How well Britain will cope post-Brexit remains unknown, but by the looks of things, we may not see as many positive changes as we hoped
Whatever side of the Brexit camp you ran with in June, it’s clear that the full implication of the referendum result are yet to be seen. So far, however, there have been worrying signs. The pound is down against the dollar and euro, and it’s a painful time for holiday makers for those wishing to go abroad this summer. The UK has also suffered the ignominy of downgrades by all three credit rating agencies.
There’s no doubt the Bank of England is worried. So much so, in fact, that it has lowered interest rates to 0.25 per cent and intends to ramp up their quantitative easing program. The big issue for most people, though, is the effect on UK businesses. And, of course, how Brexit is going to impact the UK’s tax collections over the next few years.
While British businesses might be benefiting from the cheap pound and enjoying a rise in exports, it seems that taxes will be hit. The Office of National Statistics reports that the UK exported £500 million more goods and services during June than in May.
That’s good news, of course — but according to the IFS think tank, when the UK leaves the EU it could be £70 billion worse off. That’s a figure that dwarfs the £8 billion of budget contributions that the Brexiters were happy to mock in the build-up to the referendum. If those figures are correct, the Government are going to be hard-pressed to remain in a healthy fiscal position. Where, exactly, are they going to balance the books?
Presently, there are no immediate changes to report on the UK’s tax system. And until the Government trigger Article 50, it’s unlikely that we will see major changes until late 2018. There may be indirect changes, however, with increases in tax rates, exemptions, and allowances are likely to be in place within the year. There could also be significant changes in the way we fill in our self-assessment tax return form by the end of 2017.
VAT, of course, came to exist in the UK as part of joining the EU in the first place. And at rates of 20 per cent at this moment, it is affecting plenty of people from all walks of life. Given VAT was an EU requirement, many people are questioning whether we will see an end to the system. However, with such a shortfall in tax receipts, it is unlikely we will see VAT abolished.
So, there may be changes — particularly when Article 50 is triggered — but these are likely to be minor. Many rather ridiculous VAT directives from the EU will need addressing. Take, for example, the fact that Jaffa Cakes have no VAT charges because it’s cake, while biscuits face 20 per cent VAT.
Corporation tax is heading for a cut at the moment, down to 15 per cent. However, this was a George Osborne plan, and it is still unclear whether it is an idea the new chancellor, Philip Hammond, will stick with. One thing we do know is that the Government’s ability to offer incentives is, currently, severely restricted by the EU until the UK leaves.
The trouble is, with tax receipts far lower than expected, it’s difficult to see where these incentives will come from.