Uncertainty ahead for the UK with Brexit negotiations looming and no deal yet signed with the DUP.
As reported last week, the General Election on 8 June produced no clear majority for any party. At the time of writing it appears that the next Government will be a Conservative minority supported on a ‘confidence and supply’ basis by the Democratic Unionist Party (DUP). The confidence refers to backing the Government on any votes of no confidence and the supply refers to backing bills required for the Government to receive money to carry out its agenda e.g. the Finance Bill. The result has led to a great deal of uncertainty across the UK, most notably shown by the delay in the Queen’s Speech to 21 June.
The uncertainty created by the election result has had an impact on tax policy. Many measures were dropped from Finance Bill 2017 to enable it to be passed through Parliament before dissolution for the General Election, including the new corporate interest restriction regime and corporate loss reform, which were due to have a 1 April 2017 start date – although we are still recommending that taxpayers should assume they come into force on this date as originally planned. Jane Ellison, former Financial Secretary to the Treasury who lost her Battersea seat in the election, previously stated that the dropped measures would be legislated for at the earliest opportunity. Given the lack of a majority in the House of Commons for the Conservatives and the appointment of a new Financial Secretary, Mel Stride, it is less clear what the next steps will be for these measures.
As mentioned above, a deal with the DUP has not yet formally been signed at the time of writing, although there has been much speculation on what the DUP will be able to extract from the Conservatives in negotiations. The DUP’s manifesto is light on tax policy with more focus on the party’s British identity than tax. However, in general it does point us towards a lower tax economy much in line with the Conservative Party. Both parties support increases in the personal allowance and decreases in corporation tax (CT).
The devolution of CT varying powers to Northern Ireland looks more secure given the situation the DUP are now in. Whilst devolution has been agreed in principle to begin in April 2018, it is only on the proviso that the Northern Ireland Executive can demonstrate that its finances are on a sustainable footing. Given that a working Assembly has not been formed since the Northern Ireland Assembly election on 2 March 2017, demonstration of a long term and secure future for the Assembly may have been difficult to prove The DUP are likely to push for devolution to take place in April 2018 despite the current impasse with other parties in Northern Ireland.
It is also expected that the DUP will look to ensure that Air Passenger Duty (APD) is scrapped in Northern Ireland. As was the central argument for the reduction in CT, APD is not levied in the Republic of Ireland and therefore may skew tourism away from the North to the South.
Any decrease in tax or increase in spending in Northern Ireland will have a knock-on impact on the Barnett Formula across the UK. The Conservatives may wish to ensure that any beneficial deal with Northern Ireland does not unduly upset the Scottish and Welsh devolved administrations.
With Brexit negotiations due to start and taxpayers in limbo over measures dropped from the Finance Bill, more uncertain times may lie ahead.
If you wish to take a look back on what the parties have been saying on tax throughout the election campaign please check back on our previous five Tax Matters Digest articles:
General Election – What we know so far (11 May 2017)
General Election – What we know so far (18 May 2017)
General Election – What we know so far (25 May 2017)
General Election – What we know so far (1 June 2017)
General Election – Conservative Party win the most seats, but a Hung Parliament awaits
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