Over the past few days, the details and potential impact of the 2016 Budget have been one of the most discussed topics throughout the United Kingdom in general and among London-based businesses in particular. The British capital has always been considered the country’s main economic engine and a hub for entrepreneurship and innovation, and many predicted that the Budget would focus on solidifying the city’s prominent position in this respect, fostering a culture of investment and enterprise.
As expected, the announcement of the new measures contained in the Budget had an immediate effect on the London Stock Exchange, causing the FTSE 100 Index to gain 35.5 points following the Chancellor’s speech. However, the effects of the Budget are likely to be felt beyond the stock market. Let’s take a look at the impact the Budget is likely to have on London businesses in the medium and long-term.
UK Budget 2016: Implications for London businesses
- Tax breaks for external investors doubled: As part of the reforms made to the Capital Gains Tax and to the Entrepreneurs’ Relief scheme, it was announced that a 10 per cent tax rate will be available to external investors on any profits above £10 million that arise from the sale of shares within 3 years of purchase. The new measure is expected to benefit property start-ups based or operating in London, and it clearly aims to make conditions more appealing in the eyes of investors who focus on small-scale and / or low-cost housing. At the same time, this measure was put in place to make it easier for entrepreneurs and investors to have access to much-needed capital, which can be later invested in job creation or corporate expansion projects.
- Crossrail 2 project received the green light: £80 million have been allocated to the development of this project, which has received strong support from London-based businesses. Crossrail 2 will wenefit local businesses, as it is expected that areas served by the new transportation network will experience a rapid surge in retail footfall and job creation levels. The Crossrail 2 project is also considered one of the government’s largest investments in industry, since it will provide London employers with additional confidence when investing in innovation and skills.
- More London-based companies to benefit from business rates exemption: The threshold to qualify for full business rate relief has been increased to £12,000 and £51,000 (basic and high rates respectively). This change will not only benefit businesses directly, but it will also contribute to the devolution of business rates raised by the Greater London Authority, which as of April this year will be able to allocate the revenues collected as it sees fit.
- The introduction of the Soft Drinks Industry Levy: The so-called “sugar tax” is undoubtedly one of the most controversial moves made by the UK executive with regards to this year’s Budget. The new tax will apply to UK manufacturers and importers of soft drinks that contain added sugar, and will be implemented on a gradual scale depending on the specific sugar content of each product. The Soft Drinks Industry Levy has been met with skepticism by the foods and drinks industry, since producers and importers (many of which are based in London) will be required to invest a significant amount of time and money in reformulating their products if they wish to benefit from lower tax rates.
- Encouraging prospects for the tech sector: most analysts agree that this year’s Budget will be especially beneficial to firms involved in the tech sector, which is particularly well-developed in the British capital. According to recent data, the more than 94,000 London-based tech companies employ over 700,000 people and have a turnover in excess of £153 billion. London has long been considered one of the best destinations for start-ups in the tech industry, and the changes made to business rates could go a long way in fostering further growth in this sector.With regards to the impact that the Budget can have on the London tech sector in the medium term, it is important to note that during his speech, the Chancellor revealed the government’s commitment to delivering a complete 5G strategy by next year. It is highly likely that 5G technology will be first rolled out in London, giving local tech firms the opportunity to take part in this large-scale project.
Sources:
https://www.gov.uk/government/publications/Budget-2016-documents/Budget-2016
https://www.gov.uk/government/publications/capital-gains-tax-entrepreneurs-relief-extension-to-long-term-investors/capital-gains-tax-entrepreneurs-relief-extension-to-long-term-investors
http://www.standard.co.uk/business/budget-2015-property-investors-treated-to-more-tax-relief-a3205531.html
Soft drink brands suffer blow as government pledges sugar tax for 2018
http://techcitynews.com/2016/03/17/companies-in-the-uk-tech-scene-react-to-2016-spring-budget/
http://www.bbc.com/news/uk-england-london-35822020
http://www.itpro.co.uk/networking/26229/budget-2016-gov-will-create-5g-strategy-in-2017