Contractors are likely to emerge relatively unscathed, and many may be better off, as a result of the measures announced in Chancellor George Osborne’s Autumn Statement. New infrastructure and housing projects could lead to a stream of new contracts, whereas cancelling fuel duty rises and subsiding rail fares will help keep contractors’ transport costs down.
The key points for contractors in the Chancellor’s Autumn Statement include:
- No mention of contractor tax issues, such as IR35, S660/the ‘family business tax’ and the Managed Services Company (MSC) legislation
- No recession forecast by the Office for Budget Responsibility (OBR)
- New national infrastructure plan includes 500 new projects, many of which may boost contract opportunities
- No ‘Tobin Tax’ for banks, but permanent bank levy increases by 10%
- Personal allowances won’t be changed from those forecast next year
- Public sector pay rise increase capped
- Unemployment will rise to 8.7% next year.
Measures impacting on business, including contractor clients and limited companies:
- Financial support for small and medium sized enterprises, including loans and grants
- Small to medium sized enterprises (SMEs) will be encouraged (again) to bid for more public sector contracts
- Capital gains tax waived and 50% income tax relief for small start-up business investors
- It will become easier to hire and fire staff
- A £400m house-building plan that may directly benefit contractors working in the construction sector.
Measures impacting on contractors’ personal finances:
- A mortgage indemnity scheme that is intended to help 100,000 first-time buyers to get onto the housing ladder
- Right to buy and social housing purchase schemes extended – a new home will be built for each one sold
- Rail fares, including fares on London tubes and buses, will be capped at inflation plus 1%
- Fuel duty increases of 3p per litre planned for January 2012 have been cancelled.
Business measures will create contract opportunities
The good news for financial IT contractors is that the Chancellor wants the UK to remain the home of global banks, so will not agree to the European Union’s financial transaction tax, also known as the ‘Tobin Tax’. However, the bank levy has been increased by 10%, and a government response to the Vickers Report on bank regulation will be published next month.
A national infrastructure plan will cover 500 new projects, including broadband, rail, roads, power stations and ports. A combination of £5bn of government money, plus the unlocking a further £20bn from pension funds, will, in the Chancellor’s words, “overhaul physical infrastructure of our nation”. This will be matched by “overhauling the digital infrastructure”, with new broadband, mobile coverage and WiFi projects anticipated.
Contractor clients, particularly small to medium sized enterprises, may be persuaded to invest in projects that will generate contracts as a result of ‘credit easing’ measures. These will help small firms to access finance, while a national loan guarantee scheme will use low interest rates that only the government can access to subsidise borrowing.
Economic outlook for contractors
All this relatively good news for contractors comes against a backdrop of worrying macro-economic news. Whilst the Office for Budget Responsibility (OBR) does not predict a recession in Britain, it has revised down growth prospects. The GDP forecast has been revised down to 0.9% this year and down from 2.5% to 0.7% for 2012. And for 2013, 2014 and 2015, growth is forecast to be, respectively, 2.1%, 2.7% and 3%.
These estimates are more optimistic than those published by the European Commission and the Organisation for Economic Co-operation and Development (OECD). But the Chancellor admitted that, “if the rest of Europe heads into recession it may be difficult to avoid one here”.
If the rest of Europe heads into recession it may be difficult to avoid one here
George Osborne, Chancellor
OBR blames the reduced forecasts of economic growth on ‘price shocks’, such as higher than expected increases in food and fuel, the level of unsustainable growth prior to the recession, and the fact that the economic contraction was so deep and worse than previously thought.
The Chancellor said that the debt burden is also acting as a huge drag on growth; money that might otherwise be spent on services that help drive economic growth is being used to service debt.
Overall, many contractors are likely to benefit from this Autumn Statement, with new investment into infrastructure promising fresh contract and business opportunities.
Published: Tuesday, November 29, 2011
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