March 7, 2017
On Wednesday 8 March Chancellor Philip Hammond will deliver the final Spring Budget before the Government’s set piece fiscal event shifts to the Autumn. FTI Consulting looks at the rumours and speculation surrounding what will be Hammond’s first Spring Budget.
Anyone seeking major announcements this Wednesday is likely to be left wanting. It is expected that this Budget will be as uneventful as possible, as the Government shifts emphasis to the Autumn and gives itself more time to prepare for Brexit reaction. After all, this will be the last Budget before Prime Minister Theresa May triggers Article 50 and the UK begins the formal process of leaving the European Union.
That said, in the run up to the Budget, Hammond has been under pressure in several areas, not least around business rates, a perceived social care crisis and continued austerity. He is expected to continue prioritising productivity, a key theme of last year’s Autumn Statement, and has already said that investing in the UK’s future and dealing with the skills agenda will be at the centre of what is announced.
While we do not have a crystal ball on the content of the speech, no one should expect any major surprises. Unlike his predecessors, the sometimes nicknamed “Spreadsheet Phil” is not prone to tricks or gimmickry on the day designed to grab headlines. The occasion will more likely be a sober and serious affair, setting out the challenges ahead.
Stronger tax receipts are expected to give the Chancellor a £29bn windfall while public borrowing is expected to fall to around £56bn in the current fiscal year, down from £71.7bn in the previous fiscal year.
However, Whitehall won’t feel the benefits of this windfall with Hammond having no intention of flashing any cash – the government has already announced that it will be asking ministerial departments to outline cuts up to 6 per cent with the aim of saving up to £3.5bn by 2020. Rather, it is expected that the Chancellor will use this £60bn windfall as an emergency buffer, in case of a sudden economic downturn following the Article 50 Trigger.
One area that will see a cash injection is the skills sector with investments trailed in engineering, construction and manufacturing. As part of efforts to increase productivity and close the skills gap, the Chancellor has promised £500m a year to ensure young people are obtaining skilled work and are prepared for the so-called “fourth industrial revolution.” Digital Skills are therefore also likely to feature, an announcement which was trailed in last week’s Digital Strategy.
Writing in The Sunday Times this weekend, Hammond noted “We will take further action to give our young people the training they need to access the highly skilled and highly paid jobs of the future”.
The NHS is demanding £10bn in extra care to bring it into line with major economies across Europe. New funding of this scale would be surprising, but the recent crisis in the already woe-ridden sector could prompt spending for the provision of social care to release pressure from the NHS services, as spending on the NHS rises up the public’s list of concerns and priorities and grows more politicized.
This is likely to be a short term solution, while the Government works on a longer term strategy to tackle the crisis, but it would be a popular move among the public given the wide reporting of the issue in the press.
A coordinated campaign in the run up to Wednesday has put a focus on business rates and has prompted a backlash from Conservative MPs especially in the South East, where small businesses are being hit particularly hard. The Chancellor has promised action on business rates, while Communities and Local Government Secretary Sajid Javid has said he is working with the Chancellor to allay the fears of many independent retailers and small business owners, who see the changes to rates as having a significant threat to the viability of their businesses.
Less popular amongst backbench Conservative MPs will be a rumoured increase in taxation for the self-employed. Prompted by changes in the labour market, where there has been a rapid increase in the number of self-employed people– to nearly 5m – the Chancellor is considering an immediate announcement to increase the National Insurance class 4 rate by 3p in the pound.
Also unpopular among Tory backbenchers would be any backtracking on the pensions “triple lock.” Pensions tax relief costs the Treasury £48bn a year and cuts to it have long been mooted, given it disproportionately benefits higher earners. Over the weekend, calls to abandon the lock were backed by former pensions minister Baroness Ros Altman.
In keeping with previous years we should expect a freeze on beer duty as well as a continuation of the freeze on fuel duty. Also likely is an increase in duty on cigarettes, with the tobacco industry potentially forced to put up prices of its cheapest brands if a possible rise in the “effective floor” of the Minimum Excise Tax goes ahead.