15 Mar Spring Statement 2019
“Using his calculator with a blindfold on” – Laura Kuenssberg – BBC Politics Live 13th March 2019
The change to the Chancellors statements mean that the Spring Statement becomes little more than a legal responsibility to present the OBR forecasts, but this one in particular seems to pale into insignificance given the bigger picture being debated by Parliament over the course of this week. Indeed one commentator noted that the last time a budget statement was so over shadowed was the fall of Bagdad and toppling of the Saddam Hussein statue almost sixteen years ago.
The Chancellor opened with a reference to “other pressing matters for the house” and so it was that repeated reference to the current negotiations topped, tailed and caveated the announcements to follow.
Mr Hammond was at pains to point out that the economy is in rather good health. He took delight in reminding us that 3.5m net new jobs have been created, youth unemployment has halved, female participation in the workforce has increased significantly and we have the fastest rate of wage growth in over a decade.
Whilst the OBR (Office for Budget Responsibility) forecasts may not be predicated on the outcome of Brexit, (how could they be?) they will be impacted regardless. It was noted that providing we reach a deal and undertake an orderly transition, we should have “genuine and sustainable choices for the future”.
The OBR has cut growth forecasts for this year from 1.6% to 1.2% (the lowest since 2009), but maintain those given in the autumn statement for the successive four years ending at 1.6% for 2023. By which time they estimate a further 600,000 new jobs, the chancellor reminding the house that last year 96% of new jobs created were full time positions.
With wage growth expected to come in at 3% and inflation on target, real wage growth is expected over the coming years.
Borrowing this year is £3bn lower than expected in the Autumn Statement. National Debt is expected to fall to 73% of total GDP by 2023, the Chancellor claiming that this has been a journey of recovery from Labour’s recession.
There was a restatement of previously announced spending plans, with a particular focus on the NHS and the additional £34bn per annum first highlighted last year.
Mr Hammond mentioned the potential for a “Double Deal Dividend” in his statement last year, but dispensed with some of the alliteration in referring to a “Deal Dividend” only this time. However, it is clear that he was still referring to the possibility that if a deal is agreed – although Mrs May’s latest iteration lost by 149 votes the very same evening – he will be able to release some of the fiscal headroom built up as well as the economic benefit from the reversal of withheld investment spending across corporates.
He made a direct plea to members of the house to remove the uncertainty a no deal Brexit presents, something that MP’s were only just accommodating on, with a vote of 312 to 308 to reject a no deal on Wednesday. However, as we know that vote was not binding as such. So it moved to Thursday evening, the house voted by 413 to 202 to seek an extension to Article 50, although not guaranteed, it may mean that the UK does not leave by 29th March. The PM will give her deal another shot at passing next week and if that is backed, Brexit could be delayed by three months to 30th June.
If the deal is rejected again, then she will seek a longer delay from the 27 other EU member states. In any event he also sought to reassure us that provision had been made to insulate the UK against a no deal outcome, specifically focussing on border arrangements, the no deal tariffs announced on Tuesday and that the Bank of England have a range of fiscal and monetary tools at their disposal.
Whilst inflation is currently on target, it is important to note that with currency fluctuations and future uncertainty as to the economic outlook, the Bank of England policymakers must remain vigilant.
Productivity is a concern for the Treasury and the Chancellor reminded the house of the £37bn productivity fund. He announced a £260m “Borderlands” deal promoting economic growth along the border between England and Scotland, with further deals to come for Wales and Northern Ireland.
Promotion of the Digital Economy and building on the expertise the UK has in this respect is something the Government is keen to see, but as highlighted last year it is important that the large global technology companies pay their way and do not use complicated tax planning structures in order to avoid doing so.
Announcements we made on a number of educational initiatives, such as the aim for technical and vocational skills to appear at the core of the curriculum as well as the new apprenticeship package of £700m to be brought forward to April this year.
One of the hot topics of the European referendum was broached, which is the government’s aim that the post Brexit immigration system will ensure the UK is able to attract those with the skills needed. One of the first steps being to abolish paper landing cards for a selected range of countries and PhD level roles to be exempt from Visa caps.
The chancellor joked that £70m invested into the Archer 2 supercomputer may even result in a solution to the backstop problem.
Housing once again made an appearance with an additional £3bn affordable homes guarantee scheme.
Finally, there were some welcome announcements on climate change, sustainability, and initiatives to combat knife crime.
Personal finance made no direct appearance in the spring statement speech, but it is worth highlighting the main headline rates and allowances to be introduced in April.
The personal Income tax threshold will rise to £12,500. The higher rate income tax threshold will rise to £50,000.
The personal allowance is reduced by £1 for every £2 of Income over £100,000, meaning loss of the tax free amount if income is above £125,000.
ISA allowances will remain as are.
There are also no changes to pension savings allowances.
We will have to wait until the budget statement later in the year when the Chancellor will have a better understanding of the economic picture, so as to assess the likelihood of any giveaways next year.
Overall, it was a statement that was always going to be overshadowed by Brexit related issues. The Chancellor did use it as an opportunity to rally the troops behind the government, if not explicitly in support of the PM’s deal, but certainly attempting to remove the no deal threat, which would do so much to derail Mr Hammonds plans. Moreover, the statement also served as a conduit to reinforce the message that if the UK is to take advantage of the “huge opportunity” to become a truly “Global Britain”, then progress must be made on the Brexit issue in very short order.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue and Customs practice as at 15th March 2019. You are recommended to seek competent professional advice before taking any action.