Philip Hammond’s Spring Statement was delivered on Wednesday. The statement has replaced the traditional spring budget, axed in 2016 when Mr Hammond decided two full Budgets a year did very little for public confidence. These days, decisions that affect how much tax we pay are in the Autumn budget.
The Spring Statement is simply a report on the bi-annual forecasts from the independent Office for Budget Responsibility (OBR). It lets the Chancellor make a public diagnosis of the country’s economic health – although he has always reserved the right to use it to introduce new rules, regulations and tax rates – or even use it as a full-blown fiscal event (or in other words a Budget) if circumstances demand.
Of course, Brexit has introduced all sorts of demanding circumstances. With Mrs May losing the vote on her Brexit deal on Tuesday, Wednesday’s statement was carefully written to showcase the Chancellor’s view that a no-deal Brexit would be an economic disaster.
What was in the statement?
The Chancellor revealed that the OBR has slashed its forecast of UK growth by a third cutting its predicted 2019 expansion to 1.2%, from the more optimistic 1.6% at the time of the October budget.
That would be the lowest since the UK started to emerge from the financial crisis and the recession back in 2009.
Mr. Hammond observed that the previous day’s vote had left the country under a ‘cloud of uncertainty, but that the economy itself is remarkably robust’.
The Chancellor has been vocal in favour of a soft Brexit, and seemed to be warning that the economy – and consumers – would suffer in a no-deal.
However, despite the dire warnings against a no deal outcome, the Chancellor repeated his prediction that any resolution to the current uncertainty would deliver a ‘Brexit dividend’ in released capital investment, taking the handbrake off from the economy. He suggested that the government would also be able to spend some of the money left in reserve for a no-deal scenario.
Mr. Hammond was being cautious. A bumper tax haul in January meant the UK’s biggest budget surplus ever recorded last month.
The Exchequer was £14.9bn in the black for February according to official statistics, as the healthy jobs market brought in extra income tax revenue.
The strong numbers could have provided a high note for the spring statement. The Chancellor chose to play this down, but said that the Treasury will conduct a full spending review before the summer recess, to be concluded before the autumn budget –“assuming the Brexit deal is agreed over the next few weeks and the uncertainty hanging over our economy is lifted”.
In other words, austerity might end, but only if we have a deal on Brexit. The whole statement seemed carefully timed to influence the vote on whether or not MPs would accept a no-deal Brexit later in the day.
With the decisive vote against a no-deal, it looks as though it may have helped achieve the desired effect.
What does this mean to you?
The Chancellor’s warnings may have been shaped by his enthusiasm for a Brexit deal as well as the facts and figures. His announcement of a spending review – under the condition that this will only happen if there is a Brexit deal – was a clear reminder to rebellious Tory MPs about the importance of an agreement.
For the rest of us, the messages are mixed. The economy will suffer if there is no deal. It could enjoy a boost if a deal is agreed.
There were some positive messages. They included a committed to building a ‘clean’ economy, and to investment in housing and infrastructure. Updates to apprenticeship reforms will cut the cost of taking on an apprentice, and there were steps to tackle period poverty in schools.
It is also possible we’ll see a Summer or Autumn ‘Brexit Budget’ with the announcement of more substantial tax and policy measures which will depend on the deal – if any – that is finally made.
Growth is down – but it could be boosted after Brexit. In uncertain times, the one thing to be certain of is that it pays to get expert advice about the best way to manage your finances. A call to Continuum could offer it.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
bbc.co.uk – Spring Statement: Hammond promises ‘deal dividend’ – 13th March 2019