The nation’s eyes will be locked on Chancellor Philip Hammond on Tuesday, as he delivers his first Spring Statement.
Hammond announced back in 2016 that the Budget timetable would be flipped, moving the main fiscal event to the Autumn and paving the way for a Spring Statement.
The Treasury has already moved to reassure the voting public that there will be no spending increases or tax changes next week. Instead, it will detail the Government’s response to updated economic forecasts from the Office for Budget Responsibility (OBR).
But that’s not stopped some from hoping Hammond might be bold. Andrew Browne, head of tax at accountant Bishop Fleming, urged the Chancellor to be “ambitious, imaginative and transformative”.
Hammond must “do more to position the economy to deal with the challenges Brexit presents”, Browne adds. This includes ensuring the UK is an attractive destination both for overseas firms and “the brightest and best talent from around the world”.
Economic Forecasts
First off, the housekeeping. Back in November, the OBR forecast annual UK GDP growth of 1.4% on average for the next five years. This was a big downgrade, predicated on Brexit concerns.
This will be the big talking point of the statement, according to Niloofar Rafiei, economist at Sarasin & Partners LLP. And most commentators expect economic growth forecasts to be revised upwards. Rafiei also thinks Government borrowing will be revised lower. This will allow Hammond some fiscal room for manoeuvre.
Independent think tank Resolution Foundation reckons the public purse will be boosted to the tune of between £7 billion to £11 billion. "The OBR ruined the Chancellor's Christmas by presenting him with a truly terrible set of economic forecasts last November," says Matthew Whittaker, chief economist at Resolution Foundation.
"But, while the temperature has continued to fall, the economic picture has started to brighten and we should expect a slightly sunnier outlook."
Still, he cautions, the broader economic backdrop remains extremely challenging, with Britain falling from the top to the bottom of the G7's economic growth league in 2017.
What Else Might Be in the Statement?
Rafiei thinks fiscal policy proposals will be limited. “Instead, the Government may announce a number of consultations to allow more time for consideration before tax and spending changes are actually introduced in the Autumn Budget,” he suggests.
There are also some significant policy changes set to be implemented at the start of April. A higher wage for the lowest earners will be accompanied by a freeze in working-age benefits.
"While the Chancellor is firmly committed to a short Spring Statement, the challenges Britain faces, from weak growth to tight family finances, are likely to remain long lasting," continues Whittaker.
But Browne’s hoping for a few tweaks to be announced. In particular, he says the UK’s tax system needs to be made fit for the 21st century. He suggests the proposed digitisation of VAT from 1 April 2019 should be delayed, due to its proximity with the Brexit deadline.
He also fears that the future development of key business incentives such as R&D tax relief and the Enterprise Investment Scheme could be hampered by Theresa May’s insistence on remaining aligned with the EU’s rules on state aid and competition.
