Brexit & EconomyBudgetSpring Statement 2018: Spring has sprung as chancellor finds his inner Tigger

Spring Statement 2018: Spring has sprung as chancellor finds his inner Tigger

The chancellor may have a spring in his step for the time being, but with only eight months to go before the next OBR forecasts, how long will it be before he loses his bounce?  

Despite the warnings, Spring Statement fever started to spread this week, as the accountancy industry floated ideas about what might be announced in the chancellor’s speech. Chief secretary to the Treasury Liz Truss had told us to expect “no red box, no rabbits out of the hat and no tax changes”, but as it turned out, it wasn’t entirely the non-event we were advised it would be.

Buoyed by the Office for Budget Responsibility’s (OBR) recent forecasts, Philip Hammond leapt to the despatch box, likening himself to Tigger in a bid to dispel his Eeyore reputation among critics. And, seemingly much more relaxed than he appeared at the Autumn Budget last November, he embarked on a self-congratulatory statement, seizing the OBR forecast growth revisions as endorsement of his economic and fiscal policy.

The figures played in Hammond’s favour – however slight the increase – with the economy having grown 1.7% in 2017, 0.2% up on the OBR forecast. Forecasts for growth in 2018 have now been revised up to 1.5% from 1.4%, although estimates for 2019 and 2020 remain unchanged, and forecasts for 2021 and 2022 have been revised down by 0.1% to 1.4% and 1.5% respectively.

Hammond was not deterred, threatening to replicate the nation’s success in 2017 and beat the forecasts once again in the coming years, before hailing falling debt and borrowing, and highlighting rising employment.

Light was at the end of the tunnel, the chancellor asserted on more than one occasion. But was he the only one who could see it?

Tax policy

The move to one major annual fiscal event was designed to give certainty to businesses and individuals ahead of the new financial year, yet Chris Sanger, head of tax policy at EY, said that individuals would be “forgiven for not realising that we’d moved from a Spring Budget to a Spring Statement”.

“With the same level of jokes and updates on the economy, all that was lacking was the bulk of tax related measures that normally follows the first 20 minutes of the speech,” Sanger said.

But for those thirsty for tax-related policy, the chancellor announced a wave of tax consultations and calls for evidence, paving the way for a raft of tax changes in the Budget later this year.

This action equated to a “pre-Budget report”, said Sanger, who welcomed the opportunity to engage in the consultations.

“So, ironically, in the Spring Statement, for once we have seen a real Pre-Budget Report – something that has been difficult for previous chancellors to deliver. The extra time to consult is very welcome and should allow discussion of the topics while the ideas are forming, rather than once the government has become committed to developing the concepts to fruition,” Sanger said.

A review into the taxation of large digital businesses was announced, as were proposals for a new VAT collection mechanism for online sales. The VAT registration threshold was also back in the spotlight with a call for evidence on how the threshold’s design might impact productivity of small businesses.

Originally announced in the 2017 Autumn Budget, the statement signalled the release of a consultation on Entrepreneurs’ Relief , as well as environmentally-focused tax consultations on non-agricultural red diesel tax relief, vehicle excise duty rates, and curbing single-use plastic waste.

Housing

On housing, Hammond said that a deal had been agreed with the West Midlands to deliver 215,000 homes by 2030-31, supported by a £100m grant from the Land Remediation Fund. In addition, £1.7bn would be provided to deliver affordable homes in London.

With first-time buyer stamp duty relief having been announced as a headline measure in the 2017 Autumn Budget, the chancellor declared that an estimated 60,000 individuals had already taken advantage of the scheme.

Yet, the initiative’s success could come at a significant price for the Treasury. Nimesh Shah, partner at Blick Rothenberg, said that 60,000 people benefitting from the relief would have cost the Treasury £300m since its introduction.

“At the Autumn Budget, the Treasury estimated the 2017-18 cost to be £125m, and by 2022-23, £670m. Today’s claim by the chancellor that 60,000 first time buyers have already benefitted suggests that the government’s original figures were significantly under-estimated,” he said.

Brexit

Hammond provoked ripples of laughter from opposition benches for insisting that the government had made “substantial progress” in Brexit negotiations, but said that it would “continue to prepare for all eventualities”, bolstered by departmental allocations of £1.5bn to support the preparation.

While prime minister Theresa May looked noticeably uncomfortable at the mention of Brexit, she and the chancellor could take comfort in the OBR’s validation of the government’s estimate for the divorce bill. At the end of last year, the government had estimated that the settlement would cost between £35-39bn – a figure now supported by the OBR, which estimated the cost to be £37.1bn.

Apprenticeship levy and business rates

The chancellor reaffirmed the government’s commitment to the apprenticeship levy and to boosting apprenticeships to 3m starts by 2020. However, he acknowledged that the new system had presented challenges to small businesses seeking to recruit an apprentice, for which he announced £80m of funding support.

In another measure to support businesses, the chancellor confirmed that the next business rates revaluation would be brought forward by one year to 2021 and would take place every three years from that date onwards. Yet global real estate services company Colliers International said that moving the business rates revaluation was “too little too late”.

Head of business rates at Colliers International John Webber said: “This is all very well and good, but it does nothing to help those businesses, particularly the retailers who are struggling with the system today.”

“The change from a seven year to a five year, then a four year and finally a three-year revaluation system, only underlines how the government has finally realised how disastrous the seven-year 2017 revaluation was,” he added.

Will the bounce run out?

Hammond cut a confident figure during the statement delivery and when defending himself against comments from the shadow chancellor that the UK was in a “crisis on a scale we haven’t seen before”. But as the UK hurtles towards the Brexit deadline, the road ahead will be anything but easy for the chancellor. McDonnell accused Hammond of “astounding” complacency in his statement response, and come the Budget in November, the chancellor will be hoping that his newfound enthusiasm wasn’t misguided.

The chancellor may have a spring in his step for the time being, but with only eight months to go before the next OBR forecasts and with numerous obstacles to overcome before then, how long will it be before he loses his bounce?

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