Chancellor’s Brexit brinkmanship puts the hold on
The continuing uncertainty over Brexit saw the Chancellor deliver a
Spring Statement that was more holding plan than action plan.
Philip Hammond highlighted a range of alternative scenarios, depending on what happens with the country's exit from the EU over coming weeks.
That included a possible reversal to
the end of austerity' he predicted in the Autumn 2018 Budget, with the
Chancellor saying that he will launch a
full, three-year spending review before the summer recess only if
a Brexit deal is agreed. This
may be carrot or stick, depending on your view, as it embodies the offer of
more spending on public services, thanks to the expectation of increased
business confidence and avoiding the cost of a no-deal outcome, but only if MPs
can reach agreement on the EU withdrawal.
The good news is that the
Chancellor has more money to play with, as borrowing and debt are lower than
expected, giving him scope to offer investment in infrastructure, technology,
housing, skills, and clean growth.
This year, borrowing will be 1.1%
of GDP, £3bn lower than forecast at the Autumn Budget and is set to fall from
£29.3bn in 2019-20 to £13.5bn by 2023-24.
However, the growth forecast for
2019 has been reduced to just 1.2%, down from 1.6% predicted last Autumn, with
the finger of blame being pointed at the continuing uncertainty over Brexit and
the overall slowdown in the global economy.
But longer-term predictions are more positive, with growth in 2021 to
2023 revised upwards to 1.6%.
While those improved borrowing and
growth figures are looking good for now, the Office for Budget Responsibility
has predicted that UK house prices will be falling by the end of this year,
pointing to slowed house price growth and a predicted reduction in turnover in
the housing market. This is likely to have a direct impact on stamp duty tax
receipts, which have been a valuable source of tax income in recent years.
The Chancellor included a pledge to
commit £3bn to build 30,000 new affordable homes alongside a commitment to end
fossil-fuel heating in new homes by 2025, with low carbon heating and energy
efficiency measures seeing an end to gas boilers.
He also brought forward the
introduction of changes to the Apprenticeship levy, which will be introduced
from next month now (April 2019). This
will see a reduction in the apprenticeship levy for smaller firms, reducing the
contribution from 10% to 5%, and larger firms will be able to invest up to 25%
of their levy to support apprentices in their supply chain.
In line with the Chancellor's shift
to there being a single set of tax changes each year - in the Autumn Budget - there
were no major tax or spending changes announced in this Spring Statement. But science and technology businesses will
welcome the announcements of £81 million for state-of-the-art laser technology,
£45 million for the UK's genomics industry and £79 million funding for a new
supercomputer, five times faster than any existing capabilities.
It's good to see this sort of
investment in technological advancements, intended to boost the economy by
keeping the UK at the leading edge, but the Chancellor's joke about how the new
£79m supercomputer may have the processing power to help find a resolution to
the Northern Ireland backstop, received less of a welcome, drawing little in
the way of laughs.
The Chancellor's message on the
risk to the economy of a messy divorce from the EU, if no deal and no deferment
has been agreed by 29th March, was echoed by organisations such as the Chambers
of Commerce and the CBI following the delivery of his Spring Statement.
The one certainty in the
uncertainty of Brexit is that for all of us, whether consumers or businesses,
the move from holding plan to action plan can't come soon enough.