Spring Statement 2018 – What you Need to Know
Published: 15th March 2018
Chancellor Philip Hammond issued his first Spring Statement this week (which replaces the traditional March budget), to comment on the state of the economy and public finances. Any major tax and spending changes will be announced once a year in the Autumn Budget.
We look at the main points of his Spring Statement and the announcement of new policies where the government is seeking the public’s views.
Key Points at a Glance
UK Economy – cautious optimism, with modest growth and slightly lower borrowing
Housing – more affordable homes in London
Business Owners – business rates rises cut sooner, plus more frequent revaluations
Future policies under discussion include a plastics tax, the end of pennies, and fairer taxing of tech giants
The Office for Budget Responsibility (OBR) signalled a marginally improved outlook for the UK economy. With growth slightly up combined with borrowing slightly down, the National Debt is starting to fall, and the projections put Britain in a slightly better position to deal with the uncertainty of Brexit.
Growth forecast for 2018 has been marginally increased from 1.4% to 1.5%, but the slower projection for 2019 and 2020 is unchanged at 1.3%. The UK economy is expected to grow at a slower pace than any other major advanced or emerging nation this year, according to the OECD (Organisation for Economic Co-operation and Development).
Inflation predicted to fall from 3%, to the Government target of 2% by the end of the year.
Wages are expected to rise faster than inflation over the next 5 years.
Unemployment at 4.3% is close to a 40-year low. Employment has increased by 3 million since 2010 (the equivalent of 1,000 people finding work every day).
Productivity picked up in the second half of 2017, which also helped the economy.
Borrowing: Tax revenues have been better than expected, so borrowing has been lower than forecast this year, and is predicted to fall further for the next 5 years. And ‘for the first time since the financial crisis, the UK is borrowing only to invest, rather than to fund day-to-day spending.’
Public spending: The Chancellor said if public finances continue to improve, the next few years will see increased spending and investment on public services, including the NHS. However it is expected that he will exercise caution in the Autumn Budget, with only modest spending increases, because of the uncertainty over Brexit.
Britain will continue to pay annual contributions to the EU for another 46 years until 2064. The total Brexit “divorce bill” is likely to amount to £37.1bn.
New builds to ease housing crisis: The Autumn Budget announced an investment programme of £44bn, aiming to supply 300,000 new homes a year by the mid—2020s, which is expected to benefit 1m people.
The Chancellor has now pledged a further £1.7bn to build an additional 27,000 affordable homes in London.
Stamp duty savings: An estimated 60,000 first time buyers have benefited from the scrapping of stamp duty on homes under £300,000, since the policy change in November 2017, which aimed to help people get on the housing ladder.
Business rates surge has hit firms hard, threatening the future of high street retailers and restaurant chains e.g. Jamie Oliver’s Barbecoa restaurants looked close to closure earlier this year, following rising costs and a 28% hike in rates.
What are business rates?
A tax on business properties e.g. shops, restaurants, hotels, offices, warehouses and factories (like a council tax for companies). The tax is based on the ‘rateable value’ of a commercial property and inflation – so the higher the rent, the higher the annual business rates.
Most businesses pay around half their annual rent bill in rates, which often amounts to more than they pay in Corporation Tax.
The Autumn Budget announced changes to the system, which take effect from April and should save businesses £2.3bn over the next five years. Business rates will now be linked to the lower Consumer Prices Index (CPI) measure of inflation, rather than the Retail Prices Index (RPI), and will be revaluated more frequently, next in 2021 and then every 3 years after that.
CPI & RPI – What’s the difference?
Consumer Prices Index (CPI) and the Retail Prices Index (RPI) both measure inflation (the rate of change of prices for goods and services), by monitoring the changing cost of a ‘basket’ of goods e.g. food, petrol and household products, but they cover different items and are calculated differently.
Consumer Prices Index (CPI) excludes housing-related costs, so any rise in rent, mortgage payments or council tax would not be reflected in the inflation figure.
The CPI calculation takes into account that when prices rise, some people switch to lower priced options. (Click here for an explanation of the different mathematical formulae).
Retail Prices Index (RPI) does include the costs of housing in its ‘basket’.
The RPI measure of inflation is nearly always higher than CPI.
Lots of payments are linked to inflation – the higher the inflation figure, the higher the payments, therefore it does make a difference which measure is used. It explains why the Government generally pegs the payments it makes to the lower CPI (e.g. pensions, benefits) and the payments it receives to the higher RPI (e.g. student loan repayments, train fares and taxes).
The Autumn Budget 2017 announced an investment programme to improve digital connectivity across the country; the Spring Statement allocated the first wave of funding to roll out the fastest, best broadband to homes and businesses in 13 areas around the UK.
Future Policies announced in the Spring Statement
Philip Hammond announcedon future policies and tax changes which are currently under discussion.
Plastics Tax: Tax changes to discourage single-use plastic, which damages the environment e.g. disposable cups, straws, plastic cutlery and takeaway packaging. Money raised from taxes would be used to develop greener products, recycling etc.
Tech Tax for Digital Giants: ‘Fairer’ taxation of multinational digital businesses e.g. Google, Amazon and Facebook
Green Vans: Proposal to reducing tax on the least polluting vans
Cash – end of pennies? A review on the future of cash vs. digital payments, which could signal the end of 1p and 2p coins and the £50 note.
Skill set: Tax reliefs to support the self-employed and employees when they fund their own training