During a week when the Spring Statement was overshadowed by the rolling thunder and confusion of Brexit, Chancellor Philip Hammond delivered some stark warnings and downgraded growth for 2019.
In 2019, the Chancellor is estimating that the UK economy will still grow. Although not as quickly as it was predicted in the 2018 Budget, when the Treasury assumed growth would be at 1.6%. That estimate has been reduced to 1.2% for 2019, with a slight upturn to 1.4% next year, and 1.6% for the following years.
But it isn’t all bad news. Hammond says the economy has defied expectations, continuing to grow despite the continued uncertainty around Brexit.
Debt and borrowing is reducing
One sign that the economy is doing better than anticipated is that borrowing is going to be £3 billion lower than was originally forecast in the 2018 Budget, for fiscal year 2018-19. In 2019-20, the borrowing forecast is further reduced to £29.3bn and could reduce as low as £13.5bn in 2023-24.
As a share of GDP, public sector borrowing is therefore down to 82.2%, and is set to reduce further over the next few years.
Partly thanks to lower levels of borrowing and partly as a result of higher tax receipts, the Treasury has more maneuverability in the public finances, ready in the event of a no-deal Brexit. With £26.6bn available, up from £15.4bn, it gives the government more breathing room should a worse case scenario hit the country.
What’s in the Statement for small business owners?
Small and medium business owners are the backbone of the economy. We are responsible for a huge amount of employment and one way or another, contribute an enormous amount of the tax receipts governments use to balance the public accounts.
In Budget 2018, there were a number of announcement that are having a direct positive impact on small business owners, such as tax threshold increases, extensions to SEIS and EIS, and more support for the high street and construction industry.
However, in the 2019 Spring Statement, there wasn’t much in the pipeline for small business owners. The good news is that nothing outlined in the previous budget was changed.
Everything is still moving in the same direction, pending a comprehensive spending review this summer, when the Chancellor says that the government will “slay once and for all the twin demons of low productivity and low wages and build an economy that works for everyone.”
More money was announced for the housing sector, with more support for small and medium-sized home builders. And there was more funding announced for the tech sector, nuclear research and support for supercomputer at Edinburgh University. Following a review Jason Furman, former U.S. President Barack Obama’s chief economic adviser, the government is going to make big tech companies “pay their fair share”, and protect consumers from online harm. Although further details are yet to be announced.
It was a financial statement of big ideas and bold statements.
When it came to the details, there are the following consultations currently going on:
- Ways to prevent the abuse of R&D tax relief;
- Creating a permanent structures and building allowance for non-residential structures and buildings;
- A potential reduction in the amount of carried-forward capital losses a company can offset (potentially going to be capped at 50% from 1 April 2020);
- A Digital Services Tax will take effect 1 April 2020, and a consultation into this is also taking place.
What about Brexit?
The Chancellor was, perhaps understandably, light on details as a result of the ongoing uncertainty surrounding Brexit. In this Spring Statement he has warned that a no-deal Brexit would bring about a “short to medium-term reduction in the productive capacity of the economy.” Uncertainty is already crippling the automotive industry and is making continued overseas investment in that sector more unlikely.
Countless leading business organisations and big employers have warned the government, time and again, about the potentially damaging impact of a no-deal Brexit. At long last, they took action to prevent that. In parliament at least, no-deal has been taken off the table. Following further talks, Europe has agreed to extend Article 50 beyond the original date, providing embattled Prime Minister Theresa May can force through her deal one last time.
Businesses everywhere, of every size, are tired of Brexit. It has created too much uncertainty. All we can do is control that which is within our ability: growing our businesses, reducing costs where we can, strengthening our balance sheets, and making smart investment decisions.