Spring Statement 2018
On Tuesday 13 March 2018, the Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, delivered his first Spring Statement.
The Chancellor updated the Commons on the economic and fiscal position of the UK, but there was no Treasury Red Book of new announcements to accompany the Statement.
Below is our analysis, as well as a summary of the key announcements and comment from the principal opposition parties and key stakeholders.
Every Chancellor yearns for a bit of whizz-bang in his Budget and Autumn Statement. Well, even though the timings have been reversed and there’s now an Autumn Budget and a Spring Statement, Wagnerian-style Sturm und Drang was in short supply.
“Spreadsheet” Phil has never been known for the dramatic – some would say melo-dramatic – sleights of hand of his forebears, George Osborne and Gordon Brown. But, even by his own normal standards of “steady as she goes” economic and fiscal management, this was a low-key affair. In just the same way that the going has been declared heavy at today’s start of the Cheltenham Festival, so, too, was the soggy, pessimistic climate of opinion that the Chancellor found himself facing in the altogether less equine Commons, as he stood up to deliver his Statement.
But, then, Philip Hammond almost certainly feels he doesn’t really have a lot to prove – either to his own backbenches or to the benches opposite. Here, on display, was the quiet, unshowy evidence of solid economic delivery, a decade on from the financial crisis that raged around Westminster and threatened to engulf it.
Briefed out in advance as a 15-minute wonder, the speech was a bit longer but no more textural or dramatic because of it. Parliamentary colleagues hung on in the hope that there would be some Osborne-style rabbit-pulled-from-hat. In the event, there wasn’t.
But the Chancellor had good cause to be thoroughly pleased with himself, even if his claim that he was feeling “positively Tigger-like” seemed hard to believe. Ours, quoth the Chancellor, is an economy that has added three million jobs. The economy grew last year by 1.7%, against a forecast in last year’s Budget of 1.5%, and the OBR has revised up its forecast for 2018 from 1.4% to 1.5%. Borrowing is down – almost £5 billion lower than forecast in the 2017 Budget – and the debt forecast is almost a whole percentage point lower than predicted last autumn. And, in 2018-19, the Treasury now predicts there will be a small current account surplus.
There was no substantial new cash for essential public services, although Whitehall and the devolved administrations received a 50% advance of the £3 billion promised in the autumn for Brexit-related preparations. There was, however, the promise of jam tomorrow: if, said the Chancellor, the public finances performed as well by the autumn as they currently looked like they would, then he hinted there might be more cash to splash on the public sector frontline.
“Judge me by my record” intoned the Chancellor triumphantly, to cheers from his colleagues and jeers from his opponents. We will.
The State Of The Economy
- The Office for Budget Responsibility (‘OBR’) reports that growth and employment have performed broadly as expected since November and, as such, it has only made minor revisions to its economic forecasts
- The Chancellor announced that the latest data shows real GDP growth slowing from 1.9% in 2016 to 1.7% in 2017 (and 1.4% in the year to Q4 2017). The OBR now forecasts GDP growth of 1.5% in 2018, up from 0.1% from the 2017 Autumn Statement
- Forecasts for the remainder of the current parliament were unchanged at: 1.3% (2019), 1.3% (2020), 1.4% (2021), 1.5% (2022)
- The Chancellor announced that, whilst the UK is presently above its inflation target, at 3%, the OBR expects inflation to fall back to the Government’s target of 2% over the next 12 months
- The Chancellor suggested that, as a result of this forecast, real wage growth is expected to be positive from Q1 2018-19, and to increase steadily thereafter
- The Chancellor stated the OBR’s updated forecasts for borrowing in 2018-19 would be £45.2bn – £4.7bn lower than forecast in November 2017, and £108bn lower than in 2010
- As a percentage of GDP, borrowing is forecast to be 2.2% (2017-18), 1.8% (2018-19), 1.6% (2019-20), 1.3% (2020-21) and 0.9% (2021-22)
- The Chancellor announced that, based on these forecasts, the OBR expects the Government to run a small current account surplus in 2018-19, borrowing only for capital investment
- The OBR updated its debt forecast to be nearly 1% lower than forecast in November 2017, at 85.6% of GDP in 2017-18
- Debt forecasts for the remainder of the current parliament are now as follows: 85.5% (2018-19), 85.1% (2019-20), 82.1% (2020-21), 78.3% (2021-22) and 77.9% (2022-23)
- Employment has increased by 3 million since 2010, and the OBR predicts there will be over 500,000 more people in work by 2022
Further updates on measures first announced in the Autumn Budget 2017 were also given, including on: the £44 billion investment programme in housing; the £1.7 billion English cities transport package, and; the £190 million ‘Challenge Fund’ digital connectivity package.
OPPOSITION AND KEY STAKEHOLDERS RESPONSES
The Shadow Chancellor, the Rt Hon John McDonnell MP
“I say to the Chancellor: his complacency today is astounding. We face – in every public service – a crisis on a scale we’ve never seen before. Hasn’t he listened to the doctors and nurses, the teachers, the police officers, the carers and even his own councillors? They are telling him they can’t wait for the next Budget. They’re telling him to act now.
Last year growth in our economy was among the lowest in the G7 and the slowest since 2012. Wages are lower now – in real terms – than they were in 2010 – and they’re still falling. And there are 3 million people in insecure work. According to the Resolution Foundation, the changes to benefits due to come in next month will leave 11 million families worse off. And – as always – the harshest cuts are falling on disabled people. The gap in productivity between this country and the rest of the G7 is almost the widest for a generation. UK industry is 20 to 30% less productive that in other major economies.
