The Spring Statement: a Breakdown
The, Chancellor Philip Hammond, gave the annual Spring Statement today, announcing how the UK economy is faring, and how we can expect it to fare in the near future. Hammond appeared optimistic that the country had reached a “turning point”, 10 years after the financial crisis, but not everyone is so convinced.
In this blog, we break down the key points covered by the Statement, and what it could mean for you.
Growth and Inflation
One of the main reason for Hammond’s optimism is the fact that growth for 2018 is now forecasted to be 1.4% – a 0.1% increase on the Office for Budget Responsibility’s earlier prediction of 1.3%. Despite the modesty of the increase, it is a hopeful sign.
Inflation is also predicted to fall. It stood at 3% for much of 2017, but has now fallen to 2.7%, according to the Office for National Statistics (ONS). The Bank of England aims to have inflation reduced to a maximum of 2% by the end of the year, which could help to ease the current strain on household budgets.
With wages showing tentative signs of growth in real terms, it is possible that personal dependence on credit could decrease, reducing the amount of people struggling with debt problems. This could counter the fact that, in 2017, IVA use rose for the second year running. Hammond is also confident that debt levels are decreasing in the UK overall.
Debt as a percentage of GDP is predicted to fall – the “first sustained debt fall in 17 years”. Despite this, the actual value of the UK’s debt is predicted to keep rising – but soon the government’s borrowing will purely fund investments, rather than day-to-day spending.
Austerity and Public Spending
Hammond claimed today that there is “light at the end of the tunnel” after a decade of austerity and stagnating wages. An outright end to austerity is off the table, but there were hints that public spending might increase later this year with the Autumn Budget. To help facilitate this, plans are in place to improve online payment technology, to ensure that the correct amount of VAT is paid.
Among the government’s priorities for spending is affordable housing – especially in London – along with public transport in English cities. £840 million is to be set aside for the latter. Plans are also in place to roll out high-speed broadband to 13 more isolated areas in the UK, and invest in apprenticeship schemes for small businesses. Business rates are set to be re-evaluated in 2021 rather than 2022, in another bid to encourage small business growth.
After well over a year of negotiation and planning, the government now predicts that the Brexit “divorce bill” will amount to around £37.1 billion. This will mean paying far more than the cost of EU membership for a time, and the long-term impact of Brexit on the economy is still uncertain. In the 2017 autumn budget, Hammond announced that funds to deal with Brexit were to be set aside, which will hopefully provide a cushion against this hefty upcoming cost. Small payments to the EU can be expected to continue until 2067.
Among the proposals in today’s budget was the idea to reduce the tax paid on the lowest emission vans, in a bid to encourage drivers to reduce their environmental impact. Hammond is also considering a tax on single-use plastic products, to reduce the country’s dependence on them. A £20 million fund is to be made available for businesses and universities wishing to research new ideas for reducing plastic usage.
Despite Hammond’s assertion that “Our best days are ahead of us”, a number of economists and politicians are more cynical. The shadow chancellor, Labour’s John McDonnell, called Hammond out for what he described as “astounding complacency”, and raised concerns over funding to services including schools, the NHS, and the emergency services. Public sector workers, he argued, have “been ignored by this government” for eight years, facing significant cuts as part of the Conservatives’ austerity policies. McDonnell also pointed out that, despite the slightly higher than expected overall growth of the economy, the UK’s modest 1.4% rate is among the lowest in the G7, and is at its slowest rate since 2012. Furthermore, he accused the recent changes to benefits of hitting disabled people unfairly hard. The Resolution Foundation agree that 11 million families are worse off because of these changes, countering Hammond’s optimism for British families.
Lucy O’Carroll, Chief Economist at Aberdeen Standard Investments is similarly hesitant to share the chancellor’s cheery outlook. She pointed out that the austerity of the last decade is “unprecedented in the post-war period”. Despite this, though, she agreed that “the country’s debt burden is about to fall”; a sign of recovery.
Overall, there are reasons to be cautiously optimistic, but with Brexit looming ahead, and continued stagnating pay for public sector workers, many families can expect to continue facing financial difficulties.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.