Chancellor Philip Hammond presented his first and last Spring Budget against a backdrop of economic resilience since the Brexit referendum last summer. It came amid heightened uncertainty as the government prepares to invoke Article 50 to leave the EU.
Read our summary of the Budget announcements here
- Economic growth upgraded in the near-term
- Public borrowing forecast improves slightly
- Relief for the business rates “hard cases”
- Improve tax collection and combat evasion
- Higher NI contributions for the self-employed
- Tax free dividend allowance cut
- New school funding and vocational qualification
- Social care funding increased
Hello and welcome to the FT’s live coverage of the Spring Budget. It will be Philip Hammond’s first and last as chancellor after he announced last November that future Budgets will move to the Autumn. Our economics editor Chris Giles has this handy guide on what to look out for – and we’ll be tracking those and any others as the Mr Hammond makes his statement.
The chancellor is expected to present a bullish outlook for British growth in what is being dubbed a “Brexit Budget” on Wednesday aimed at bolstering the country’s economic defences ahead of Theresa May’s imminent triggering of EU divorce proceedings. Read more here.
The government’s second setback in the House of Lord’s on Tuesday night – when peers voted give parliament a “meaningful vote” on a Brexit deal with Brussels – underlines the resistance the prime minister faces. That vote led to the sacking of Conservative grandee Lord Heseltine after he rebelled over Brexit.
Better economic forecasts, better public finances… but no spending spree
We’re expecting Philip Hammond to be handed better forecasts from the OBR, since the economy has been healthier than expected since his Autumn Statement in December. (For more on why the economy shrugged off Brexit – here’s a chart-filled explainer).
Our economics editor Chris Giles thinks this will translate into an extra £12bn of fiscal headroom. Still, Hammond doesn’t seem to want to spend it – planning instead to keep it in reserve as a rainy-day-fund in case Brexit goes badly.
Global markets rarely pay close attention to the UK Budget but its proximity to the Brexit process could make this one a little different. The pound is hovering close to 31-year lows against the US dollar as investors consider political instability in the UK against the strengthening US economy. Gilt markets are relatively calm but bondholders could get a boost if credit analysts are right and gilt issuance is reduced to the lowest level since the financial crisis.
A nervous wait for the self-employed…
It seems likely the self-employed – who account for about 15 per cent of the workforce – will be hit with higher taxes, or at least the threat of them. Their ranks have been swelling rapidly and, because they’re taxed more lightly than employees, the chancellor is worried about how the trend is eroding the public finances.
He could announce an immediate 3p in the pound rise in the National Insurance class 4 rate, paid by the self-employed, to make it the same as the 12 per cent rate paid by employees. That wouldn’t go down well with newspapers like the Sun and the Daily Mail, which have already condemned the idea as an unfair hit to “strivers”. Still, Hammond is by all accounts not too worried about being popular.
Or he could hold fire for now, but announce a more wide-ranging consultation about how to tax new ways of working. Here’s a primer from our tax correspondent with more details.
Help for savers?
The FT’s personal finance team has a checklist outlining what the Budget could mean for your money, including further crackdowns on tax avoidance, a focus on tax breaks and a new National Savings & Investments bond: Budget checklist
About 5 minutes to go before the chancellor stands up. Theresa May is currently in the chamber for the weekly prime minister’s questions.
Here’s a video of the chancellor earlier as he leaves Downing Street for the Houses of Parliament
The FT’s markets reporter Michael Hunter has this update on the markets:
In the final run-up to Hammond’s speech, consumer stocks and the real estate sector are exerting the biggest drag on the FTSE 250, the index seen as more representative of the domestic UK economy. Overall, the mid-cap benchmark is flat on the day at 18,878.77. Support services groups are also falling, while support is coming from telecommunications and IT stocks.
The FTSE 100 is down 0.2 per cent at 7,323.14, with the healthcare and energy sectors under the most pressure. The index has been drifting down from the record high it reached on March 2 over the last few sessions.
The FTSE 250 also reached a new record last Thursday, and has softened since.