And why? Well, part of the reason is that investment by this government, in real terms, is nearly £18 billion below its 2010 level. And this is a government that cut R&D funding by £1 billion in real terms. Business investment stagnated in the last quarter of 2017. And despite all the promises the government continues to fail to address regional imbalances in investment: London will receive almost five times more transport investment than Yorkshire & Humber. This is a government that single-handedly destroyed our solar industry: 12,000 jobs were lost as a result of subsidy cuts.
The Chancellor talks about the 4th Industrial Revolution but Britain has the lowest rate of industrial robot use in the OECD. And the government has put just £75m into its Artificial Intelligence programme – less than a tenth of the US government’s commitment. The Chancellor has made great play this week of reaching a turning point in reducing the deficit and debt. It’s a bit rich coming from a Party that has increased the debt by over £700 billion. This loads the equivalent of an additional £22,000 on every household in this country. It’s worth remembering that this is the Party that promised to eliminate the deficit completely by 2015, then 2016, then 2020.
The reality is that the Chancellor and his predecessor have not tackled the deficit. They have simply shifted it onto the public services his colleagues are responsible for. He’s shifted it on to the Secretary of State for Health and the shoulders of NHS managers, doctors and nurses. NHS Trusts will end this financial year £1 billion in deficit. Doctors and nurses are struggling and being asked to do more, while 100,000 NHS posts go unfilled. Does the Chancellor really believe the NHS can wait another eight months for the life-saving funds it needs?”
Other Key Stakeholders
The Liberal Democrats
“The Spring Statement was a non-event. The OECD gave us the clearer picture - that the economy is bumping along the bottom of the G20, well behind the likes of Australia, Canada and the Euro area. The OBR’s fresh forecasts are still a long way behind the figures estimated in March 2016 before the EU referendum. It is time the government was honest with the public: there will need to be tax increases to pay for the NHS and social care, police and schools. This is why the Liberal Democrats have advocated a penny in the pound income tax increase for health and care and why we must scrap cuts in Capital Gains Tax and Inheritance Tax introduced since 2015.”
The Rt Hon Vince Cable MP,Leader of the Liberal Democrats
The Scottish National Party
“Well that was much ado about nothing… the OBR has projected that in 2019, the year that we leave the European Union, growth will be a measly 1.3%... the Chancellor has his head in the sand about Brexit.”
The Rt Hon Ian Blackford MP, Westminster Leader of the Scottish National Party
British Chambers Commerce
“Businesses will be encouraged by the Chancellor’s report on the UK’s fiscal health, with lower projections for the deficit and falling national debt, as well as his full-throated defence of the market economy and the role of the private sector in delivering prosperity. Yet as deficit and debt levels improve, the Chancellor must resist calls to pour money into politically-attractive, short-term spending priorities. Any headroom the Chancellor has must be used to leave a lasting mark on the UK’s infrastructure and to attract investment – particularly with the challenges and changes of Brexit ahead. A far stronger push is needed to fund and fix the fundamentals here in the UK over the coming months, and business wants the Chancellor to use his Autumn Budget to double down and spend to improve digital connectivity, deliver further road and rail improvements, strengthen the UK’s energy security and build more houses. Existing plans alone are not enough.”
Adam Marshall, Director General, British Chambers of Commerce
Institute of Directors
“Better short-term economic figures will reassure business leaders that there is underlying resilience in the UK economy, but the Chancellor was also right to point to the long-term productivity challenge. The OBR continued to be downbeat on productivity growth, with recent increases largely driven by a fall in hours worked, rather than a pick-up in output. As such, the Government must continue to push forward with its proposals in November’s Industrial Strategy and make clearer to businesses how it will bolster skills, infrastructure, and innovation.”
Tej Parikh, Senior Economist, Institute of Directors
Confederation of British Industry
“It’s great to see an upgrade in the state of our public finances and rightly sensible to set more aside for a rainy day with Brexit uncertainty still weighing on the economy… Businesses and workers must move now to adapt their skill-sets to the modern economy. Upskilling existing workers and preparing young people properly for the world of work is fundamental to the technology revolution. The lack of flexibility in the Apprenticeship Levy is a core concern to many firms, so it was disappointing to miss this opportunity to tackle this issue head on. The CBI looks forward to working with the TUC and government on the National Retraining Partnership, where we aim to help develop the workforce of the future and meet the needs of local labour markets. Add in a reformed apprenticeship levy with a strong careers strategy, and the UK can finally have a skills system to be proud of. The impact of the out-dated Business Rates system continues to be an Achilles’ heel for many businesses, so it’s absolutely right to fast forward revaluations.”
Rain Newton-Smith, Chief Economist, Confederation of British Industry
Trade Unions Congress
In the ten years since the global recession, workers have endured seven years of falling real wages and eight years of public service cuts (with more to come). Today we are asked to celebrate almost non-existent improvements in the public budget, and yet more inaction in the face of years of severe hardship and a still dismal outlook for working people.
Economic growth is very weak; there is no news on the real wage crisis; we have had eight years of public services cuts, with (at least) five more to come; infrastructure spending is still falling vastly short; public debt unresolved. As is usual on these occasions the Chancellor put a brave face on grim prospects for the economy and for working people. His account is far removed from the lived experience of working people, the hardships endured, and the fears for the future – of the young in particular.
Geoff Tily, Senior Economist, Trade Unions Congress
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