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Budget 2017: What companies want Philip Hammond to announce, from housing to retail

There is speculation that the chancellor might announce a cut in stamp duty for first-time buyers to help young people get onto the property ladder

Charlotte Ryan,Alex Morales
Monday 20 November 2017 11:23 GMT
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The Chancellor is not expected to offer a feast of giveaways on tax and infrastructure investment in his annual budget on Wednesday
The Chancellor is not expected to offer a feast of giveaways on tax and infrastructure investment in his annual budget on Wednesday (PA)

High hopes and low expectations. The phrase sums up the attitude of companies as they look to Chancellor Philip Hammond to send a message that Britain remains open for business while heading out of the European Union.

With a reputation for being fiscally conservative, Brexit weighing on the economy and the tendency for governments to save big spending for later in their terms, Mr Hammond is not expected to offer a feast of giveaways on tax and infrastructure investment in his annual budget on Wednesday.

His limited fiscal room is more likely to be used to boost pay for public-sector workers and provide additional funding for the NHS, commitments demanded by anxious Conservative MPs in the wake of June’s general election disaster.

Bloomberg spoke to representatives from a range of industries, as well as investors and strategists, to find out what they want from the Autumn Budget — and how likely they are to get it.

Homebuilders

Help to Buy is due to run until 2021 and has just received an extra £10bn of funding. But builders investing in sites now want clarity about its longer-term fate, said Home Builders Federation spokesman Steve Turner. The housing industry also wants to see assistance for small builders to fund projects and proposed planning reforms enacted, issues that Mr Hammond said he will address as part of proposals to build 300,000 homes a year.

There is speculation that the chancellor might announce a cut in stamp duty for first-time buyers to help young people get onto the property ladder. Only the first £125,000 of a property purchase is exempt from the levy, but the average UK house price is now more than £225,000. In London, where the average is almost £500,000, stamp duty accounted for more than a third of median full-time earnings last year compared with just 7 per cent a decade earlier, according to researchers at the London School of Economics.

Prospects: “The prime minister has nailed her colours to the mast” by making housing a priority for her government, said Mr Turner. Theresa May promised the government would go further “in the coming weeks and months” to ensure more homes are built when she visited a housing development in north London last week, although there are said to be divisions between the prime minister and the chancellor over the issue. On Sunday, Mr Hammond told the BBC that the Government won’t “pour money in” but pledged to use the “powers of state” to get houses built.

Retail

The sector wants business rates — a tax on commercial premises — frozen in April 2018 and the Government to bring forward plans to link annual increases to consumer prices rather than retail prices. The levy, which helps fund local services, is due to rise by almost 4 per cent in April. It would increase by only 3 per cent if it was indexed to the CPI, something the Government plans to do in 2020. The British Retail Consortium says relief is needed to help firms struggling to cope with a range of other government-imposed costs as well as higher import prices. The BRC also called on Hammond to keep down the cost of living by holding income-tax rates and accelerating planned increases in the amount people can earn before paying tax.

Prospects: Both the retail and banking sectors have called on the government to revisit business rates after a revaluation in April — the first in seven years — left many firms facing higher bills. As the tax is based on annual market rent, cost increases have been particularly acute in London, where property values have risen sharply in the past decade.

Tax

The Confederation of British Industry is calling on the Government to “send signals that the UK is open for business” by committing to phasing out the corporation-tax surcharge on banking profits and exempting new plant and machinery investments from business-tax calculations. The chancellor is also under pressure to tackle tax avoidance in the Budget.

Prospects: “There hasn’t been a political vision set out on tax and spend by this chancellor and this government,” Emily Andrews, a researcher at the Institute for Government, said in an interview. “We’re not expecting anything big from this budget.”

Car industry

Demand for new cars is being dented by weakening consumer confidence and confusion over the future of diesel vehicles. The Society of Motor Manufacturers and Traders wants the Government to reassure consumers that the latest low-emission diesel cars won’t face bans, charges or other restrictions after the Government announced an end to the sale of fossil-fuelled vehicles from 2040.

Prospects: Rather than reassurance, owners of diesel cars could be hit with higher taxes following the budget, a recent newspaper report suggested. Mr Hammond will also announce government support for the development of driverless cars, he said on Sunday, with a goal of seeing them on the roads “without the safety attendant” by 2021.

Other demands by industry:

Tidal Lagoon is hoping for a government-backed contract to build a tidal power plant in Swansea Bay, south Wales

The Scottish Whisky Association is pushing for a cut to the 80-per cent tax burden on a typical bottle of Scotch

Airlines want the air passenger duty to be cut, with Heathrow Airport boss John Holland-Kaye the latest to back the measure

Currency and Fixed-Income Markets

With the pound weighed down by uncertainty over Brexit, it would take a big fiscal expansion to boost the currency, says Neil Jones, head of hedge fund sales at Mizuho Bank.

“We need something a bit special for the pound to rally, something that puts money in people’s pockets,” said Jones. “If there are no expansionary measures to speak of, the pound will likely sell off again.”

On the other hand, investors in gilts want the status quo to be maintained to avoid pushing prices down by flooding the market with extra debt, according to Paul Rayner, head of government bonds at Royal London Asset Management.

Prospects: Jones says he is “not optimistic of any fiscal fanfare” as Hammond is expected to continue with his budget-cutting strategy. Mr Rayner agrees, saying there would have to be a “complete sea change in the Conservatives’ and the Chancellor’s thinking in terms of austerity,” meaning he is not worried about gilt yields rising.

Bloomberg

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