As usual PMQs is overrunning somewhat but the chancellor is about to get to his feet
A stable platform for Brexit negotiations
Philip Hammond introduces his first and last spring Budget by outlining the UK’s economic resilience while noting the fact that Article 50 is about to be triggered – setting the tone for a prudent speech. He mentions record employment and the falling deficit as helpful ahead of Brexit negotiations. There’s also a nod to young people and public services suggesting there may be support for those two groups to come later in the speech.
Economic growth upgraded in the near-term
The OBR expects the economy to be the same size in 2021 as before, but the growth will be better in the near-term, and worse later on.
2017: 2% (up from 1.4% previously forecast)
2018: 1.6% (down from 1.7%)
2019: 1.7% (down from 2.1%)
2020: 1.9% (down from 2.1%)
2021: 2% (same as 2021)
Public borrowing forecast improves slightly
Better growth in the near-term means lower borrowing, too.
Public sector net borrowing forecasts:
2016/17: £51.7bn (down from £68.2bn previously forecast)
2017/18: £58.3bn (down from £59bn)
2018/19: £40.8bn (down from £46.5bn)
2019/20: £21.4bn (down from £21.9bn)
2020/21: ££20.6bn (down from £20.7bn)
2021/22: £16.8bn (down from £17.2bn)
The chancellor slaps down any hopes the opposition had that he make use of improvements in the UK’s economic situation and ultra-low borrowing rates in global markets to borrow and invest. This is the exactly the sort of message that will be welcomed by gilt investors.
Relief for the business rates “hard cases”
Hammond announces 3 measures to help small businesses facing the biggest increases.
1) Any business coming out of small business rate relief will not see bill increase by more than £50 a month, and subsequently increases will be capped
2) Local pubs will be given a £1,000 discount for all pubs with rateable value of less than £100,000
3) Local authorities will be given a £300m fund to deliver discretionary relief for “individual hard cases”
Improve tax collection and combat evasion
Improvements in tax collection are often a fruitful area for chancellors. New measures designed to raise an extra £820m have been announced, including VAT on roaming telecom services outside the EU and, from July, a new financial penalty for professionals who use tax avoidance arrangements that HMRC later defeats.
Higher NI contributions for the self-employed
The self-employed will see their class 4 National Insurance contributions increase by 1p in the pound to 10% in April 2018, with a further 1% increase in 2019.
Hammond has pulled the trigger on this – although not gone quite so far as to equalise the NICs rate for self-employed and employees (employees pay 12%).
He says the changes will raise a net £145m a year.
“Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way,” he says.
Soft drink levy is working
Hammond announces the soft drinks levy is raising less revenue than expected – because manufacturers are using less sugar. “This is good news,” he says.
Tax free dividend allowance cut
The tax free dividend allowance for company directors and private shareholders (who hold shares outside of a tax-efficient Isa) will be reduced from £5,000 to £2,000 from April 2018 – a move likely to be deeply unpopular with business owners and investors.
Sterling off its intra-day lows
Sterling has risen mildy during the Budget statement and is off its day-lows but remains lower on the day, down 0.3 per cent at $1.2167. A few minutes into the speech, it was trading at $1.2153.
Before the speech started, analysts predicted that the OBR’s economic forecasts were likely to stand out. Lena Komileva at G + Economics, said:
“In the absence of any major changes to fiscal and economic policy today, focus will fall on the current health of the public finances and revisions to the OBR’s future growth projections.
“The chancellor will need to reassure investors that public finances are on course towards fiscal sustainability, by ensuring that the net revenues hole grows more slowly than the economy in the years ahead, with sufficient flexibility built-in to accommodate a future of bumpier economic growth during Brexit and shifting political priorities ahead, including the next general election in 2020.”
NS&I bonds are always ultra popular and Hammond announces that a bond paying 2.2 per cent on deposits up to £3,000 will be available from April. Considering the average cash Isa pays 0.82 per cent this one is likely to be in demand.
Rising populism and the supposed gap between voters and the elite is addressed as Hammond talks about the people who feel the dice are loaded against them. A green paper on protecting the interests of consumers will apparently help family budgets.
