The Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, unveiled HM Treasury’s Spring Statement to the House of Commons yesterday. With the UK moving to a single annual fiscal event, the statement differed significantly from previous years, with the Chancellor insisting over the weekend that this would not be a ‘mini-Budget’, but a statement that would highlight areas for consultation in preparation for a full Budget later in the year.
As such, there was no red box, official document or significant tax and spending announcements, with Mr Hammond claiming that a scaled-down approach would allow more time for stakeholder and parliamentary engagement on fiscal changes, and bring the UK’s fiscal calendar in line with the majority of the world’s leading economies.
In a nod to his depiction as an ‘Eeyore’ character, the Chancellor described himself as “positively Tigger-like” over the Office for Budget Responsibility’s (OBR) economic figures – claiming that the better-than-expected results signified that there was a “light at the end of the tunnel” for the UK economy.
The headline announcements included a sustained fall in levels of debt, economic growth of 1.7 per cent for 2017 (revised up from its 1.5 per cent forecast at the time of the Autumn Budget), as well as a revised OBR forecast of 1.5 per cent growth in GDP this year, up from the 1.4 per cent previously expected. Mr Hammond also hailed a decrease in government borrowing, which he said has fallen by three-quarters since 2010.
However, the spring in the Chancellor’s step was limited by the continuing uncertainty around the effects of Brexit. The medium-term economic picture continues to look less certain and the OBR has decreased its growth forecasts for the beginning of the next decade. Moreover, the OECD has placed Britain’s growth at the bottom of the G20 economies for 2018 and 2019 and predicted the UK is likely to miss out on a global economic upturn.
Despite calls from Labour to increase public spending to help cash-strapped councils and the NHS, Mr Hammond stressed that the Conservatives would continue their “balanced” approach to spending, with the UK economy “not out of the tunnel yet”. The lack of government intervention on local authority funding unsurprisingly was met with criticism from councils across the country, as well as from organisations including the Local Government Information Unit (LGIU).
Mr Hammond said that the Government’s greater economic flexibility would be used to cut taxes for small businesses and families that are “feeling the pressure”. He reiterated commitments made during the 2016 Autumn Statement, including £9 billion of additional investment for the NHS and social care system, before making clear that any significant increase to public services and infrastructure spending will be saved for the Autumn Budget.
Housing and Development
In line with the recent publication of the draft revised National Planning Policy Framework (NPPF), the Chancellor took the opportunity to position the Government as focused on easing the UK’s housing crisis. He began by restating the Government’s investment programme of £44 billion over the next five years to help meet its target of delivering 300,000 homes a year by 2025. Mr Hammond went on to declare that the Government is working with 44 local areas on their bids for part of the £4.1 billion Housing Infrastructure Fund that was announced in summer 2017, which he hopes will unlock more homes in areas of high-demand.
Acknowledging the important role of small housebuilders, the Chancellor referred to the doubling of the Housing Growth Partnership – backed by Lloyds Bank and Homes England – which aims to increase their funding. Moreover, he stated that a housebuilding deal in the West Midlands had recently been agreed, which the Government hopes will deliver more than 215,000 homes by 2021.
A key announcement was a £1.67 billion injection into affordable housing for London, which Mr Hammond claimed would create an additional 27,000 affordable homes. This was later blasted by the Shadow Chancellor, John McDonnell, as a continuation of the Tories’ neglect of northern England, claiming that property investment was too focused on the capital.
The Chancellor referenced the recent scrapping of Stamp Duty for homes under £300,000, and rejected claims that the policy would drive up house prices for first-time buyers – instead, he claimed that approximately 60,000 homes had already benefitted from Stamp Duty relief. Acknowledging the UK’s need for more skilled construction workers, the Chancellor announced that the Government’s construction skills fund would open for bids next month to fund up to 20 construction skills “villages” nationwide.
Yesterday also saw the publication of an interim update letter from Oliver Letwin, who was appointed by the Government last year to review the planning system. Letwin’s full report, which will investigate ‘land banking’ among other development issues, will be unveiled in time for the 2018 Autumn Budget.
Contrary to last week’s headlines that the Government had decided against introducing a so-called “latte levy”, the Chancellor announced a call for evidence on everyday plastic items, including disposable coffee cups and polystyrene packaging. He said that the Government would be engaging with the entire supply chain to explore different recycling options, as well as a reformed tax system to drive behavioural change, with the money raised used for innovation in greener processes and products.
£20 million of Research and Development funding will be allocated to businesses and universities to identify methods to reduce the environmental impact of plastics. Additionally, Mr Hammond announced there would be a future consultation on reducing Vehicle Excise Duty (VED) rates for the “cleanest” vans.
Small businesses and training
Improving the UK’s productivity has been a mission of Conservative-led governments since the turn of the decade, and the Chancellor unveiled an approach that would place small businesses at the heart of this. His strategy will aim to help SMEs increase innovation, embrace new technologies and provide better training.
There was a commitment to eliminate the “scourge of late payments” experienced by small businesses, which received support from multiple SMEs and from the Federation of Small Businesses (FSB). FSB Chairman, Mike Cherry, stated that late payments from large companies to smaller suppliers’ places “cruel financial pressure” on them and that it “holds back growth and productivity”. Additionally, Mr Hammond stated that £80 million would be released to help small businesses engage with apprentices. Consultations were announced on new VAT collection mechanisms for online sales, and on how to boost cashless and digital payments while ensuring sufficient access to cash.
Mr Hammond announced a plan to reduce business rates by over £10 billion and that the next business rates evaluation will be brought forward a year to 2021, after which there will be a revaluation every three years, rather than every five.
References to Brexit were limited during the Chancellor’s speech, though he again emphasised that Britain would remain an “outward-looking, free-trading nation” during negotiations with the EU and once the UK leaves the union. The Chief Secretary to the Treasury, Liz Truss, also published yesterday departmental allocations of over £1.5 billion in Brexit preparation funding for 2018-19.
There were short updates on infrastructure and transport – with a nod to the previously-announced £840 million fund for delivering local transport priorities. Building on the 2017 Autumn Budget, Mr Hammond unveiled details of his plans for the £190 million Local Full Fibre Networks Challenge Fund, with the Treasury allocating the first wave of funding – including £25 million for the first 5G testbeds
With the headline-grabbing announcements saved for later in the year, yesterday’s statement focused largely on doubling-down on previous announcements, as well as laying the foundations for the Government’s policy agenda for the coming year. Accordingly, no fewer than 29 consultations were announced (13 of which were published on the Treasury website yesterday), ranging from taxing tech companies and the role of physical and digital tax in the modern economy, to construction sector supply chain fraud and the single-use plastic waste problem.