Spring Statement: A Speed(y) Download
Today’s Spring Statement came at a tricky time for the government, as it prepares to start the Brexit process formally. People up and down the country will have been watching with interest, us included.
The chancellor Philip Hammond opened his speech with reference to the British economy having grown faster than the US and France last year. He also spoke about record-high employment and made a nod to International Women’s Day and the fact that there are a higher proportion of women in the workplace than ever before.
This initial positive message was countenanced, however, by saying that there is “no room for complacency”. He stated the plan outlined in his Spring Statement had the aim of “keeping Britain at the cutting edge of the global economy”.
A subject that obviously has many politicians scratching their heads is productivity, a measure of efficiency of the UK economy. It is not the first time that a chancellor has complained about poor productivity compared to nations such as Germany and the US, and today Hammond complained “productivity remains stubbornly low”.
Hammond today announced revised forecasts from the Office for Budget Responsibility. The forecast for GDP growth for 2017 has been revised upwards from 1.4 to 2 per cent. However, economic growth for 2018, 2019 and 2020 will be slightly lower than the forecasts he gave in the Autumn Statement. On public sector borrowing,
the OBR has sharply revised down its forecast to £51.7bn, £16.4bn lower than forecast in the autumn.
The UK’s resilience is reflected in a strong labour market, said Hammond, who indicated employment is set to continue to grow year on year. Current figures show record employment, and he wants more than two thirds of people in work by 2021.
Britain has a debt of £1.7 trillion said Hammond, which is on average 62,000 for every household in the country. £50 billion is spent on debt interest every year – more than defence and policing combined. He used these figures to state his support for a continued plan to significantly reduce this debt, without giving a timeline.
Hammond wants the UK to be the “best place in world to start and grow a business” and said “I am listening to the voice of business”. He went on to outline a plan to reduce administrative burdens around the R&D tax credit regime to boost innovation. Hammond warned that there had to be a better way of taxing the digital part of the economy and that there would be a reform of the evaluation process. Small businesses are soon to be hit hard by reforms to the business rates system, and to mitigate the impact the chancellor will introduce a series of measures including limiting tax rises for growing small businesses coming out of small business rates relief for the first time and establishing a discretionary relief fund for local authorities to distribute.
Entrepreneurs and innovators are “the lifeblood of our economy”, said Hammond, but the disparity between taxes paid by employed and self-employed people earning the same amount had to be addressed. Again, he is looking into options on how to “improve the fairness of the tax system”. As a first step, self-employed workers will see a 2% rise in National Insurance Contributions (NICs).
National Living Wage
The next rise will go ahead in April, taking the working wage for all workers over the age of 25 from £7.20 per hour to £7.50.
The sugar tax has had the desired effect, so much so that revenues from it are lower than expected. Producers are already starting to reformulate recipes so they use less of the white stuff.
Investment in skills and technology
A £300m to support brightest and best research talent has been announced, which will include provision for 1,000 new PhD places in the STEM subjects. Driverless vehicles was again mentioned, along with a new £16m pot for a new 5G research hub.
Hammond was keen to get a message of being “stronger together” and announced various pots at a national level for Scotland, Wales and Northern Ireland. On a more local level, £23m will be spent on improving roads in the Midlands, as well as £90m in the north. Tomorrow, the Midlands Engine Strategy will be announced, outlining initiatives to make the East and West Midlands an engine for growth for the UK economy. No mention was made of the Northern Powerhouse.
The number of young people not in work or education are at the lowest since records began. Hammond warned they needed to be equipped for the jobs of tomorrow, however. While no direct reference to the Digital Strategy was made in his speech, the government’s plan to boost the digital economy, it is reasonable to presume that this was a passing one. After outlining his plans for schools, he announced a new set of qualifications would be launched: T-levels. These would act as clearer qualifications for students looking to take on technical careers such as construction, hospitality and childcare. It will also include digital, however, so developments here are worth keeping an eye on. Another notable announcement on skills was Hammond’s line that “changing labour markets mean retraining is vital”, which was shortly followed by the commitment of £40 million into pilots for lifelong learning.
Welcome news to all you parents (or future ones) was the announcement that the extension of the early years funding from 15 to 30 free hours a month will take place in September. In the background, the government is likely hoping this will encourage more women back into work which could bring a welcome boost to productivity levels.
On their websites, the Telegraph and Guardian have both led with the increase in taxes for the self-employed, while the Sun website carries the headline ‘Our Pre-Brexit Boom’.
In summary, this was a budget that gave little answers and many questions. How will driverless vehicles develop? What will a T-level look like? What is happening with the Northern Powerhouse? Hammond announced several green papers, including one on protecting the rights of consumers, and looks likely to be holding his cards close to his chest until Article 50 is invoked and the UK’s future relationship with the EU is clearer.