Brexit crisis to overshadow Spring Statement

The Chancellor’s Spring Statement this afternoon takes place against a backdrop of continued and deepening crisis over Brexit and is likely to prove no more than the ‘filling in the sandwich’ between further votes on the terms of the UK’s withdrawal, after the government’s deal was roundly rejected last night

Philip Hammond has previously made clear the Spring Statement is not intended to be a major fiscal event, although in his October Budget speech he reserve the right to upgrade it to a Spring Budget if he chose.

However, with the government losing the vote on prime minister Theresa May’s preferred withdrawal plan by 149 votes, with 391 against and only 242 in favour, that seems now to be ruled out.

Stella Amiss, head of tax policy at PwC, said: ‘With the Spring Statement potentially the filling in a sandwich of Brexit votes, a large scale fiscal event with significant funding announcements and tax changes appears to be off the table.

‘More probable is a summer “Brexit Budget”’ when a clearer picture of the UK’s future relationship with the EU should allow the Chancellor to set out something of a future economic roadmap.

‘Given all the other ongoing government business it’s unlikely we will see a firm announcement to set a date at this stage.’

The original plan for the Spring Statement was to provide an opportunity for the Chancellor to launch early tax consultations, to allow for an 18-month period, before inclusion in the Finance Bill, but this is also likely to be curtailed.

Chris Sanger, EY’s head of tax policy, said: ‘Last year’s Spring Statement provided a platform to announce some blue sky thinking and a number of consultations to advance UK tax policy, but with HMRC and the Treasury’s resources and focus since then diverted to Brexit planning, the cupboard is likely to bare few, if any, new consultations and ideas to put before the House.

‘This view is consistent with the launch in the last few weeks of some long-awaited consultations, including the plastic packaging tax and off-payroll working rules for the private sector.’

For example, Sanger pointed out that the tax response to the Taylor Review on the role of the self-employed is unlikely to be mentioned, given the focus the Treasury is currently putting in elsewhere.

‘What the Chancellor may include in his speech are some updates on a number of policies already in play. One of those, that is attracting the most attention, is the taxation of the digital economy. 

‘Under more normal circumstances, we might expect the Chancellor to update on where his thinking on the digital services tax (DST) is heading, considering there is a go live date of April 2020.

‘However, with Brexit votes on either side of the Statement, he may well choose to delay his decision until legislation day (L Day), around July, when he is due to publish the draft finance bill for consultation. He may in fact choose to publish other consultations on L Day, if Brexit negotiations have progressed further.

‘So whilst most Budget and Spring statements have a rabbit drawn out of the hat, this bunny may be able to rest undisturbed until called on to perform his Easter duties.’

Amiss agreed that immediate tax changes and a raft of consultations are unlikely to feature in Hammond’s speech, although she argued that with the deadline for Making Tax Digital for VAT looming, there was likely to be a status update on the readiness of both business and HMRC to deal with the new filing requirements.

Some predictions claim that the Chancellor will announce a consultation into new ways to fund Britain’s infrastructure, following on from his decision to axe the government’s controversial private finance initiative last year.

However, in other areas he is more likely to remain silent. George Bull, senior tax partner at RSM said: ‘Speculation that the Chancellor might publish a consultation or statement on the April 2019 loan charge is unlikely to be well-founded. If there are to be further changes to this hotly contested tax, we think that they will be left until the last minute.

‘Turning to consultations and reviews which are already in the pipeline, March is likely to bring the second phase of the Office of Tax Simplification review of inheritance tax. Concentrating mainly on administrative provisions, this second phase covers two very valuable reliefs: business property relief and agricultural property relief. The report will be published sooner rather than later, but whether it appears on Wednesday remains to be seen.’

Chancellor Philip Hammond is to deliver the Spring Statement to Parliament at around 12.40pm.

Report by Pat Sweet

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