Chancellor delivers his Spring Budget in light of Brexit chaos
Philip Hammond, Chancellor of the Exchequer, has delivered his Spring Statement for 2019 to Parliament.
The Spring Statement is an update on the health of the national economy, on progress made since the Autumn Statement, and on forecasts for growth and the public finances. It does not include significant tax or spending changes as these come with the Autumn Budget – although the Chancellor confirmed the next revaluation of business rates will be brought forward to 2021.
This year, the Spring Statement follows an unprecedented influx of £21bn to the public purse from income and corporations tax.
Key points from the Chancellor’s statement included forecasts of modest growth for the next five years, with the Office for Budget Responsibility predicting growth of up to 1.2% – the slowest growth for a decade since the depths of the crisis in 2009. Yet even this was lauded as an achievement considering Brexit uncertainty, will Philip Hammond stating “the economy had defied expectations.”
Forecasts of government borrowing have been revised down to £45.2bn in 2017-18, £4.7bn lower than predicted in the Autumn budget. The Chancellor claimed that unemployment has fallen across every region and nation of the UK since 2010, with a million fewer workless households. Other good news for workers included wages rising faster than inflation at over 3% for the next five years.
Business leaders across the UK have reacted to the Chancellor’s statements and their potential impact on key UK sectors and issues.
The statement promised £717m from the £5.5bn Housing Infrastructure Fund to unlock up to 37,000 homes at sites in London, the Oxford-Cambridge Arc, and Cheshire.
The government will guarantee up to £3bn of borrowing through the Affordable Homes Guarantee Scheme to support delivery of around 30,000 affordable homes in England.
Paul Hackett, chair of the G15 and chief executive of Optivo housing association, said: “The new funding announced today for the affordable homes guarantee programme is welcome, but our sector’s cross-subsidy model of delivering affordable housing is broken and a new funding deal is imperative if the Government wants to hit its target of 300,000 new homes a year.”
Director of Benham and Reeves, Marc von Grundherr, commented: “It may seem as though the chancellor has come out fighting for UK homeowners, but today’s spring statement was predictably compiled of regurgitated rhetoric and slightly misleading claims where the property market is concerned. Of the 220,000 new homes delivered last year, around 10% were, in fact, refurbs not new builds and we remain light years away from the Government’s magic target of 300,000.
“Help to Buy is arguably the poisoned chalice that has seen prices continue to inflate due to the uplift in demand it has fuelled, while new stock delivery remains inadequate. This playing field may be re-levelled should we see the £3bn affordable homes initiative bring the expected 30,000 additional homes, but as is often the case, these cash promises rarely provide a notable return.”
The Chancellor promised the introduction of a Future Homes Standard by 2025 to ensure that new builds meet low-carbon targets.
Simon Gooderham, joint managing partner, Cheffins, said: “Moves to help developers future-proof new build homes to meet low carbon heating and high standards of energy efficiency are essential to help purchasers to keep their money in the bank and not with the energy suppliers, whilst also protecting the environment.”
However, he went on to add: “It is unfortunate that the Chancellor did not tackle the issue of stamp duty which has had Britain’s housing market in a stranglehold… Until certain factions of the market are incentivised to move house, rather than penalised for it, the enormous swathe of second-steppers and family movers will remain locked in to their current properties.”
Philip Hammond pledged to tackle the ‘scourge’ of late payments, with new requirements for listed companies to report their payment performance in annual reports and accounts.
National Chairman of the Federation of Small Businesses (FSB), Mike Cherry, said: “At a time of great uncertainty, the Chancellor has shown today that there is still plenty of scope to support the UK’s small businesses. Poor payment practices by big businesses towards their smaller suppliers are rife and pernicious, leading to the closure of 50,000 small firms a year.
“Four out of five small businesses have been paid late, and we told the Chancellor that today was the moment to act, to tackle this scourge once and for all… We are especially pleased that the first measure has been announced – to make a Non-Executive Director responsible for the supply chain through the Audit Committee of every large business, and to report back through the Annual Report on their progress.”
Inna Kaushan, founder of invoicing platform Solna, said: “We’d like to see the worst offenders named, shamed and fined. Having to release details of their payment practices is definitely a step in the right direction, as we will now be able to see who is consistently using freelancers and SMEs as unofficial lines of credit.
“Everyone deserves to be paid on time for the work they do. For too long, many big corporates have been riding rough-shod over freelancers and SMEs, we need to ensure these companies play fair. Essentially, what we are asking for is a level playing field. Big companies are often the first to threaten legal action if payment is late but are the last to pay their suppliers.
