Today’s Budget speech may not have been the most exciting ever, but it was possibly the most future-focused. Indeed, Philip Hammond used the word ‘future’ 33 times at the dispatch box this afternoon, and focused heavily on measures relating to, for instance, first time homebuyers, the technology sector, electric cars. In contrast, there was no mention of pensioners and little to appeal directly to that particular demographic. This perhaps marks a new era of more youth-friendly Budgets. Whilst there was a big focus on what the Chancellor said on the floor of the Commons, as always, what is buried within the spreadsheets accompanying the Budget document is much more significant.
Overall, here are some of key things to be aware of:
- Growth downgrades. As expected, the economic growth forecasts have been revised down. Indeed, this is the first time that the annual rate of growth for the entire forecast period has been below 2%. The economy is set to slow this year, next year and in 2019, before a modest pick-up in growth thereafter. Northern Ireland has underperformed against the UK since 2008 and this is not expected to change in the years ahead. Indeed, Northern Ireland can expect to see growth of around or below 1% going forward. Relative to its peers, the UK economy finds itself in the slow lane for economic growth, but the fast lane for inflation. The economic recovery is anticipated to be shallower than had been forecast in March.
- Productivity problems. The Chancellor placed a heavy emphasis on the future, but the future of the economy and the public finances are dependent on productivity. Productivity has been the key thing that the OBR has consistently been over-optimistic about. Over the last decade, the UK’s productivity (output per person per hour) has only improved by 1%. It seems that we have been working harder, but not smarter. This lack of significant productivity improvement affects growth, earnings and therefore government revenue and the public finances.
- More borrowing. Before the Budget Philip Hammond was already in a fiscal straight jacket, but the straps have been further tightened due to the downgrade in the economic forecasts, not least productivity. The revision in the latter translates to £90billion of additional borrowing between this year and 2021/22. However, offsets elsewhere mean relative to March the Chancellor is borrowing an extra £44billion between the last fiscal year and 2021/22. An additional £26bn is now pencilled in for the following year. As a result, there will be an extra £70bn of borrowing.
- More spending. Given the fragile nature of UK politics, the Chancellor resisted be bolding and introduce unpopular tax rises. Instead, he has embarked on more spending and overall he eased the tax burden in a number of targeted areas. All of this has been funded by more additional borrowing. The three key areas attracting more spend are Brexit preparations, the NHS and housing. The former is to receive and extra £3bn over the next two years. The NHS will get over £6bn in new funding and it was stated that additional money would be made available for an NHS pay deal. This would see an easing in the current 1% per annum pay cap. Northern Ireland will receive an extra £660million over the next three years in the Block Grant.
- Help to build. There was a headline £44bn for housing over the next five years but this was made of loans and guarantees rather than £44bn of actual spend. There was actually only £15bn of new financial support aimed at building 300,000 new homes per year, a figure not achieved since 1970. There was also a proposal to create five new garden towns. As part of the charm offensive for the younger generation, which included a discounted rail card for those aged 26-30, stamp duty was abolished for first time buyers up to a property value of £300,000. 80% of people in the UK will now pay no stamp duty. In Northern Ireland, the figure will be considerably higher and indeed first-time buyers here would have been exempt anyway given that the threshold was £125,000.
- Duty freeze and other gains. The Chancellor is conscious of the cost of living squeeze affecting UK households. To this end, he sought to ease the burden by freezing a range of duties. This included fuel and alcohol duty freezes. Air Passenger Duty is also to be frozen for long-haul flights. There are also changes around the edges to Universal Credit to the benefit of claimants. And the National Living Wage will increase by 4.4% next April (above inflation). The income tax personal allowance thresholds were also increased in line with inflation from next April.
- Northern Ireland more prominent. It is perhaps unsurprising that Northern Ireland got more of a mention in this Budget than last. This included the additional money for an NI Executive to spend – though this still means that Northern Ireland’s budget will continue falling in real terms. We also heard the Chancellor refer to a City Deal for Belfast and a review to be completed by the next Budget in relation to Air Passenger Duty and VAT regarding hospitality and tourism.
The Chancellor joked with the Prime Minister about cough sweets in reference to her infamous conference speech. However, what was clear from today’s Budget was that the public finances remain no laughing matter, and productivity looks set to continue to act as a choke on the recovery. Back to the future, austerity and Brexit beckon.