Fixing the UK’s productivity problem
“Higher productivity means higher pay”, Hammond says, as he earmarks some of the £23bn of infrastructure investment that was already announced in the Autumn Statement.
- £300m of it will support research talent, including 1,000 news PHD placements on STEM subjects.
- There will also be a £690m competition for local authorities in England to tackle urban congestion.
The UK is stronger together
Devolved administrations receive some additional funds as MPs cheer at the message that the country is better off together.
- £350m for the Scottish government
- £200m for the Welsh government
- £120m for the Northern Ireland executive
New school funding and vocational qualification
Hammond’s announcements here have already been publicised over the weekend, but here they are again:
- Funding for a further 110 new free schools, including specialist maths schools. “Choice is the key to excellence in education.”
- Extension of travel support for poorer children travelling to selective schools
- “T-levels” – new vocational qualifications.
Social care funding increased
Pressures on the NHS and care for the elderly are addressed with an extra £2bn in grant funding over the next three years in England – with £1bn made available in 2017/18. Local authorities that are struggling will also be identified and helped to work more closely with the NHS.
Strains on the NHS
As well as the social care measures (which will impact on the NHS) Hammond promises £100m capital for new triage projects at English hospitals, which he says should be ready in time for next winter. The FT reported recently that the NHS was in “permanent winter” as capacity strains begin to bite all year round.
Here’s another way of showing the changes in the OBR’s forecasts for public sector borrowing:
And now that the chancellor has finished, if you want to go through the whole speech, you can read it here
After Hammond finished speaking, sterling was trading down 0.3 per cent at $1.2168, in line with its existing trading range for the day, reports the FT’s Michael Hunter.
The FTSE 250 was marginally higher — up 0.1 per cent at 18,904.54, having been flat at the start of the speech. The FTSE 100 was down 0.1 per cent at 7,330.35.
“Significance of NI move should not be underestimated”
Kevin Nicholson, head of tax at PwC, has these thoughts on the Budget:
This was a comfortably treading water Budget – keeping things ticking along as we move to a single Autumn Budget.
A number of reviews and consultations were announced, suggesting bigger news will come in the Autumn.
The increase in National Insurance was smaller than many expected, but the significance of this move should not be underestimated. It is very clear the Chancellor sees differences between the two regimes as anomalies to be ironed out. This has opened up a big potential money spinner.
The self-imposed tax lock is tying the Government’s hands, as the Chancellor clearly wants to raise money but is committed not to do so from the main taxes of income tax, NIC and VAT. That means other areas of the economy will continue to see increases and tightening. There clearly wasn’t scope for a give-away Budget but it would be good to see more attention given to entrepreneurs and wealth creators.
Little in the way of digital stimulus
Nic Fildes, the FT’s telecoms correspondent, observes that for all the talk of the need to boost the UK’s prowess in the emerging digital world, the Budget contained little to move the needle. The chancellor put aside £16m for a “cutting edge” research facility for 5G mobile technology. That will be welcomed by the mobile industry but comes against a backdrop of the US and Chinese governments devoting hundreds of millions of dollars to take a leading role in 5G when it emerges.
There was also a £200m pledge to help roll out more “full fibre” projects in rural areas. An Akamai study published ahead of the Budget showed the UK was only 9th in the European rankings for average connection speeds with only 57 per cent of broadband lines offering speeds of more than 10Mbps, making it 11th in Europe.
There was one sting in the tail for people that use their phone abroad. A measure to recover VAT from those using a phone outside the EU was announced that will raise £305m between 2017 and 2022. Some countries have not been collecting that VAT from British travellers, according to the treasury. Regular roamers could end up paying around £5 more to cover the cost if their phone provider does not absorb the extra charges.
We are going to wrap up our live blog of the Spring Budget but our coverage will continue. The best place to track what the key stories by our specialist reporters is our Budget 2017: summary and key points guide.
We will also be keeping our Budget splash updated.
Thank you for joining us and see you for another Budget in the autumn