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Raymond Doherty 13 Mar 2018 02:26pm

Spring Statement: Hammond bullish on economy

The economy will grow more quickly than expected, said the chancellor in his first Spring Statement

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Caption: "Judge me by my record," said the chancellor

He kept to his promise of the statement containing no tax or spending changes, but revealed slightly-better-than-expected growth and borrowing figures.

Forecast GDP growth for the UK is unchanged at 1.3% in 2019 and 2020, before picking up to 1.4% in 2021 and 1.5% in 2022. While government borrowing is expected to decrease, it is forecast to fall from £45.2bn this year to £28.7bn in 2020-21 and £21.4bn by 2022-23.

Also, inflation is predicted to fall “back to target” by 2019.

"Our economy will remain outward looking, confident and ready to compete with the best in the world," Hammond said.

Small business

The chancellor announced a few policies regarding small businesses, including that the Government would bring forward the next business rates revaluation from 2022 to 2021 and move thereafter to three yearly revaluations for business rates.

In a move that will please the Federation of Small Businesses, a review will be launched into how to eliminate late payments to SMES, as will a review into how to help the UK’s least productive businesses.

"We are the party of small business and the champion of the entrepreneur," he said.

Tax

The chancellor did not comment on whether digital companies will now be taxed on revenues rather than profits, which was an idea floated beforehand.

However, he did confirm that he will launch a call for evidence on how online platforms can help ensure tax compliance by their users.

The tax-free personal allowance – the amount you earn before you start paying income tax – will rise to £11,850 from April 2018.

Brexit

In its report, the Office for Budget Responsibility has estimated the cost of the Brexit divorce bill. It said, "One area where sufficient clarity is now available to be more specific relates to the financial settlement – the ‘divorce bill’ – that the UK will pay after leaving the EU on 29 March 2019.

"Using assumptions consistent with our central economic and fiscal forecasts, we estimate the settlement would cost £37.1bn, with around 75% falling due within our five-year forecast period."

Reaction

Michael Izza, ICAEW chief executive, said that while the outlook looks better than it did in November, “The challenge we face as a country is first to meet those forecasts. Otherwise, the light at the end of the tunnel will never get closer.

“Although positive, the ONS growth forecast of 1.4% for 2018 needs to be seen in the context of stronger global growth. The IMF expects the Eurozone to grow by 2.2%, the US to grow by 2.7% and China to grow by 6.6% this year – all exposing the challenges facing the UK.”

John Hawksworth, chief economist at PwC, said the OBR has nudged up its forecast on economic growth but has “not changed its view on medium term growth prospects in any material way.

“Indeed average projected growth over the five years to 2022 has remained unchanged at 1.4%, some way below its historical average rate,” he added. “The OBR expects the UK economy to remain in the slow lane of global growth for some time to come.

"In particular, the OBR has stuck to its view that productivity growth will remain relatively subdued over the next five years.”

Chris Sanger, EY’s head of Tax Policy, said the chancellor has set out his stall for what will be in this year’s Budget. “We saw the chancellor lay bare his ideas for the November Budget: the taxation of digital companies, potential changes to the VAT threshold, taxation increases to discourage single use plastics, with the money raised ear-marked for incentivising innovation, with a £20m down payment to boot.

“So, ironically, in the Spring Statement, for once we have seen a real pre-Budget report –something that has been difficult for previous chancellors to deliver.

Sanger added that this gave the business community an opportunity to “engage in the consultation process” before the Treasury makes a decision.

The OBR’s economic forecast provides “only marginally better news” according to the EY ITEM Club.

Howard Archer, chief economic advisor to the ITEM Club, said, “As expected, the Spring Statement proved to be shorter than we’ve been accustomed to at previous fiscal events. But it was perhaps not as sweet as some might have hoped for either. The OBR made significant downgrades to its economic and fiscal forecasts in November’s Budget, and delivered only marginally better news today.

“The chancellor will no doubt be hoping that the economic and fiscal position looks sunnier as the year progresses, enabling him to dispense some giveaways in the Budget.”

Jonathan Riley, head of tax at Grant Thornton UK said Hammond was in “upbeat mood and was at pains to play down his Eeyore reputation.”

“This was not an occasion for tax measures – but there was much announced outside of the speech on consultation. Big conversations will take place on how online trading can be taxed (a tax based on turnover is a possibility) and on the VAT threshold – high at roughly three times UK average earnings and seen by many as a disincentive to growth – although any change would impact small traders and when Hammond suggested very modest National Insurance increases last year, he succumbed to the small business lobbying groups,” said Riley.

“Today was upbeat, but by the autumn we will know whether we have a Brexit deal or whether the UK will be moving straight to World Trade Organisation rules. So while Philip Hammond was the only one at the government despatch box today, the donkey in the room, the Eeyore, is still Brexit,” he added.
 


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