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Budget 2017: Hammond looks to tech for a brighter future

UK telecoms is set to be a beneficiary of the autumn Budget, but digital multinationals should beware of the chancellor’s wrath
November 22, 2017

Philip Hammond has chosen to prepare the UK for “the future” – a decision he repeated no less than 16 times in his autumn Budget speech. To provide that future, he is looking to the UK’s technology and telecoms industry, which is set to receive £740m between 2017 and 2021 to invest in the roll-out of 5G and full-fibre broadband.

It is widely accepted that 5G – the fifth-generation mobile network – and ultra-fast broadband will be vital for economic growth in the coming years. Mr Hammond thinks investment here will help curb disappointing UK productivity, which is set to grow by less than 1.5 per cent a year until 2020. The US, China and Japan are investing heavily in their digital infrastructure to ensure that they are ready for the launch of driverless vehicles, smart houses and artificial intelligence. The UK doesn’t want to be left behind.

The Budget therefore came as a ray of sunshine for the UK’s largest telecoms company BT (BT.A), which recently promised major investment in full-fibre broadband. CityFibre (CITY) is also beginning a major fibre internet project and Vodafone (VOD) is spending big on 5G research and development in the hope that it will be the first UK telecoms company to launch the new network. Both BT and Vodafone are planning on buying as much of the new 5G spectrum as the government will allow.

But Mr Hammond’s support for digital growth doesn’t extend to the multinational companies that generate sales in the UK but plough royalties into low-tax jurisdictions. From 2019, these sales will be subject to UK income tax, which is expected to generate £200m a year. For Alphabet (US:GOOGL), Apple (US:AAPL), Amazon (US:AMZN) and Facebook (US:FB) this extra tax is not likely to break the bank, but the government’s pledge adds further weight to the rising European resolve to ensure these US giants pay their taxes in full. Mr Hammond said the new rule would “send a signal of our determination” to clamp down on avoidance.

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