This lunchtime, Chancellor Philip Hammond delivered his Spring Statement in the Commons. His speech pinpointed the Government’s achievements on growth and jobs while warning about the “cloud of uncertainty” following last night’s Brexit vote, which he said could jeopardise the UK’s economic recovery and exhaust its cash reserves for public services.
- Hammond argued that the economy had “defied expectations” and was forecast to grow 1.2% in 2019 – lower than the 1.6% forecast in October. In addition, the forecast for borrowing is £3 billion lower than forecast at the Autumn Budget.
- Hammond said the UK’s success this year would largely depend on leaving the EU with a Brexit deal and ensuring Labour does not come to power.
- Hammond set out further small-scale investments in infrastructure, technology, housing, skills, and clean growth.
Despite his cautionary tone throughout his speech, he said the UK has “genuine and sustainable choices about its future”. Echoing his language from the last Budget, he said that a “deal dividend” lifting business uncertainty would encourage more firms to invest in the UK economy.
Going forward, Hammond said that the Treasury will conduct a full three-year spending review before the summer recess, which would be concluded before the Autumn Budget.
- The Brexit vote last night has “left a cloud of uncertainty hanging over our economy”.
- The UK economy has nevertheless remained “remarkably robust” and is expected to grow for the next five years.
- The progress the UK economy has made “will be at risk if we cannot secure a smooth and orderly exit from the EU”. MPs have a “solemn duty … to put aside our differences and seek a compromise”.
- The UK will be “a smaller, less prosperous economy in the long-term, than if we leave with a deal”. It would lead to higher unemployment, lower wages, and higher prices in the shops.
Brexit Contingency Planning
- “All of us have a solemn duty to put aside our differences and seek a compromise on which we can agree in the national interest”.
- The publication of the no-deal tariff regime this morning “carefully balances” the needs of consumers and producers.
- There have been nine consecutive years of growth. The OBR “expect Britain to continue to grow in every year of the forecast”. However, the OBR has downgraded its 2019 growth estimate to 1.2%, down from October’s prediction of 1.6% – the UK’s worst growth since the crisis.
- Forecast GDP growth is at 1.2% this year, then 1.4% in 2020 and 1.6% in each of the final three years. Significantly, in none of these years, is growth forecast to hit 2%.
- The OBR expects inflation to stay close to or on target for the duration of the forecast.
- The unemployment rate of 4% is the lowest rate since 1975. The OBR forecast it will remain near historic lows over the next five years. By 2023, the OBR expect to see 600,000 more new jobs.
- Business investment is forecast to start growing again from next year, once businesses have the certainty they need to invest.
- Borrowing this year will be 1.1% of GDP – £3 billion lower than forecast at the Autumn Budget.
- The OBR is revising wage growth to be 3% or higher in every year, with inflation now around the target throughout the forecast period. This means real wage growth in every year of the forecast.
- A review conducted by Professor Arin Dube will be launched into income distribution to look into “evidence on the employment and productivity effects of minimum wage rates”.
- If a Brexit deal is concluded, the Treasury intends to launch a full three-year Spending Review before the summer recess, to be concluded alongside the Autumn Budget. This would set departmental budgets, including three year budgets for resource spending, if a Brexit deal is agreed.
Immigration/ Global Britain
- The UK will abolish the need for paper landing cards at UK points of entry for certain countries. From June, the Government will allow citizens of the USA, Australia, New Zealand, Canada, Japan, Singapore and South Korea to use e-gates at airports and Eurostar terminals.
- From Autumn, PhD-level roles will be completely exempt from visa caps.
- Hammond called this a “signal to the world to our commitment to Global Britain”.
- The Augar review will be published “shortly” and will represent an important contribution to the Government’s overall plan for post-18 education.
- Apprenticeship reforms announced at the last Budget will mean that from 1 April employers will see the co-investment rate they pay cut by a half from 10% to 5%, at the same time as levy-paying employers are able to share more levy funds across their supply chains, with the maximum amount rising from 10% to 25%.
