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Six Fiscal Measures That Might Just Crop Up in the U.K. Budget

Six Fiscal Measures That Might Just Crop Up in the U.K. Budget

(Bloomberg) -- The U.K. budget is usually a mixture of measures that have been heavily trailed in the run-up by various government ministers, with a liberal sprinkling of surprises.

In the past six months there have been myriad consultations and papers on everything from the offshore oil to air pollution that hint at possible measures in the works. Bloomberg trawled through that documentation, as well as recent announcements, to identify six areas that are likely to get a mention when Chancellor of the Exchequer Philip Hammond lays out his economic blueprint.

1. Stamp Duty and the Housing Crisis

Prime Minister Theresa May last week pledged that it’s her personal mission to “build more homes, more quickly.” To that end, the budget is likely to include a number of measures to encourage construction and enable younger people to get on the housing ladder. Asked on the BBC on Sunday about whether the home-buying tax known as stamp duty would be cut for younger buyers, Hammond declined to discuss tax matters, but didn’t deny he was looking at the measure.

“We recognize the challenge for young first-time buyers, that in many parts of the country deposits are now very large,” Hammond said. “Nobody is saying we’ve done enough. We must do more. We recognize there’s a challenge there and on Wednesday I shall set out how we intend to address it.”

2. North Sea Oil and Gas

Whilst remaining committed to its climate-change goals, the U.K. is also trying to extract as much value from its waning oil and gas fields in the North Sea. The industry is crucial to the economy in Scotland, which would be grateful for any assistance to a financial lifeline even as it remains angry at the Conservatives for taking it out of the European Union.

At the last budget in March, the government published a “discussion paper” that examined allowing transfers of tax history between buyers and sellers of oil and gas assets -- a measure designed to make it easier to buy and sell the fields, and keep them producing for longer. It would allow buyers to get a tax refund as a result of any costs incurred decommissioning the field at the end of its life.

Hammond told the Sunday Times he’s “looking at” a possible change in the tax rules, which is “the No. 1 ask of my Scottish colleagues.” Even so, he did issue a note of caution, adding that the Treasury needs to ensure the reform “is robust and that we don’t inadvertently create scope for gaming on a grand scale in the tax system."

3. Boosting Research & Development

May on Monday said the government aims to increase public and private research and development spending to 2.4 percent of economic output by 2027, and beyond that to 3 percent. “This could mean about 80 billion pounds ($106 billion) of additional investment in the next decade,” she said.

As part of an announcement the same day linked to her government’s Industrial Strategy -- due to be published next week -- she said that would begin with a commitment for an extra 2.3 billion pounds of investment in the 2021-2022 tax year, taking total public investment to 12.5 billion pounds that year. The government also signaled plans for a 1.7 billion-pound fund focused on improving regional transport links.

4. Shale Wealth Fund

In another measure aimed at boosting the fossil-fuel industry -- in this case by making it more palatable to local communities -- the government promised at the last election to overhaul a pledged fund worth as much as 1 billion pounds to distribute some of the profits from hydraulic fracturing.

The aim is to ensure “a greater percentage of the tax revenues from shale gas directly benefit the communities that host extraction sites.” The government last week responded to a consultation on the issue pledging the fund will initially consist of as much as 10 percent of tax revenues from shale-gas extraction, with proceeds to be spent on projects ranging from play parks for children to improved transport links and restoring historical sites.

5. Air Pollution Tax

Diesel vehicles have become a political football of late. For years, governments ignored evidence that diesel is worse for air quality and encouraged its use because the fuel is less damaging to the climate than gasoline. With air pollution now under the microscope in London in particular, the government published an air-quality plan over the summer and is likely to include measures in the budget designed to help clean up the air in Britain’s cities by encouraging cleaner vehicles.

Possible measures include raising the sales tax on diesel cars, known as vehicle excise duty, or raising taxation on diesel fuel itself, which is currently taxed at the same level as gasoline, at about 58 pence per liter. The government has also said it will consider programs to encourage motorists to trade in their older, more polluting cars, for newer, cleaner ones. Ministers also stepping up efforts to encourage the use of more electric vehicles by supporting the development of batteries and the deployment of charging points.

6. Fund for Start-Ups

In August, the government proposed a new National Investment Fund that would help start-ups access the “patient capital” funding they need to develop into so-called “unicorns” -- innovative companies valued at over $1 billion. A consultation on the proposal closed in September, and Hammond is likely to propose a confirmed plan of action in the budget.

The consultation suggested funding should come from the British Business Bank, replacing the backing currently received from the European Investment Fund. One of the reasons this could get a mention is that the the government is keen to demonstrate that London can attract Big Tech even when it’s no longer in the European Union.

--With assistance from Robert Hutton

To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net, Svenja O'Donnell in London at sodonnell@bloomberg.net.

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Andrew Atkinson

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