Spring Budget 2017
The Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, today delivered his first – and last – Spring Budget to the House of Commons.
Changes to the UK’s financial calendar, along with ongoing uncertainty around the imminent triggering of Article 50, have meant that the Chancellor spent the past week playing down expectations around today’s event. Indeed, many commentators expected the Budget to be light on policy, with Mr Hammond writing in The Sunday Times this week that despite a more positive economic outlook for the UK, spending would remain controlled in favour of building up the country’s ‘Brexit reserves’.
The Chancellor went on to claim that that calls for spending sprees are “not only confused” but “reckless”. As expected, he today avoided expensive tax giveaways and expenditure, arguably living up his nickname as ‘Spreadsheet Phil’, a name which – although politically fitting – seems somewhat unfair considering the Chancellor’s stand-up routine at the dispatch box today.
As is tradition, the Chancellor began his address by outlining the Office for Budget Responsibility’s (OBR) revised outlooks for the UK’s over the next five years. To cheers from the Government benches, he announced that GDP growth has been upgraded from 1.4 to 2.0 per cent for 2017/18, meaning the UK is now the second-fastest growing economy in the G7, after Germany.
While the short term economic outlook is more positive than many had expected, the long-term outlook for the UK remains uncertain. Mr Hammond has abandoned his predecessor’s timetable for dealing with the deficit, but Number 11’s stated aim remains eliminating the deficit in the next Parliament. However, the OBR today noted in its fiscal outlook that “the Government does not appear to be on track to meet [this] fiscal objective”.
UK tax returns are expected to reach their highest level as a proportion of national income since the mid-1980s as soon as 2017/18. Despite this, funding for various services – most notably social care – remain strained. As part of a plan to fund spending, the Chancellor today announced a two per cent rise in National Insurance Contributions (NICs) among self-employed workers, increasing their contributions by one per cent in 2017/18 and a further one per cent the following year. The Chancellor argued that the difference between employed and self-employed rate of NICs was unfair and no longer fit for purpose and that closing this gap will raise a net £145 million per year by 2021/22.
However, as was rapidly-reported on social media, this contradicts the Conservative Party’s manifesto pledge from less than two years ago to not raise National Insurance, Income Tax or VAT, though the Government is likely to claim that the promise did not cover Class 4 NICs (under which the self-employed are categorised). He also went on to announce that he will be encouraging consultations this year to further investigate the wider implications for difference of tax treatment in the UK. In addition, the Chancellor announced a reduction in the tax free dividend allowance for shareholders to £2,000 from £5,000, effective in April 2018.
Much of the speculation around the Budget in recent weeks centred on business rates, which are set to change for the first time in seven years with potentially onerous implication for some business owners. There was consternation as, for a moment, it seemed that the Chancellor was going to side-step these concerns, announcing that the Government would announce its preferred approach to business rates in “in due course”.
However, he went on to announce three measures which he argued would ease the impact business rate changes will have on small businesses. These are: i) a new rates cap, meaning that no small business will see an increase of more than either £50 a month or the value of a transitional cap rate (whichever is highest); ii) a £1,000 discount to all pubs which have a rateable value of less than £100,000 (accounting for more than 90 per cent of British pubs); and iii) a £300 million discretionary fund for local authorities to help businesses that will face especially challenging increases. These measures, he argued, amount to a further £435 million cut to business rates.
Education and skills
The Chancellor has repeatedly spoken of Britain’s productivity problem and, despite his buoyant mood, was frank about the need for the UK to increase its productivity levels. These, he stated, have been “stubbornly low” for too long and that a productive economy is one which creates and shares wealth most effectively.
The £23 billion National Productivity Investment Fund (NPIF) announced in the 2016 Autumn Statement focused on ‘bricks and mortar’ infrastructure. Today’s Budget was intended to follow this up by supporting human capital, as the Chancellor said he aims to prepare the UK’s economy for the “fourth industrial revolution”. His speech included highlighting a £300 million fund to support PhD places and fellowships in the STEM subjects, along with a forthcoming schools white paper. This will remove barriers to new free schools, including faith schools, as well as allowing higher education institutions to become more active in funding them. Funding for 110 new free schools will be provided and these will be permitted to admit students on a selective basis – thus fulfilling the Prime Minister’s stated aim of effectively re-introducing grammar schools, some two decades after New Labour began to phase them out.
The Chancellor introduced the already much-trailed “T-levels” – 15 “clear routes” which will replace some 13,000 technical and applied qualifications currently available to school leavers. He said that each of these will include a “quality” three month work placement and will be supported by an additional £500 million a year in funding. He also announced that those who go on to take technical qualifications will now be supported by maintenance loans along the same lines as undergraduate students.
Industry and regions
Government funding aimed directly at sector-specific development will include £270 million for research around ‘disruptive technologies’ including biotech, driverless vehicles and robotics; £16 million for a new 5G mobile hub; and £200 million for local private sector projects focusing on broadband. There will also be money available for the regions to combat road pinchpoints and urban congestion issues, as well as support to North Sea oil and gas.
The Government’s devolution agenda also received a brief mention, though it appeared further down the agenda than we had come to expect during George Osborne’s statements to the Commons. The Chancellor announced that he has reached a new deal with the Mayor of London on further devolution which includes plans to “explore the benefits of, and scope for, locally-delivered criminal justice services; action to tackle congestion; and a taskforce to explore piloting a new approach to funding infrastructure”. Mr Hammond also said that a Midlands Engine strategy will be published tomorrow (09/03/2017). Finally, arguing that the UK is stronger together, he announced an additional £350 million in funding for the Scottish Government, £200 million for Wales and £120 million for an incoming Northern Irish Executive.
Social care and health
Social care will receive £2 billion worth of grant funding over the next three years with £1 billion of this to be accessible in the coming financial year. The Chancellor said that this short-term relief will be accompanied by a green paper which will follow later this year and set out the Government’s thinking on Britain’s social care crisis.
Other moves announced included reducing the Universal Credit taper rate from 65 per cent to 63 per cent, a new excise duty on cigarettes of £7.35 per packet, £5 million in returnships funding to support women back into the workforce, along with £5 million to fund projects commemorating the 100th anniversary of women’s suffrage next year. The Chancellor, highlighting that today’s Budget coincides with International Women’s Day, also announced that the Government would invest £20 million to support ending violence against women, and that £12 million received through the so-called ‘tampon tax’ will go to women’s charities. The Chancellor stopped short of making policy announcements on ‘subscription scams’, which had received a great deal of media coverage in the run-up to the Budget, but did announce an upcoming green paper on “protecting consumer interests”.
In Whitehall, meanwhile, it is local Government which will again feel the pinch, as the Department for Communities and Local Government is set to see its budget cut by nearly a third from 2016/17 to 2018/19.
One major policy area which was entirely absent from the Chancellor’s speech was housing, with the Treasury evidently hoping that the recent housing white paper will speak for itself. Moreover, considering the Chancellor’s promises today of upcoming papers and consultations on social care, schools and consumer protection, it becomes somewhat unsurprising that today’s Budget contained rather little in the way of major substantive policy announcements.
However, with Brexit negotiations soon to be underway, the financial outlook and economic imperative to act could be rather different by the end of the year. For this reason, the Chancellor may yet be thankful that he has given himself the chance to deliver a second Budget in 2017.