The Spring Budget 2017 – Our Take | Khaos Control Cloud

So, that was it! The last Spring Budget. From now on, budgets will be released in the Autumn, replacing Autumn Statements where Governments released updated economic forecasts. Budgets are complex. Spelling out how the Government intends to spend around three quarters of a trillion pounds, equivalent to about 40% of the British economy, in the year ahead, it can be hard to work out what they mean for you. Whether you’ll be a winner or loser. So, we want to tease out what we think’s important in the Chancellor's latest update, so you don’t have to.  

The Big Picture

What’s the overall outlook for the British economy? In short, rosier than in the Autumn and positively radiant compared with the gloomier forecasts made by the Treasury and Bank of England were a Brexit vote to happen. Instead of the recession that many forecast would lead to the economy shrinking and increased unemployment, growth has remained robust. Growth figures were revised up in the 2016 Autumn Statement and 2017’s Spring Budget went even further. Britain beat all expectations and grew by 1.8% last year and is expected to grow by 2% this, up from a predicted 1.4%. Out of major industrialised economies, only Germany’s economy is growing more quickly.

This means that Government coffers will be flush with greater tax revenue from a larger-than-expected economy. It won’t have to borrow quite so much and public debt won’t rise as quickly. But the Budget cautions these are short-term effects. Once higher inflation, a consequence of sterling’s slide since the Referendum kicks in, it’ll dampen consumer spending. This is the motor of the UK economy and so growth will accordingly suffer after this year. Because of this, the Government’s longer-term predictions are unchanged. Although the Conservatives sought to balance the books, to spend as much as they brought in, by 2020 at the time of the last election, this remains on hiatus. We’ll be well into the 2020s by the time this pledge is fulfilled, if ever. In short, the economy has performed better than expected, the good times are anticipated to roll on into this year and slightly depressed growth will take hold thereafter. But Government forecasts have a horrendous track record, failing to foresee the Great Recession the year before it happened and consistently underestimating future borrowing. So, it’s worth taking them with ever-larger pinches of salt the further out they run. Where Budgets really matter are in their tax and spending decisions. So, we’ll drill into the main changes that’ll affect you.  

Business Rates and National Insurance Contributions, Tax Changes that Affect You

There was a lot of noise before the Budget about the Business Rate revaluation due in April. That it had the potential to hike up Rates to the point that either profits would take a hit, their prices would have to go up, or both. Many feared going out of business altogether.

While they will still go up for some, the Chancellor has announced an extra £435 million of support, on top of £3.6 billion of transitional relief, for the hardest hit. Further help also comes in the guise of changes to VAT’s registration and deregistration thresholds, increased from £83,000 to £85,000 and £81,000 to £83,000 respectively. Assisting lower earners particularly, the Income Tax threshold has gone up to £11,500. But as the Government gives with one hand, it takes away with the other. Seeking to close the gap between National Insurance paid by employees and the self-employed, the Government has announced the main rate of ‘Class 4’ National Insurance Contributions will go up from 9% to 10% next year, reaching 11% in 2019. We recognise that this could increase costs for many Khaos Control Cloud users who administer their own eCommerce businesses from home.  

Technological Investment

An aspect of the British economy that remains stubbornly weak is productivity, or how much our workers produce in a fixed unit of time. In 2015 the UK was 35% behind Germany, 30% behind the U.S. and 27% behind France.

To boost our international rankings and secure better wages and living standards, the Government will spend over £23 billion from now until 2022 on the National Productivity Investment Fund (NPIF). This focuses on critical areas that’ll secure the greatest bang for every buck, or pound, invested. It’ll include spending more on housing, transport and faster and more accessible internet connections. Commencing this year, £200 million will be spent on a series of projects aimed at speeding up delivery of full-fibre broadband networks with further money allocated to paving the way for 5G mobile phone coverage that will allow peak download speeds of five gigabits per second. This will see a cutting edge 5G facility run trials aimed at smoothing its eventual rollout. These improvements are critical for an ERP on the Go solution such as ours, promising to make Khaos Control Cloud perform faster over a greater range. We look forward to the Government’s intervention translating into real improvements as the rollout of fibre optic broadband has been a good deal slower than many businesses would have liked, hindering their expansion.  

Our Take

It’s great news the economy continues to defy expectations, but that growth may soon struggle and stall is disheartening, especially married to the planned National Insurance hikes for the self-employed that will serve only to supress growth further. Whatever the source of a slowdown, we want to know, as will other businesses, that Britain will be in good financial shape to meet the challenge.

Given that the government previously promised in 2010 to balance the budget by 2015 and is now, seven years later, talking about doing so in 2020-something, it’s uncertain that Britain will be able to balance the books in the short to medium-term. Our debt will be punishingly high for longer than believed, a liability that will ultimately lead to more taxes down the road. So, we think the Government needs to be firmer cutting spending and taxes to ensure growth remains robust. It’s good Government recognises the importance of the high speed internet so critical to us and our sector, but we’ll have to hold their feet to the fire to make sure they deliver. Whatever the future hold, face it with confidence with Khaos Control Cloud, a small business management solution that ensures your company is as efficient as it can be. If you're not already using our ERP on the Go, sign up for a Free Demo today and experience the difference for yourself. Please Note: This article was edited on 21/02/2018 to reflect Khaos Control Cloud's updated process re: trials.


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