor Philip Hammond framed the budget as a move away from austerity, and for some it has paid out. Small businesses will benefit from a two year freeze on the VAT threshold from April 2018, which at £85,000 remains one of the most generous in Europe.
Business rates are also due to be reformed next year, with calculations shifting from the Consumer Price Index (CPI) to the Retail Price Index (RPI), saving an estimated £2.3 billion over the next five years. And the ‘staircase tax’ for businesses occupying multiple floors is being reformed, with the result that hundreds of millions will likely be refunded by local authorities.
Businesses which do a lot of travelling also stand to benefit. Rates on short and long haul economy flights are to be frozen, while diesel vans will be exempted from harsh tax penalties to other diesel drivers. Digital infrastructure meanwhile will benefit from £500 million of support, while £2.3 billion of R&D funding and a 12% exemption will cover the loss of European schemes.
Some of the less business friendly measures are still acceptable, too. A clampdown on online marketplaces will force corporations to check that foreign sellers have registered for UK VAT, potentially recouping hundreds of millions in lost revenue. And the national minimum wage is due to rise by 4.4%, well above inflation.
In other areas however, the UK’s pending difficulties loom large. The Chancellor has dedicated £3 billion to ensuring a smooth Brexit process, a bigger raise than has been given to the NHS, although yearly NHS funding still dwarfs this. More concerningly, productivity is completely static, at a time when productivity rates are recovering strongly across the continent.
There is a sense with Brexit that things have stalled slightly. Manufacturing is still riding strong on a weak pound, and consumers are continuing to spend. But wages are not predicted to grow above inflation for another 20 years, and progress in the Brexit talks is similarly static. Forecasts can be wrong, but the very suspicion that people and businesses might leave after Brexit is enough to, unfortunately, make people and businesses leave.
The banking sector seems like it will be the first out of the door. Thanks to a potential loss of ‘passporting rights’ - the ability to move workers and provide services around Europe - numerous banks have spoken openly of their plans to leave. Solid plans and contingencies have been aired for moves to Paris, Frankfurt, Amsterdam and Dublin, among others.
The European Banking Authority is about to relocate to Paris, and the Medicines Agency has already moved to Amsterdam, while European clearing houses are unlikely to be allowed to stay in London. The combined effect is already guaranteed to mean hundreds of millions in lost tax revenue and business trips.
Where some see problems, others naturally see opportunities. The aforementioned cities have all courted businesses seeking to move out of the UK, with Ireland making a particularly strong push. And UK businesses will remain resilient. The UK remains the world’s fifth largest consumer market, and its welcoming business environment will likely make it a favourite for years to come.
Ultimately however, it seems that a shifting of power is in progress. The divesting of financial services from London will be to the benefit of other countries, and will help to distribute risk. And the sight of billions in R&D, 5G, fibre and AI funding in the UK Budget may be a positive sign for the UK economy. With its core industry under threat, the government may be setting its sights on the future.
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