Chancellor Philip Hammond sought to paint a rosy picture of the economy with this week’s Spring Statement, but do the figures match his sunny outlook? Senior Account Executive Samuel Rowe investigates.
The messaging in the build-up to Chancellor Philip Hammond’s Spring Statement was very much a case of ‘don’t get excited’. But come the big day he was keen to shed his Eeyore-ish reputation by proclaiming “I am at my most positively Tigger-like”. Mr Hammond did his utmost to spread a liberal dose of optimism throughout his speech, but, digging into the detail presents a somewhat more sobering outlook.
Since the decision in November 2016 that there will be only one major fiscal event per year (that being the Budget), this first Spring Statement was billed as simply a check-in on the economy, as provided by the independent Office for Budget Responsibility (OBR), with no new commitments on further spending to be announced. So low-key was this statement that it managed to be overshadowed while it was happening, with the news of the US secretary of state, Rex Tillerson’s, surprise sacking breaking during the chancellor’s speech.
Mr Hammond focused on the positives. He announced that the OBR had revised up their growth forecasts for this year to 1.5% - a whole 0.1% higher than what was forecast last November. Public sector borrowing is also set to decrease at a faster rate than what was previously predicted, with the government now expecting to borrow £4.7 billion less.
In context, however, these are very marginal gains which will only last for the short term. The OBR forecast for growth for 2019 and 2020 remains unchanged and growth has been revised down for 2021 and 2022.
While it’s important to remember that the OBR’s figures are forecasts and therefore cannot be 100% accurate predictions of what will happen, questions will still be asked by some on the government’s approach to managing the country’s finances. As the Institute for Fiscal Studies summarised, the outlook for real GDP growth is weaker than two years ago, the forecast deficit, which the government now intends to eliminate by the mid-2020s, is higher than two years ago, and real average earnings are expect to grow by “just” 3.5% over five years which, combined with inflation, will mean more “weak growth in the living standards of working age households”.
When it comes to the possibility of extra spending for public services, while the chancellor did announce a plan to “set an overall path for public spending” with a detailed review in 2019, it’s jam tomorrow for those who craved some positive news this week. Instead, there were plenty of ‘ifs’ and maybes’: if the economic picture continued to look positive, then maybe there might be room to increase public sector spending. This lack of certainty will be disappointing to some and is unlikely to help win over new Tory voters for the local elections this May.
One of the more eye-catching headlines from the OBR’s statement was on the size of the so-called Brexit ‘divorce bill.’ Based on the government’s current commitments, the OBR estimates the final divorce bill to be £37.1 billion, the last instalment of which may not be paid off until 2064.
While the chancellor did not commit to any new policies, we were treated to a whole wave of consultations – ranging from corporate tax for new tech firms and capital gains relief for entrepreneurs, to changes to the tax system to reduce plastic waste and a review of the impact of Air Passenger Duty on tourism in Northern Ireland. One of the consultations is asking if there is any practical use for 1p and 2p coins anymore in this era of digital payments. If this Spring Statement is remembered for anything, it could be for the beginning of the end of copper currency.
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