Insights

Anything the Chancellor could have announced today, in the Spring Statement, was overshadowed by the government’s Brexit plan defeat in House of Commons last night.  Still, the show must go on and Philip Hammond did a very good job of remaining upbeat. He even dangled something of a carrot, not for the taxpayers directly, but the MPs in their constituencies, when he promised increased spending on public services if a no-deal Brexit is avoided.

What’s on offer with a spending review?

The government has a pot of money (£26.6 bn) set aside in the event that the UK crashes out of the EU to help prop up the economy. Provided that a Brexit deal is agreed before 29 March, Hammond has said he will invest some of this ‘slush fund’ on the NHS and social care services, schools, environmental and police services.  No figures were provided and the amount, plus the focal areas, are to be agreed. This will happen after the Treasury conducts a full spending review before the summer recess and it will be reviewed in time for decision making in the autumn budget. Rather like a TV game show, the chancellor is describing it as a “deal dividend”, to “lift business uncertainty, encourage investment and end austerity”. Separate to this, an additional £100m is being made available immediately to pay for extra police overtime targeted specifically at curbing knife crime.

Latest economic figures – growth, borrowing and debt

As expected, there were no surprises whatsoever in terms of policy news or tax initiatives.  Everything has pretty much come to a standstill in the economy while the country waits for March 29^th.  This was evident in the figures announced concerning economic growth. The Chancellor did say that tax and spending responses or any Bank of England policy changes would only ever be temporary in the event of a no-deal Brexit. They would be introduced to help to combat higher levels of inflation, due to short term price rises.

According to Hammond, growth levels are very positive and he says the economy has ‘defied expectations’. The current growth forecast for 2019 is 1.2%, reviewed downwards from the original 1.6% predicted in October 2018. This is the level at which the economy is expected to remain until 2023.

Borrowing forecasts are £3bn lower in 2018-19 than the level forecast at the autumn budget and expected to be £29.3bn in 2019-20. Debt is forecast to be 82.2% as a share of GDP in 2019-20. These figures are based on leaving the EU with a deal in place.

Other key announcements

Making Tax Digital (MTD) for VAT begins on 1 April and the government has confirmed there will be "a light touch approach to penalties in the first year of implementation". In a statement issued alongside the spring statement, the government said that "where businesses are doing their best to comply, no filing or record keeping penalties will be issued.” They also said that “the government will not be mandating MTD for any new taxes or businesses in 2020."

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As reported in the FT, there will be a National Infrastructure Strategy launched in the Autumn budget to identify ways to secure private investment for new British infrastructure.

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No further requirement for paper landing cards at UK border entry points from June for citizens from the US, Australia, Canada, South Korea and Japan – they will be free to use the e-gates. There will be no visa caps in place for job roles involving PhD qualified individuals.

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Investment packages will be provided for laser technology and nuclear research – in addition to current R&D tax credits. There will also be funding for a new supercomputer at Edinburgh University, a £45m commitment to the European bioinformatics institute and funding for a new photonics institute in Oxfordshire.

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Barack Obama's former chief economist, Furman, has just published a review of commercial activity by tech giants like Google, Facebook et al and found them to have become increasingly dominant. This is potentially limiting market activity and innovation, plus it is restricting choice for consumers.  The government will be responding with an update of the competition rules for the digital age and a review of the digital advertising market.

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The incentives for small businesses to take on apprentices are being brought forward. Starting from 1 April 2019 the co-investment rate will reduce by 50%. This means the shared costs of training and assessing apprentices will drop from 10% to 5%.

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The property industry and housing will be boosted with a £3bn scheme to build 30,000 affordable homes. A further £717m will finance 37,000 new homes in West London, Cheshire, Didcot and Cambridge. 2025 will mark the end of fossil-fuel heating systems being used in new homes in the UK.