No-deal Brexit haunts Hammond’s budget

Philip Hammond’s announcement of a digital services tax targeting technology giants was couched in caveats, reassuring consumers that it is not an online sales tax and small start-ups that they won’t be hit by the measure. At 2 per cent, it is lower than the 3 per cent rate being considered by the EU, although that could increase after the tax is introduced in April 2020.

“The UK is leading the way in introducing this tax. Of course we’ll keep it under review but we’re treading softly to start with,” a Treasury spokesman said.

Hammond said he would consider replacing the UK digital sales tax with an internationally agreed version in the future but he said progress on reaching an agreement was too slow. And he made clear that Britain’s move was aimed at spurring others into action.

Advertising revenue

The tax will be levied on revenues generated by large technology companies from search engines, social media platforms and online marketplaces that relate to UK users. For search engines and social media platforms, the revenue targeted will be mostly from advertising while for online marketplaces such as Amazon it will come from the fees charged to vendors.

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It will be calculated on the basis of self-assessment but the Treasury is confident that the handful of firms affected will be fully compliant and capable of showing what revenue relates to British users.

Labour pointed out on Monday night that the £400 million (€450 million) the tax is expected to raise each year is less than 1 per cent of corporate tax receipts. But if Hammond's move, which follows unilateral initiatives in Spain and India, helps to accelerate progress on a global approach to taxing the digital economy, Google, Facebook and Amazon may have more to worry about.

Public finances

An unexpected improvement in public finances allowed the chancellor to increase public spending, particularly on the National Health Service while also cutting taxes. He promised a further boost to public spending if Britain secures a good Brexit deal but he also increased spending on preparations for a no-deal Brexit.

Hammond says he has the fiscal firepower to weather the shock of crashing out of the EU next March with no post-Brexit transition and no trade deal. But with economic growth forecast to remain at 1.5 per cent or lower for the next few years, the British economy can ill afford to suffer the slowdown that most economists predict would follow a no-deal Brexit.