Government's economic pessimism 'concerning', says PA

Government's economic pessimism 'concerning', says PA

Business rates are to be pegged to follow the Consumer Price Index (CPI) two years earlier than planned, Chancellor Philip Hammond has announced in his autumn Budget, in a measure providing some welcome relief to bookshops. However, the government's lack of optimism in the future growth of the economy has been described as "concerning" by the Publishers Association (PA).

Delivering the Budget on Wednesday (22nd November), Hammond revealed that the UK's "stubbornly flat” productivity growth had forced the Office for Budget Responsibility (OBR) to revise the productivity forecast downwards, and that as a result an extra £3bn in funding would be provided to ease Brexit planning.

The PA's c.e.o. Stephen Lotinga said it was "concerning" that the government is less optimistic about the economy and urged ministers to look again at removing VAT from the sale of e-books.

"Publishing is an export-led industry with 54% of publishing revenues coming from overseas and the government must focus relentlessly on growing further global export opportunities to improve our financial outlook," he said. "With Brexit approaching we would urge ministers to look closely at our proposal for removing VAT on e-publications which would do an enormous amount to boost reading, learning and digital innovation in the UK.”

However there was good news on business rates. Hammond said he had listened to concerns about the costs of rising business rates and would bring forward their planned pegging to the CPI, instead of the Retail Price Index (RPI), to April 2018 rather than 2020, saving businesses £2.3bn. He further announced that future business rate re-evaluations would happen every three years, while the VAT threshold will stay at £85,000 for next two years. The chancellor described the UK's 5.5 million small businesses as its “backbone” and said he recognised “many are feeling under pressure”.

He also announced plans to clamp down on digital companies' approach to tax. At the same time, royalties relating to UK sales from digital businesses that are paid to low tax jurisdictions will be subject to UK income tax from 2019, expected to raise around £200m a year. Hammond will also make online marketplaces liable for VAT paid on goods, targeting companies such as Amazon. 

The National Living Wage will meanwhile rise by 4.4% from £7.50 an hour to £7.83 next April.

The business rate measures have been deemed "hugely welcome and positive move" by the Booksellers Association (BA) and the British Retail Consortium (BRC) which also praised the proposal to raise the National Living Wage.

Giles Clifton, head of corporate affairs at the BA, said: "We welcome the fact that the chancellor has listened to the book retailing industry, as well as the growing chorus from across business and commercial life which has spoken up in favour of action to mitigate rising rates bills. This relief will be welcomed by our members, and will save them significant sums."

He also applauded the chancellor's update on corporate tax and the digital economy, which included a position paper. Clifton said: "UK booksellers just want to get on with delivering this – without being held back from fair competition by outdated tax and regulatory governance. It is with this firmly in mind that we warmly welcome the Chancellor’s statement to that action will be taken to prevent groups achieving unfair competitive advantages in the UK market in which they operate."

Helen Dickinson, chief executive of the BRC, was upbeat about the budget's announcement. She said: "From being caught in a web of competing pressures from all parts of the economy, limiting the scope for action, it’s clear that the chancellor has listened to the retail industry and the growing chorus from across business and commercial life who have spoken up in favour of action to mitigate rising rates bills. Crucially, this relief will unleash investment that retailers want to direct towards the needs of their customers. This will be particularly critical at a time when shoppers’ disposable income is being squeezed further and the growth projections for the economy have been downgraded."

Hammond also announced a further £2.3bn investment in R&D, with £500m for artificial intelligence and 5G initiatives, as well as a £117m boost for maths in schools, which will be awarded an extra £600 for each pupil taking the subject over the current numbers. More investment in support and training for staff was also promised. 

The focus on R&D was welcomed by both John Kampfner, chief executive of the Creative Industries Federation, and Lotinga.

Lotinga said: “We very much welcome the government’s commitment in this year’s budget to increase spending on R&D and the announcement of extra funding for maths education in schools."

Kampfner also praised the investment but sounded a note of disappointment over the government's "lack of ambition" for the creative sector. He said: “As a highly innovative sector, working increasingly closely with tech, the creative industries welcome new funding for innovation and improved digital infrastructure. But the lack of ambition behind the government’s commitments to the creative industries sector deal and the Cultural Development Fund risks undermining the growth and prosperity all are trying to achieve.”

Kampfner also lamented the allocation for Brexit contingency planning. Hammond said that negotiations with the EU were in a “critical phase” but that the government was committed to ensuring “free and frictionless trading of goods and services”. However Kampfner criticised the "lacklustre growth forecasts and the apportioning of a further £3bn to deal with faltering Brexit negotiations". 

“Today’s budget is disappointing," he said. "With the creative industries already contributing £87bn to the economy, the government has missed an important opportunity to invest in the UK’s fastest growing sector at a critical time for the country."