2018 Budget: the end of austerity or a sticking plaster over the UK’s economic challenges?

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01 November 2018

Budget

This article was first published by the British Institute of Facilities Management (BIFM) which became the Institute of Workplace and Facilities Management (IWFM) on 12 November 2018.

Chancellor Philip Hammond delivered his latest Budget on Monday 29th October against the backdrop of financial uncertainty and political bargaining resulting from Brexit.

Headline announcements in Mr Hammond’s speech included increases in personal income tax thresholds, the previously promised additional investment of £20.5 billion a year in real terms by 2023-24 in the NHS, a £1.7 billion commitment to support the controversial Universal Credit welfare system and measures to help ailing high streets. Perhaps surprisingly, Mr Hammond introduced no new initiatives on renewable energies or carbon emissions, whilst schools (other than £400 million for “little extras”), colleges and local authorities were largely left alone.

BIFM has looked at the details of the statement to identify what is of particular importance to the FM profession.

Apprenticeships, skills and training
Mr Hammond claimed that the Budget “sets out the Government’s vision for developing the new skills needed for the UK’s long-term prosperity and to build an economy fit for the future”. BIFM and others have repeatedly called for significant changes to the new Apprenticeship Levy to help close the growing skills gaps facing our sector and many others. The Budget did not address our FM specific concerns and offered nothing new with the Chancellor restating the reforms recently signalled by the Government to strengthen the role of employers in the apprenticeship programme, namely:

  • Halving the employer’s contribution from 10% to 5% for SMEs
  • Enabling levy-paying employers to transfer up to 25% of their funds to pay for apprenticeship training in their supply chains
  • Doubling the budget of the Institute for Apprenticeships to £28 million and launching the National Retraining Scheme

Technology
The main announcements made by the Chancellor were:

  • £1.6 billion for cutting edge technologies such as quantum computing, Artificial Intelligence, digital manufacturing and nuclear fusion
  • On the revenue side a new ‘digital services tax’ on profitable tech companies - giants such as Amazon, Facebook and Google - with UK revenues over £500 million. Whilst a popular move, this measure is unlikely to generate significant income for the Treasury and is intended to be temporary until an international agreement can be reached on taxing such platforms. Whether FM businesses which are increasingly offering services on digital platforms will fall under the scope of these new rules in future remains to be seen.

Procurement
As part of the Government’s overhaul of public sector contracting the Chancellor announced:

  • Government will abolish use of Private Finance 2 (PF2), the current model of the Private Finance Initiative (PFI), for future projects. Existing PFI and PF2 contracts - currently worth some £60 billion - will be honoured and managed “in the taxpayer's interest” through a new Centre of Best Practice based in the Department of Health and Social Care. According to the OBR the current system is too inflexible, overly complex and - as highlighted by the collapse of Carillion - a fiscal risk to government
  • In future half of the UK’s £600 billion infrastructure pipeline will be built and financed by the private sector. The Government is to undertake an infrastructure finance review “to ensure that it continues to meet market needs as the UK leaves the EU”

Employment and pay

  • The Government has accepted all the Low Pay Commission’s recommendations for increases to the National Living Wage (NLW) and National Minimum Wage (NMW) rates from April 2019. NLW will increase by 4.9% from £7.83 to £8.21 an hour for those aged 25 or over, benefiting some 2.4 million workers, with similar increases for younger age groups and apprentices. Whilst it wasn’t mentioned during the statement, it is opportune to point out that the LPC is looking at the youth rates, including the apprenticeship rate, so we can expect further movement in those for the next budget
  • Blanket public sector pay rises will come to an end with future settlements based mainly on performance and location
  • Extending the anti-avoidance tax legislation known as IR35, which is designed to tax "disguised employment" at a rate similar to employment, to the private sector for large and medium-sized private organisations

Housing and infrastructure
Several measures, many of which are devolved initiatives, were announced or confirmed to help deal with the housing shortage and improve local economic performance, including:

  • Immediately abolishing the Housing Revenue Account cap that controls local authority borrowing for house building in England, enabling councils to increase house building to around 10,000 homes per year. The Welsh Government is also taking similar steps
  • An extra £500 million for the Housing Infrastructure Fund to enable a further 650,000 homes to be built
  • A new British Business Bank scheme to support up to £1 billion of lending to SME housebuilders
  • £653 million over the next four years for strategic partnerships with nine housing associations to deliver over 13,000 homes
  • A new consultation on permitted development rights to allow upwards extensions above commercial premises and residential properties, and to allow commercial buildings to be demolished and replaced with homes
  • £30 billion to fund the new Major Road Network, repair potholes and improve traffic hotspots

Business and tax
With the UK having the lowest level of business investment as a proportion of GDP in the G7 and at the bottom of the productivity table, many of the measures announced by the Chancellor had been strongly called for by a range of trade bodies and focused on SMEs, business investment and failing high streets:

  • A temporary two-year increase in the Annual Investment Allowance from £200,000 to £1 million to stem the current weakness in business investment
  • A new capital allowance enabling businesses to deduct 2% of the cost of new non-residential structures and buildings off profits before tax
  • A two-year 33% reduction in business rates for small retail businesses and funding of £675 million to improve local public transport and convert empty shop premises to homes or offices
  • £250m to develop full fibre internet in rural locations

BIFM next steps

Whilst BIFM welcomes many of the measures announced in the Budget, we believe that the Government needs to go further in certain areas, notably in tackling the workplace skills crisis.

Despite the minor reforms to apprenticeships, the guidelines are still too restrictive to encourage sufficient uptake, particularly by SMEs who often lack the resources to support apprentices. BIFM advocates a more flexible levy that can help businesses and individuals fulfil their specific skills and training needs, beyond an apprenticeship, thereby starting to address the UK’s productivity challenge.

BIFM will continue to engage in all ongoing and future Government consultations which have implications for workplace and FM professionals, seeking the views of our membership as appropriate.