Spring Statement 2018 – consultations launched

Philip Hammond, the Chancellor of the Exchequer, presented his Spring Statement to the House of Commons on 13 March 2018.

This was the Chancellor’s first Spring Statement. In previous years, there have been a Spring Budget and an Autumn Statement, both including tax and spending announcements. In the 2016 Autumn Statement, Mr Hammond announced that he would move to a new pattern: there is now an Autumn Budget, intended to be the single fiscal event of the year, and a Spring Statement.

As the Treasury explained in a policy paper last December, tax and spending announcements will usually be made in the Autumn Budget, allowing more time for preparation before they come into effect the following April. The Spring Statement will respond to the Office for Budget Responsibility’s second forecast for the year and announce consultations, especially early-stage calls for evidence and consultations on long-term policy issues.

In keeping with the new pattern, there were few announcements on tax and spending in this year’s Spring Statement; no red (or green) book was published, and the Chancellor did not hold up his red box outside 11 Downing Street.

As well as providing updates on the economy and on government spending, Mr Hammond announced consultations in a number of policy areas. Among other updates, thirteen papers were published: five calls for evidence, five consultations, two responses to consultations, and one position paper.

This article summarises the Spring Statement and associated consultation papers. Where no timetable is mentioned, it is expected that, after the initial consultation now launched, there will be a policy announcement in the Autumn Budget, followed by a further consultation and publication of draft clauses in 2019. Once a final decision is made in the Autumn Budget 2019, legislation would be introduced in the Finance Bill 2019–20.

The economy

Growth – the Office for Budget Responsibility’s most recent economic and fiscal outlook reports growth of 1.7% in 2017 (compared to 1.5% forecast in the Autumn Budget) and predicts 1.5% growth for 2018 (compared to a forecast of 1.4%). Growth is predicted to be 1.3% in 2019, rising to 1.5% by 2022.

Inflation – this is expected to fall from 3% to the government’s target of 2% over the next twelve months, and real wage growth is expected to be positive from the first quarter of 2018–19.

Borrowing – this is now predicted to be £45.2 billion in 2017–18 (£4.7 billion lower than forecast), or 2.2% of GDP. It is expected to fall to 1.8% of GDP in 2018–19 (representing a small current surplus) and 0.9% of GDP in 2022–23. Debt is expected to peak at 85.6% of GDP in 2017–18, 1% lower than forecast, falling to 77.9% in 2022–23. The Treasury’s debt management report for 2018–19 sets out remits for the Debt Management Office and National Savings and Investments and explains how the government will achieve its required level of financing.


The Chancellor described his approach as a balance between debt reduction, investment, lowering taxes and supporting public services. He will set an overall path for public spending for 2020 and beyond in the Autumn Budget; a detailed spending review will allocate funding between departments in 2019. Headline points include the following:

Brexit – departmental allocations of £1.5 billion of Brexit preparation funding have been published.

Technology – £95 million from the challenge fund is allocated to provide full-fibre to thirteen areas in the UK, and £25 million is confirmed for the first 5G testbeds for high-speed broadband.

Training – £50 million will be made available to help employers prepare for T level work placements. The £29 million construction skills fund will open shortly for bids for up to 20 construction skills villages. Up to £80 million will be provided to support small businesses engaging an apprentice. The Office for National Statistics will develop a new measure of human capital to enable future investment to be better targeted.

Transport – bids from English cities that are not combined authorities are invited for the remaining £840 million from the local transport fund announced at Autumn Budget 2017.

Housing – measures announced include a grant of £100 million from the Land Remediation Fund to the West Midlands to enable 215,000 homes to be built by 2030–31. An investment of £60 million will be made in the Housing Growth Partnership, which supports small and medium-sized housebuilders. £1.67 billion will be provided for building affordable homes in London.

Planning – Sir Oliver Letwin has published some interim findings from his review of the build-out of planning permissions into homes. His main conclusion is as follows: ‘The fundamental driver of build-out rates once detailed planning permission is granted for large sites appears to be the “absorption rate” – the rate at which newly constructed homes can be sold into (or are believed by the house builder to be able to be sold successfully into) the local market without materially disturbing the market price.’


The main announcements were as follows:

Business rates – the government has published its response to its earlier consultation on more frequent revaluations of properties subject to business rates. The next revaluation will be brought forward to 2021, with triennial reviews from that date.

Tax treatment of heated tobacco products – the government has published a response to last year’s consultation on products in which processed tobacco is heated, rather than burned. The government has decided to create a new category of tobacco products, to be defined as products which are not cigarettes, cigars, hand-rolling tobacco, other smoking tobacco or chewing tobacco; which consist of or include tobacco; and which have been manufactured as an insert for exclusive use in a device designed to produce vapour without combustion. The duty will be calculated by weight, and the applicable rate will be announced in the Autumn Budget, coming into effect when Royal Assent is given to the Finance Bill 2018–19.

