On any other day, the Chancellor’s Spring Statement would have dominated the headlines. However, with the UK’s scheduled withdrawal from the EU just days away, and the Prime Minister’s latest Brexit deal voted down by the Commons just hours earlier, this seemed more like a sideshow than the main event.
The little speculation there was in the days beforehand focused more on whether Mr Hammond would find anything of interest to say at all, than on what he would say. It was a Spring Statement without the usual baggage of expectation.
Mr Hammond will no doubt have been relieved at his decision to move the Budget to the autumn, making that the single annual fiscal event. The purpose of the Spring Statement is now ostensibly only to respond to forecasts from the Office for Budget Responsibility (OBR), although that has not always prevented Mr Hammond from making significant announcements.
On a day dominated by Brexit, Mr Hammond addressed the issue head-on acknowledging the “cloud of uncertainty hanging over our economy” and saying the “most urgent task is to lift uncertainty”.
Addressing the vote on a no deal Brexit scheduled for later in the day, he said: “Leaving with no deal would mean significant disruption in the short and medium term and a smaller, less prosperous economy in the long term, than if we leave with a deal.
“Higher unemployment, lower wages, higher prices in the shops. That is not what the British people voted for in June 2016.”
By contrast, he said that leaving the EU with a deal would result in a £26.6 billion “deal dividend”.
Economy and public finances
While arguing that the “economy itself is remarkably robust”, Mr Hammond said that growth projections for 2019 have been revised down by the OBR from 1.6 per cent to 1.2 per cent.
Mr Hammond expects 600,000 new jobs to be created by 2023 and he said the OBR has revised wage growth up to around three per cent each year.
Turning to the public finances, Mr Hammond said that before Parliament’s Summer Recess, the Government would undertake a three-year Spending Review, if a Brexit deal could be reached.
He said that he expects a dividend from a deal and suggested that this could mean an increase in public spending.
Mr Hammond added that borrowing has reduced by 80 per cent since 2009-10 and that the UK is experiencing its first sustained fall in debt for a generation. Meanwhile, borrowing and debt are lower in every year of the OBR’s updated forecasts at the Autumn Budget last October. This year, borrowing will be 1.1 per cent of GDP, which is £3 billion lower than was forecast at the Autumn Budget.
He said that the Government would take a “balanced” approach to debt and borrowing while investing in public services, the economy and infrastructure.
The most eye-catching spending announcements were £100 million to help the police fight knife crime and a commitment to end ‘period poverty’ by providing free sanitary products in secondary schools and colleges.
Business and enterprise
Mr Hammond said that he wanted to “build on the UK’s fundamental strengths”, announcing a £37 billion productivity fund, focusing on improving skills throughout the workforce.
Maintaining his focus on the workforce, he said that the Government will set a new remit for the Low Pay Commission beyond 2020 and announced terms of reference for a review of international evidence on minimum wages to be undertaken by Professor Arindrajit Dube.
Returning to the theme of investing in skills, Mr Hammond said that the apprenticeship reforms announced at the Budget would be updated from 1 April to mean that the employers’ co-investment rate will be halved from 10 per cent to five per cent.
As was widely trailed, Mr Hammond said that the Government would respond later in the year to a recommendation in an independent review of competition in the digital economy, that rules should be updated for the digital age.
Saying that “we need to tackle the scourge of late payments”, he said that listed companies would have to report on their payment practices within their company accounts. Late payments are currently estimated to cost UK SMEs £6.7 billion annually.
Housing and Environment
Mr Hammond devoted a significant part of his speech to housing and the environment, announcing £3 billion for the Affordable Homes Guarantee Scheme, which he said would support the delivery of around 30,000 affordable homes.
He also announced £717 million from the Housing Infrastructure Fund to support the construction of homes in West London, Cheshire, Didcot and Cambridge.
Mr Hammond argued that the Government is going to “Build sustainability into the heart of our economic model.”
He said that he would publish a call for evidence on requiring passenger carriers to offer carbon offset and on a proposed business energy efficiency scheme. He also said the Government would look at increasing the proportion of green gas in the grid and would mandate the end of fossil fuel heating systems in all new houses from 2025.
To allow time for the Commons to consider Brexit, Mr Hammond said that he would make some announcements in a Written Ministerial Statement, published at the end of his speech.
This primarily comprised details of consultation exercises on measures announced at the 2018 Budget. This included preventing the abuse of R&D tax relief for small or medium-sized enterprises, draft regulations on the National Insurance Contributions (NIC) Employment Allowance that would restrict the allowance to businesses with an employer NIC bill below £100,000 and a call for evidence on lettings relief and the final period exemption, which extends private residence relief in capital gains tax.
Perhaps inevitably, Mr Hammond had relatively little to say and devoted a substantial proportion of the speech to setting out his position on Brexit.
He was keen to frame a Brexit deal as being key to the UK’s future economic success, saying, “A brighter future is within our grasp”.
Link: Spring Statement speech