- £79 million unveiled for ARCHER2, a new supercomputer to be hosted at Edinburgh University.
- £45 million committed to the European Bioinformatics Institute for genomics research.
- £81 million announced for a new Extreme Photonics Centre in Oxfordshire to develop new types of laser technology.
- A consultation on the detailed design and implementation of the Digital Services Tax that will take effect from 1 April 2020.
- Barack Obama’s former Chief Economist, Jason Furman, will lead a review of competition in the digital market, in order to adapt the regulatory environment to ensure competition works for consumers in the digital market place.
- A new £3 billion Affordable Homes Guarantee scheme will support the delivery of around 30,000 affordable homes.
- £717 million from the Housing Infrastructure Fund will unlock up to 37,000 new homes on sites in West London, Cheshire, Didcot, and Cambridge.
- The Government has published a consultation on Infrastructure Finance, seeking views on how it can best support private infrastructure investment in the context of the UK’s changing relationship with the European Investment Bank.
- The Government will introduce draft legislation detailing a new capital allowance for new non-residential structures and buildings.
In the coming months, the Government will:
- Independent Report on Build Out Rates – Introduce additional planning guidance to support housing diversification on large sites. Sir Oliver Letwin concluded that greater differentiation in the types and tenures of housing delivered on large sites would increase build out rates.
- Response to consultation on Planning Reform – Introduce a package of reforms including allowing greater change of use between premises, and a new permitted development right to allow upwards extension of existing buildings to create new homes.
- Accelerated Planning Green Paper – Publish a Green Paper setting out proposals on how greater capacity and capability, performance management and procedural improvements can accelerate the end-to-end planning process.
- The Government will publish a call for evidence on whether all passenger carriers should be required to offer genuinely additional carbon offsets, so that customers who want “zero carbon travel” can have that option.
- A Future Homes Standard will mandate the end of fossil-fuel heating systems in all new houses from 2025.
- A call for evidence on the Business Energy Efficiency Scheme, announced at the Budget, has been published alongside the Spring Statement, to help small businesses cut their carbon emissions and energy bills. It will consult anyone with an interest in how a new scheme for SMEs could be designed, including energy companies, network operators, SMEs, financial institutions, Energy Service Companies (ESCOs), and academics.
- A call for evidence to identify what more should be done to further strengthen Scotland and the UK’s position as a global hub for oil and gas decommissioning.
- Following consultation, the Government will use the forthcoming Environment Bill to mandate biodiversity net gain for development in England, ensuring that the delivery of much-needed infrastructure and housing is not at the expense of vital biodiversity.
- The Government has announced a comprehensive review of the Aggregates Levy and confirmed its commitment to devolving the levy to the Scottish Parliament.
- Later this year, the Government will launch a comprehensive global review of the link between biodiversity and economic growth.
In the coming months the Government will set out further detail on the following:
- Review on the Economics of Biodiversity – A new global review, led by Professor Sir Partha Dasgupta, to assess the economic value of biodiversity and to identify actions that will simultaneously enhance biodiversity and deliver economic prosperity. The review will report in 2020, ahead of the 15th meeting of the Conference of the Parties to the Convention on Biodiversity in Beijing in October that year.
- Greening the Gas Grid – Accelerating the decarbonisation of the UK’s gas supplies by increasing the proportion of green gas in the grid. To meet the UK’s climate targets, it will reduce the UK’s dependence on burning natural gas to heat homes. The Government will consult on the appropriate mechanism to deliver this commitment later this year.
- Biodiversity and conservation in Overseas Territories – A call for evidence inviting creative ideas from stakeholders on how the government can safeguard the biodiversity found in the Overseas Territories.
- Police forces in England will receive an additional £100 million over the course of the next year, ring-fenced to pay for additional overtime targeted on knife crime.
- The Government will fund the provision of free sanitary products in secondary schools and colleges in England from the next school year.
If you’d like to know how this affects your business please don’t hesitate to get in touch.
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August 1, 2019