Entrepreneurs’ relief – following the announcement in the Autumn Budget about possible changes to entrepreneurs’ relief, the government has now launched a consultation on its proposals. Currently, a shareholder may lose entrepreneurs’ relief if their holding is diluted below the 5% threshold when new shares are issued on a fundraising round. To address this problem, it is proposed that individuals may elect to crystallise gains on their shares made immediately before dilution, and to defer accrual of the gain on deemed disposal until actual disposal of the shares. Draft legislation is expected to be published in the summer, to be introduced in the Finance Bill 2018–19.

Extension of security deposit legislation – as announced in the Autumn Budget, HMRC has launched a consultation on extending the scope of security deposit legislation. This enables the Revenue, where it believes there is a serious risk that tax will not be paid, to require businesses to provide an upfront security deposit. The legislation currently applies to VAT, PAYE, national insurance contributions, the landfill tax, the aggregates levy, the climate change levy, insurance premium tax and certain gambling duties; under the proposed extension, it would also apply to corporation tax and construction industry scheme deductions. Legislation will be introduced in the Finance Bill 2018–19, to come into effect from April 2019.

Alternative mechanism for VAT collection – following an earlier call for evidence, HMRC have published a consultation on split payment, a new VAT collection mechanism which would use payments industry technology to collect VAT on online sales and transfer it directly to HMRC.

EIS knowledge-intensive funds – following last year’s consultation on patient capital, the government has now published a further consultation. It proposes a new fund model focused on knowledge-intensive companies, under the enterprise investment scheme (EIS), which would replace the current little-used HMRC-approved fund structure for general investments. Possible tax reliefs include a patient dividend tax exemption, capital gains tax relief, an extended carry-back of income tax or capital gains tax deferral, or up-front income tax relief on investment in the fund.

Taxation of self-funded work-related training – as promised in the Autumn Budget, the government has launched a consultation on possible improvements to the way in which the tax system supports self-funded training by employees and the self-employed. Ideas to be considered include allowing tax deductions for employees who fund retraining that is subsequently used in a new employment or self-employment, for self-employed people who fund training for their existing business, and for employees who fund training or upskilling for their current employment.

Corporate tax and the digital economy – following an earlier consultation, the government has published a position paper update on corporate tax and the digital economy, focusing on the misalignment between the locations where digital businesses are taxed and where they create value. The government’s view is that ‘the participation and engagement of users is an important aspect of value creation for certain digital business models; . . . the preferred and most sustainable solution to this challenge is reform of the international corporate tax framework to reflect the value of user participation; . . . [and] there is a need to consider interim measures such as revenue-based taxes’. Comments are invited, and the government will continue to engage with the EU and OECD to develop policy solutions.

VAT registration threshold – the government has launched a call for evidence on the VAT registration threshold. Currently, businesses must register for VAT if their annual taxable turnover exceeds £85,000. This is the highest such threshold in the EU, and it may incentivise small businesses to manage their turnover so as to remain below it. The call for evidence invites responses on the extent to which the threshold inhibits growth in this way; on the administrative and financial burdens of registration which encourage such behaviour; and on possible modifications to the design of the threshold (for example, by smoothing mechanisms, as the EU has proposed).

Online platforms – HMRC has published a call for evidence on the role of online platforms in ensuring tax compliance by their users, with the objective of making it as easy as possible for people who earn money from the use of online platforms to understand and comply with their tax obligations.

Cash and digital payments in the new economy – the government has launched a call for evidence asking what more can be done to support greater adoption of digital payments by merchants and consumers, to ensure that the public continues to have adequate access to cash, and to prevent the use of cash for tax evasion and money laundering.

Single-use plastics – a call for evidence invites responses as to how changes to the tax system or charges could reduce wastage of single-use plastics by reducing unnecessary production, increasing reuse and improving recycling. The whole supply chain, from production and retail to consumption and disposal, will be considered. £20 million will be allocated from existing budgets to stimulate new thinking from businesses and universities.

VAT, air passenger duty and tourism in Northern Ireland – the government has published a call for evidence about the impact of VAT and air passenger duty (APD) on tourism in Northern Ireland, since Ireland has abolished air travel tax (its equivalent to APD) and reduced VAT on certain tourism-related goods and services.

Productivity – the government will launch a call for evidence to enable the least productive businesses to catch up with the most productive.

Late payments – there will be a call for evidence on measures to eliminate late payments, to benefit small businesses.

Environment – a call for evidence will examine whether non-agricultural red diesel tax relief contributes to poor air quality in urban areas. There will also be a consultation on reduced rates of vehicle excise duty for the cleanest vans.

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