UK Chancellor, Philip Hammond, was in good spirits last week as he delivered the Budget speech, cracking jokes throughout. He opened by saying that the UK has an economy “that has confounded the commentators.” This strong economy is a key step in “building foundations for a stronger, fairer, more global Britain,” and provides a “strong and stable platform to plan for a brighter future for Britain.”
“It was good to see the Chancellor, who is usually very straightforward and brisk, seeming so relaxed and confident in his announcements and so assured about the strength of the UK economy,” comments Gavin Herridge, Managing Director of Halo Financial.
“We can’t help but feel that he couldn’t not take a positive stance for this all-important Budget, setting the tone for a successful post-Brexit Britain and reflecting the positive results that UK industry and business have demonstrated in recent months.”
“Sterling strengthened somewhat in response to good news and positive predictions for the UK economy, building to 1.153 against the Euro and 1.217 versus the US Dollar immediately following the Chancellor’s speech.”
“However, it was disappointing not to see the rising input costs – both in production and imports – for the UK’s manufacturers, importers and exporters addressed in this forward-looking Budget, as if these costs continue to grow unchecked, the positive results we’re seeing from UK industry could suffer.”
Setting a positive tone for the UK economy
The Chancellor continued the positive tone, noting the positive growth in the UK economy, which grew faster than the US, France, and Japan in 2016, with Britain’s economic growth second only to Germany. Employment is at a record high, unemployment is low. The Chancellor stated that resilience in an economy is reflected by a strong labour market – seeing a positive trend of rising employment across the UK – particularly notable in Humber and Northern Ireland. They predict that an additional 750,000 people will be in work by 2020.
Mr. Hammond also noted, in celebration of International Women’s Day, that there is “now a higher proportion of women in the workforce than ever before.”
However, the Chancellor was quick to point out that there is “no room for complacency,” and that “we cannot rest on past achievements.”
On a less positive note, productivity remains “stubbornly low” and there are too many young people leaving school without the skills they need, and so, the Chancellor acknowledges that, almost a decade after the crash, their “job is not yet done.”
UK growth has, as we anticipated, been upgraded by the Office for Budget Responsibility to 2%, from the previous 1.4%. They forecast that 2018 will see growth drop to 1.6%, before picking up to 1.7%, then 1.9%, then lower again in 2021 at 2%.
The Chancellor announced that inflation is predicted to go up to 2.4% for 2017-18, but then will drop to 2.3% and 2.0% in the coming years.
GDP output is forecast to go up to 1.6%, 1.7%, 1.9% and 2%.
Annual borrowing was £51.7 billion for 2016-17, which was lower than predicted. They predict this figure to rise to £58.3 billion for 2017-18, then see a marked drop for 2018-19 to £40.6 billion, then 21.4 billion in 2019-20, then fall again to 20.6 billion in 2020-21. This predicted fall should meet the 3% EU stability target for first time in over a decade.
The figures for public sector borrowing were far-reaching, predicted to drop from the 3.8% of Gross Domestic Product (GDP) in 2016 to 2.6% in 2017, then 2.9% for 2018, to 1.9% for 2019 and then dropping as low as 0.7 % for 2021-22. And while debt rose to 86.6% in 2017, it is predicted to fall significantly by 2021-22, to 79.8%.
Boost for business?
The Chancellor reiterated that “Britain is open for business” and insisted that he is “listening to the voice of business,” and will always support “the entrepreneurs and innovators that are the lifeblood of the economy.”
Mr. Hammond emphasised the importance of equipping young people with the skills they need, and to encourage employment, building a solid future for the workplace.
The Chancellor referred to his commitment to review the R&D Tax Credits in the Autumn Statement, concluding that it is competitive globally, but saying that they will instead take measures to reduce administrative burden around the scheme.
There has been much concern about business rates. The Chancellor reiterated that business rates raise £25 billion per year, so are very much needed, but admitted that the government needs to find a better way to tax the digital part of the economy. He said that measures would be taken to make the process smoother and that they will set out a preferred approach “in due course”. He pledged a £435 million cut in business rates for those affected by rising rates.
In the meantime, they plan to address concerns with three measures:
Any business that loses existing relief will have the rates capped at £50 a month
A £1000 business rate discount in 2017 for pubs with rateable value of £100,000
A fund for local authorities of £300 million for discretionary hardship relief, for small businesses adversely affected by the rate rises.
Mr. Hammond stated that Britain has the most competitive corporate tax regime in the G7, but that we need to make sure that companies are not formed just to benefit from this.
Personal Finance – Tax changes
The Chancellor announced the controversial plans to raise taxes for the self-employed, due to the £5 billion cost to public finances. National Insurance Class 4 contributions will go up to 10% in 2018, then will go up again to 11% in 2019, costing those who are in this tax band an average 60p per week.
He also noted the gap between the total tax paid by those employed by a company and those who have set up their own company. To address this, the tax-free dividend allowance for directors/shareholders will be reduced from £5,000 to £2,000.
In the spirit of International Women’s Day, Mr. Hammond announced support for working families and women in the workplace of £5 million funding for people returning to work after a career break or parents returning to work after having children.
He reiterated their commitment to working parents with children aged three and four, who will receive free childcare entitlement, now doubled to 30 hours a week.
He announced £300 million for the “brightest and best research talent”, to support 1,000 new PhD places and fellowships in science, technology, engineering and maths. The aim is to keep the UK at the forefront of disruptive technologies, such as biotech.
Mr. Hammond referred back to the infrastructure investment proposals in the Autumn Statement and announced further initiatives:
Investment in a new 5G mobile technology hub.
£90 million for the North and £20 million for the Midlands to invest in transport.
A United Kingdom
The Chancellor announced an additional £200 million for the Welsh government, £120 million for Northern Ireland, and £350 million for Scotland, emphasising that we are “stronger together”.