March 8, 2017
Finsbury's analysis of the UK's Spring Budget
In the run-up to the Referendum on the UK’s membership of the European Union in June 2016, the former Chancellor of the Exchequer George Osborne was perceived to have threatened a ‘punishment’ Budget in the event of Britain voting to Leave.
It is notable, therefore, that Philip Hammond could today deliver a confident and assured performance with most economic indicators suggesting that the UK was on track to deliver steady (yet moderate) growth in the short term, as reflected by the muted market response, despite the uncertainties once Article 50 is triggered later this month. On a political level, it also indicates that the Government is not planning an election prior to May 2020. The Government has shown this by announcing an increase in National Insurance Contributions (NICs), which the Treasury admits is expected to affect around 1.6m people by an average of £240 per year. It is important to note that this average disguises a 2 percentage point tax rise for the many self-employed who earn over £16,000 a year. It also breaks an election promise and so will be contested strongly.
It is also clear that the detail in the Budget suggests significant challenges ahead. The Office for Budget Responsibility (OBR) – created in 2010 to independently assess the state of the public finances – has made forecasts based upon the UK formally leaving the EU in April 2019, but in the context of a trading regime which is ‘less open than before’. That may well seem to be obvious to the well-informed, but it signals how difficult it will be for the Prime Minister to deliver a deal as good as our current membership of the EU.
We need to be mindful that the economic implications of a new arrangement outside of the EU will only become clear once we have formally left, and this could yet have a significant electoral and economic impact further down the track. In the meantime, Hammond worked hard to find plasters to cover up some of the Government’s existing sores – most notably alleviating some of the pressure on the creaking NHS (albeit by pledging a relatively modest additional sum); more support to local authorities to meet part of the growing cost of social care; and action on business rates revaluation, arguably the first major domestic policy fumble of 2017.
The key test for a Budget tends not to be in the first hours after the Chancellor has sat down, but rather in the following days as further study is made of the fine detail. With a largely pro-Brexit print media, Hammond will hope that he will get a fair hearing in tomorrow’s coverage. However, with a broken manifesto promise to defend, and lots of noise from the aspirational middle-classes, this could yet still unravel, especially given the Government’s small majority.
We hope you find this short document to be helpful in making sense of the significant political challenges which lie ahead. The team at Finsbury, with its extensive policy and campaigning experience, would be delighted to provide further, more specific analysis of what is likely to challenge your business in the coming months and years, whether stemming from today’s Budget or as Britain begins its slow divorce from the EU.