Overview
The UK has elected a Conservative majority government. McDermott’s London lawyers have provided their perspective on how Conservative policies may affect healthcare, private client and wealth management and taxes over the coming months.
Healthcare Transaction and Regulatory – Sharon Lamb
“The NHS was a key battleground during the election campaign. Conservative campaign promises included increased capital funding for NHS hospitals, a continued focus on health technology and increased medical staffing (notably an additional 50,000 nurses and 6000 additional GPs). These promises are significant investments and so it will be interesting to see how many will feature in the Queen’s speech and upcoming Budget.”
“A Conservative majority government has committed to ratify the withdrawal agreement by 31 January 2020. If this occurs, the transition period will commence, running from the date of exit to December 2020. In this transition period, EU law in respect of procurement, state aid and life sciences and related legislation will continue in place while the UK government and European Council negotiate a future relationship around trade and regulation. The future regulatory environment for the health and life sciences sector, particularly in relation to regulation of medicines, medical devices and tariffs is currently unclear and will depend on the outcome of these trade negotiations.”
“Importantly, the Conservative party promised to enact changes to NHS legislation within the first 100 days. These changes were first proposed in the NHS Long Term Plan in 2019. Key changes are the proposed repeal of NHS procurement legislation and replacement with a “best value” test, the scope and application of which is unclear. Other changes include safeguarding and strengthening of current rules around NHS patient choice which applies to elective services. Even if these rules are repealed, EU derived procurement legislation which currently applies to NHS procurements will remain in place until the end of the transition period.”
“Currently, NHS drug prices are controlled through a series of mechanisms, including assessments by NICE and statutory and non-statutory pricing schemes. Collectively, these operate to limit prices of drugs in the UK so that drug prices in the UK are commonly lower than in other countries. The commitments in the manifesto appear to suggest the retention of at least some of these protective mechanisms although the end position will depend on the agreed terms of any trade deals.”
Private Client & Wealth Management – Simon Goldring
“Well, past performance is probably a good indication of what is to come. Even though the manifesto was pretty slight on policy detail, there are a few things we know. We can expect a Queen’s Speech for 19 December which will outline the legislative program.”
“Johnson has promised to pass his Brexit deal, with a first vote this side of Christmas, and to bring a Budget. But we already know that the scheduled cut in Corporation Tax has been shelved, so we should not expect anything major on tax reform beyond the promised cut in NICs to feature in the next budget.”
“Brexit – Johnson’s Withdrawal Agreement will be back before Parliament before Christmas for the next stage of approval. He has pledged that the transition period will not extend past the end of 2020 and that ‘it simply will not happen’ that a Conservative government could fail to reach a trade agreement with the EU within that time. Given the EU’s published position, and the refusal of the Conservatives to rule out No Deal during the election period, the chances of the UK transitioning out of the EU without a trade deal have now significantly increased. Clients who have been adopting a ‘wait-and-see’ position should act now to take appropriate advice as to their status and planning.”
Private Client & Wealth Management – Simon Gibb
“Despite being the party of low tax, there appears little appetite for immediate tax cuts. Expect a ‘steady-as-she-goes’ approach.”
“We can expect some tax changes further away on the horizon, but nevertheless coming down the track for our clients. These include the SDLT surcharge for non-residents buying UK residential property, on which a consultation has already taken place. Other possible changes may include aspects of Inheritance Tax on which the OBR reported earlier in 2019. We could see reforms to BPR too – the OBR suggested this should be looked at.”
“The first 100 days will also bring cross-party talks on social care. This issue proved to be a real vote-loser for Theresa May in 2017 and was conspicuously absent from the Conservative manifesto this time around. It is difficult to see how a cross-party consensus could be reached without additional funding – and the campaign has left us none the wiser as to how will this would be paid for.”
International and Domestic Corporate Tax – James Ross
“The Conservative manifesto gives remarkably little detail on tax policy, other than a generalized desire to cut them. It does rule out increases to the rates of income tax, national insurance contributions and VAT, while also making reasonably substantial spending commitments that will need to be funded.”
“One obvious potential target is companies – the planned reduction in the rate of corporation tax to 17% has already been ditched, and the manifesto hints rather vaguely at further measures to restrict profit shifting. It also proposes “reviewing and reforming” Entrepreneurs’ Relief, which would probably involve tightening its eligibility criteria so it is more targeted towards those that the Government regards as “genuine” entrepreneurs. At the moment, management participants in private equity buy-outs can often structure within the relief – it would not be altogether surprising if the Government decided that they should not benefit in the future.”
“A Conservative majority also means the end of the beginning of Brexit on 31 January. This won’t “get Brexit done”, but will start the second phase of negotiations on a trade deal. This will cover whether and to what extent the UK remains integrated with the EU’s VAT system, and whether UK companies can still rely on EU directives to claim exemptions from interest, dividend and royalty payments made by their EU subsidiaries. Quite what position a Johnson government will take on these issues remains a mystery. It is also highly unlikely that a trade deal with the EU will be concluded by the deadline of 31 December 2020. If the Government sticks to its pledge of refusing to extend the transitional period, it will be time for companies to dust down their “no deal” contingency plans from earlier this year and work out how to navigate additional customs and VAT costs and compliance that will inevitably follow.”
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