With the Government in turmoil since the shock June General Election result, coupled with the political upheaval we have witnessed on an almost weekly basis, today’s Budget offered the Government its first set-piece event to reset the political narrative.
Despite the supposed “opportunities” repeatedly referenced at the start of his speech, and the stress he put on the country “moving forward”, Philip Hammond faced the most difficult Budget of any government in recent decades. The lack of a governing majority and economic flexibility left little room to manoeuvre. This was a Budget of small incentives rather than big giveaways (aside from abolishing stamp duty for all first-time buyers under £300k) and was positioned as a Budget to ensure the UK is “fit for future”.
A lack of consensus over the future direction of the Conservative Party left Hammond destined to upset some within his party. And although today’s speech will not have won over swathes of new voters, it seemingly stabilizes Hammond’s current position. The lighthearted presentation of his speech – peppered with ‘puns’ and gags – aimed to mask the downgraded revised forecast by the OBR. In only 8 months since the Spring Budget the OBR further downgraded growth predictions significantly – making it the first time in modern history that UK GDP forecasts have fallen below 2%.
In the end Hammond maintained “a balanced approach”, positioning himself as balancing the books whilst also unlocking extra funding for housing, infrastructure and R&D. More tellingly, Hammond announced a number of measures to help tackle intergenerational unfairness to try and win back favour from young voters who flocked to Labour in June’s election. However, many younger, urban and affluent Remain voters, many of whom rejected the Conservative Party at the last election, will not be heartened by the announcement that the Government has set aside an extra £3bn Brexit no-deal contingency planning.
The Chancellor had little room for manoeuver today. Many on the backbenches, from both the Remain and Leave camps, will have craved a more radical and upbeat agenda that transmits optimism over the UK’s post-Brexit future. Despite this, initial reaction seems to be more positive than perhaps expected. As always with these statements though, the devil will be in the detail, and similar Budgets have had a tendency to unravel over the next few days…
General Economic Outlook
- Growth forecast for 2017 downgraded from 2% to 1.5%
- GDP downgraded to 1.4%, 1.3% and 1.5% in subsequent years before rising to 1.6% in 2021-22
- Productivity growth and business investment also revised down
- Annual rate of CPI inflation forecast to fall from peak of 3% to 2% later this year
- Another 600,000 people forecast to be in work by 2022
- Hammond stressed that negotiations with the EU are in a critical phase, with the UK hoping to move onto trade talks after the next EU summit in December.
- He attempted to move away from being seen as overtly hostile towards Brexit, pledging that the Government will be setting aside £3 billion for Brexit contingency planning. This is a markedly different Hammond to the same one who initially seemed reluctant to make provision for a ‘no-deal’ Brexit.
With the Government looking for new ways in which to boost competitiveness post-Brexit, the Chancellor set aside additional funding for innovative new technologies to make the UK a world-leader in the field and drive productivity. This will be followed up by the publication of the Government’s Modern Industrial Strategy White Paper on Monday, which is set to announce further Government support in this area:
- A further £2.3 billion for investment in R&D, and increasing the Research and Development Tax credit to 12%
- An extra £175 million of support a year for innovative businesses by 2022-23
- Investment of more than £500 million “in a range of initiatives from artificial intelligence, to 5G, and full fibre broadband”
- Hammond said that “our future vehicles will be driverless, but they will be electric first”
- From April 2018 the first year VED rate for diesel cars that don’t meet the latest standards, will go up by one band
- People who charge their electric car at work will not face a benefit in kind charge next year
- Planned taxes on diesel cars will increase as planned, but new cars will be exempt; this will fund a £200 million clean air fund
- £35 million for better mobile connectivity on trains – he pledged £30 million to trial new solutions on the TransPennine route to improve mobile and digital connectivity on trains
- Income tax will be applied to sales abroad for digital companies – he said all online market places will be jointly liable with sellers for VAT
- A new partnership with the CBI and TUC to deliver a National Retraining Scheme, equipping young people in technology, science, engineering and maths skills
Hammond continued with the theme propagated by previous Chancellor, George Osborne, to re-balance the economy away from London, with a series of regional investment announcements:
- Spending power increases for the Scottish and Welsh Governments and a Northern Ireland Executive
- Investment of £2 billion more for the Scottish government, £1.2 billion more for Wales and £650 million more for Northern Ireland
- More than £1.9 billion of lending will be available to councils to fund high investment projects
- A new £1.7 billion Transforming Cities Fund
- The Government will open talks on a Belfast city deal, with a view to having city deals across Northern Ireland.
The Government also announced a raft of measures, aimed at boosting the UK skills base, to improve productivity and competitiveness:
- Hammond has announced an expansion of the Teaching for Mastery of Maths programme, to a further 3000 schools
- The number of trained computer science teachers will be tripled to 12000
- A £600 Maths Premium for schools will be introduced, for every additional pupil who takes A Level of Core maths .
Although extra funding for the NHS has been welcomed it is far below the £4bn Sir Simon Stevens, CEO of NHS England has been calling for.
- Hammond pledged an additional £10 billion over the course of this Parliament to support the NHS’ Sustainability and Transformation plans
- Hammond also committed to additional resource funding of £2.8 billion to the NHS in England
- Committed to parity of esteem between mental health and physical health and confirmed that a green paper will be published in December setting out the governments’ plan to transform mental health services for children and young people
Housing was a key theme of the Budget, with Hammond keen to address the issue of the Conservative Party’s declining youth vote, and more broadly the issue of declining home ownership for young people:
- The Government will give local authorities the power to charge a 100% council tax premium on empty properties
- There will be £1.5 billion to help smaller firms build more houses
- The UK is on track to reach 300,000 new homes each year
- Hammond committed to building up to 1 million homes on the Cambridge – Milton Keynes – Oxford corridor by 2050
- Stamp duty abolished for first time buyers purchasing properties up to £300,000
- The Chancellor pledged new money for the Home Builders Fund to get SME housebuilders building again
- Over the next 5 years the Government will commit a total of at least £44 billion capital funding, loans and guarantees to support the housing market
- The Government will provide Kensington and Chelsea Council with a further £28 million for mental health services and regeneration support
Over the past year the Government has come under fire for its revamping of the business rates system. This Budget builds on the Spring Budget and will be welcomed by many businesses across the country.
- Hammond will bring forward the planned business rates switch from RPI to CPI by two years, to April 2018
- This will reduce the burden of business rates by an extra £2.3 billion
- The Government will extend the £1000 discount for pubs with a rateable value of less than £100,000 for 1 more year to March 2019
And finally a sweetener for the under-30s:
- In an attempt to further woo the youth vote, Hammond announced a new railcard for those aged 26-30, giving 4.5 million more young people a third off rail fares
If you would like to discuss the impact of the Budget or any other political developments please get in touch with our Head of Public Affairs, Tim Snowball.
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February 21, 2024