“Mr Hammond said more details about the steps the government will be taking to tackle late payments will be released in the next few weeks – and we look forward to seeing these. In the meantime, small businesses and freelancers also need to step up and make more use of the technology and data available to them to help them decide who is a risk, and who isn’t.”
The Spring Statement did not address business rates except to promise a revaluation in 2021.
Simon Gooderham, joint managing partner, Cheffins, says: “Retailers will be disappointed that Philip Hammond did not tackle the issues surrounding business rates in today’s statement. It was dubbed the ‘high street Armageddon’ by the head of the British Retail Consortium earlier this week and indeed, the state of the British high street is now looking like its reaching the point of no return. With more closures amongst the sector than at any other time and footfall seeing the biggest drop in January than it has for the past five years, the government really needs to cut business rates. Rates have been the sticking point for retailers since the revaluation in April 2017, which led to direct tax rises for many retailers.”
Tech and R&D
The Chancellor continues to plan for a new tech tax, with a stated aim of targeting giants such as Google and Amazon rather than start-ups and small businesses.
The Spring Statement also included investments of £81m in Extreme Photonics in Oxfordshire, £45m for Bioinformatics research in Cambridge, and £79m for a new supercomputer in Edinburgh.
Exemptions from the cap on high-skilled visas will be available for PhD-level occupations from this autumn.
Cambridge-based Simon Gooderham, joint managing partner, Cheffins, said: “The Chancellor’s additional £200m investment in cutting-edge R&D and technology projects in Cambridge, Oxford and Edinburgh will help to sustain Cambridge’s burgeoning genetics industry.”
The Trades Union Congress was unimpressed by lower unemployment rates and rising wages.
TUC General Secretary Frances O’Grady said: “While the chancellor pats himself on the back, working people are paying the price for the prime minister’s disastrous mishandling of Brexit. Jobs are being lost, plants are under threat and much-needed investment is being cancelled.”
Much of the reaction to the Chancellor’s Spring Statement revolved around Brexit uncertainty. The Chancellor declared £1.5bn has been allocated to government departments for Brexit preparations, but until a deal is reached – or No Deal is confirmed – all other domestic policies fade into the background.
Business Growth Expert and Yomdel CEO, Andy Soloman, commented: “This was less of a spring statement and more an opportunity to peddle the Conservative party’s wider agenda of a deal before our EU exit date as the economy hangs on by its fingernails.
The current economic and political landscape remains in disarray and it is almost impossible for Mr Hammond, or anyone else, to predict the future performance of our nation as we enter this uncharted territory. While main economic indicators look steady, we are yet to actually leave the European Union and one could be forgiven for expecting the worst given the state of proceedings thus far.”
John Perry, managing director of leading supply chain and logistics consultancy SCALA, commented: “Given that the Brexit referendum was only advisory, not in any way binding, there have really always been four potential outcomes open to us: leave with no deal, leave with Theresa May’s deal, leave the EU but remain in the customs union, and remain.
“However, as soon as the result of the referendum was revealed… we have been nonsensically stuck between no-deal or May’s deal ever since. Now that May’s deal has been emphatically voted down by MPs, we have disastrously edged one step closer to a no-deal Brexit. Despite the second vote on whether to block a no-deal Brexit taking place later today, this will still be the default on the 29th March unless May can manage to get the other EU member states to agree to an extension in time.
“An extension would undoubtedly be by far the best outcome now for British businesses. Delaying the deadline until at least the summer would give us the chance to come together to campaign for either a second referendum in which the options are properly laid out, or at the very least to stay in the customs union.
“However, even if we still face a no-deal Brexit following a delay, the additional few months would have given businesses an invaluable opportunity to prepare themselves as thoroughly as possible. An extension would allow businesses to look beyond stockpiling and put in place more effective, long-term risk-reduction strategies by undertaking a full assessment of their supply chains, protecting themselves against the uncertainty that lies ahead.”
Phil Smith, Managing Director at Business West said: “Like nearly all current government business, the Chancellor’s focus and forecasts were dominated by the shadow of Brexit.
“For many businesses, this is a cause of great frustration – as pressing domestic problems go unaddressed whilst political infighting sucks out the oxygen that could be being used to kindle greater growth, job creation and in tackling our underperforming infrastructure, transport, housing and skills systems.”