The first slimmed down Spring Statement from the Chancellor, Philip Hammond MP, was as short as expected and focused on the latest economic and fiscal forecasts from the Office for Budget Responsibility (OBR).
The Chancellor set a “positively Tigger like” tone, in contrast to his persona as Eeyore-in-chief of the Government. There were slightly more optimistic growth forecasts in the immediate term but with lower figures predicted from 2021 onwards. In addition, the Chancellor was able to announce that borrowing will be £4bn less than predicted in the Autumn forecast, meaning a technical surplus next year. Over the long term however, the British economy continues to have sub 2% growth for the first time in modern history, leading to very constrained public finances.
As this was not a fiscal statement, and with a lack of big announcements, the Chancellor instead chose to fill air-time by launching a number of consultations. This notably included plans to reduce single-use plastic production, which will be undoubtedly welcomed by environmental groups. However, the potential ramifications of such a policy are likely to be widespread, not least for the medical device industry which, by its very nature, is a huge producer of such items. In addition, businesses will welcome the next revaluation of business rates being brought forward to 2021, though would have hoped for more radical action after last year’s huge hike in many places.
As expected, Labour has been critical of the Chancellor’s speech, with Shadow Chancellor, John McDonnell MP, attacking the Government’s “complacency”, calling this a missed opportunity to invest in public services. Meanwhile, the perspective from north of the border was delivered via SNP’s leader at Westminster, Iain Blackford, who said the “real tragedy” was that austerity was still present “10 years on from the financial crisis”.
Despite the claim of ‘a light at the end of the tunnel’ there remains little scope for the Chancellor to increase public spending when he looks at departmental budgets next year. Alongside Hammond’s statement, the OBR has also released the official figure for the estimated divorce Brexit bill. This stands at £37.1bn with the UK expected to be paying this off until 2064 and initial reaction suggests that this will be the figure dominating tomorrow’s headlines.
Read on for a further summary of the key announcements from Four Public Affairs.
- Growth was uprated to 1.7% for 2017 (from 1.5% in November 2017) and to 1.5% for 2018 (from 1.4%).
- The deficit will come in £4.7 billion lower this year at £45.2 billion (2.2% of GDP). This will mean it falls below 2% next year, though the structural deficit is little changed on average and improved by just £0.3 billion in the Government’s target year of 2020-21.
- Inflation is expected to fall from around 3% to below the 2% target by the end of the year, which should mean wage growth should exceed inflation in the first quarter of 2018/19.
- At the Autumn Budget 2017 it was announced that business rates revaluations would take place every three years, rather than every five years, following the next revaluation. The next revaluation, currently due in 2022, was brought forward to 2021.
- The Autumn Budget also launched a £190 million Challenge Fund to help roll out full-fibre to local areas. Spring Statement 2018 allocates the first wave of funding, providing £95 million for 13 areas across the UK and £25 million for the first 5G testbeds.
- A £1.7bn additional grant for London to get 26,000 additional affordable home starts by 2020/21.
The Chancellor also announced consultations on various policy measures:
- A “call for evidence” to look at options on reducing single use plastics, including potential tax measures.
- A consultation on VAT collection from online businesses to ensure a fairer playing field and the role of cash in the modern economy.
- A consultation on tax relief for ultra-low emission vans and freight, with potential to reduce agricultural diesel tax relief if show that causing urban pollution.
- A call for evidence on how to crack down on the practice of late payments to suppliers.