The launch of Chancellor Philip Hammond’s first annual Spring Statement has provided a comprehensive update on the UK’s present financial situation. Our latest blog takes stock of the major fiscal revelations presented by both the Statement and the Office for Budget Responsibility (OBR)’s accompanying report, as well as reactions from industry experts to these potentially pivotal developments.
What is the Spring Statement?
Philip Hammond, Chancellor of the Exchequer, announced in 2017 that rather than the UK government publishing Budgets in both Spring and Autumn as has been the case until now, he will instead launch a new-format Spring Statement every March, followed by the traditional Autumn Budget towards the end of the year going forward.
Where the Autumn Budget plays host to a wealth of policy changes across a range of British sectors, Spring Statements are in contrast intended only to offer a revised insight into the state of the UK economy and its future ramifications. Mr. Hammond says that this approach should cause less uncertainty for businesses, since they’ll no longer need to fear sudden shifts in tax rates, minimum wage requirements or other criteria twice a year.
What are the key points of this year’s Spring Statement?
As with our Autumn Budget analysis last November, it’s worthwhile recapping the core points presented in Mr. Hammond’s Spring Statement on March 13th – along with the OBR fiscal forecasts published that day – before we evaluate the short- and long-term business consequences that these developments may bring.
- The government’s next business rates revaluation will now take place in 2021 rather than in 2022, and every three years thereafter as previously confirmed in the Autumn Budget
- Hammond also stated his intent to provide further support to small businesses going forward – including £80m of funding to help SMEs hire apprentices and an investigation into late payments – and to consider a new tax system which could level the playing field for digital businesses from SMEs to multi-nationals such as Amazon
- The OBR estimates that the number of UK citizens in employment will grow by 500,000 over the next five years, rising from 32.2m in 2018 to 32.7m come 2022.
- Real wages will begin to improve in Q1 2019 after a multi-year downward slump, according to Mr. Hammond, thanks to inflation being forecast to hit the Bank of England’s 2% target by the end of 2018.
- The OBR also offered an optimistic assessment on UK Gross Domestic Product (GDP); after defying the Office’s prediction of a 1.5% rise in 2017 with a 1.7% hike, this valuation of the UK’s total goods and services will apparently increase by 1.5% in 2018, 1.3% in 2019-20, 1.4% in 2021 and a further 1.5% in 2022.
- These hikes should begin to reduce government borrowing as a result. Mr. Hammond estimates that the UK government’s reliance upon financial aid from institutions like the Bank of England will drop to 1.8% of GDP in 2018-19 and continue its down-surge in the coming years to the extent that by 2022, such borrowing will comprise 0.9%.
- As for the UK’s debt levels, the Chancellor says that there is “light at the end of the tunnel” in this area, with national debt predicted to fall from 85.6% in 2018 to 77.9% in 2022-23.
- In the wake of the UK and EU publishing documentation on their current progress with Brexit negotiations last December, the OBR now predicts that the total financial settlement between the two bodies will cost Britain approximately £37.1bn.
- One significant development missed by much of the mainstream media but noted by the Evening Standard involves UK legal tender. Further to the elimination of paper £5 notes last year, Mr. Hammond’s Statement raised the notion of scrapping both £50 notes and coins worth 1-2p due to their limited usage in today’s transactions.
Will these status quo shifts affect my business?
Whether businesses view this debut Spring Statement as having promising or detrimental implications for their finances will depend on a variety of factors, not least their sector and which experts’ reactions they consulted in the aftermath of its publication. Some of the figures and announcements published last week might offer cause for concern if firms don’t act upon them promptly, but Mr. Hammond’s “light at the end of the tunnel” analogy might hold true in other areas according to financial analysts.
Certainly, the government’s pledge to place a greater emphasis on tackling late payments could bode fortuitously for many firms. The Federation of Small Businesses, for instance, welcomed the news on Twitter, claiming that the so-called “late payment crisis” causes 50,000 failures and costs the UK economy £2.5bn annually. Indeed, our analysis into this increasingly topical subject matter revealed that 45% of SMEs waited up to three months for payment in 2017 and a further 14% waited a staggering 4-6 months for customers to transfer their owed funds.
The UK’s debt and borrowing seemingly set to drop in the coming years as GDP rises could also theoretically benefit those beleaguered firms. After all, the lower a nation’s debt, the greater the ability of its economic commander-in-chief to reallocate support to struggling firms. Mr. Hammond’s referencing of late payments suggests they may play a major part in his Autumn Budget, but with industries like construction and retail currently suffering from the respective demises of Carillion and Toys ‘R’ Us, there remains a strong chance that the Chancellor will keep these sectors in mind too when devising future financial policies.
If these potential longer-term benefits appear too distant to factor into your business’ current plans, then it’s worth noting that the Spring Statement did offer constructive updates on the immediate future as well. While the remodelling of the UK’s business rates system represents a cause for concern in some business’ eyes, as we discussed previously here, Mr. Hammond has at least offered firms plenty of advance notice to prepare by confirming this revaluation’s 2021 launch date. Additionally, the OBR’s ever-increasing employment forecasts provide recruitment firms with an ideal opportunity to promote their industry’s strength this year.
What of the Statement’s more concerning ramifications, though? Naturally Brexit cast its shadow over much of last week’s news, with the OBR – as reported by the Guardian – ominously forecasting that “lower migration, sluggish productivity growth and an economic slowdown” prompted by recent uncertainty would provoke hikes of up to £15bn a year in government borrowing in 2023. The independent budgetary watchdog also expressed fears that the UK’s Brexit settlement wouldn’t be paid off until 2064 or longer “due to ongoing EU pensions scheme liabilities”.
Press Association data reporter Andrew Jones subsequently added to this sentiment of the Statement’s debt recovery figures not necessarily painting as bright a future as it might initially appear. Writing on Twitter, Jones noted that the OBR and Mr. Hammond’s latest figures indicated the UK’s deficit would still stand at £33.9bn next year, contrasting this with March 2016 forecasts that government borrowing would be “back in the black in 2019/20”. How much of an influence this harsh reality will have upon the government’s ability to provide businesses with funding support come the next Budget remains to be seen, however.
Access funding support
If any of the issues raised in this article – such as late payments, business rate revaluations, digital business taxes or supply chain problems caused by industry players’ downfalls – are currently affecting your business’ welfare or seem cause for concern in this fiscal year, then rest assured that there are a range of financial solutions available to support your firm through thick and thin.
Get in touch today and one of our expert consultants will gladly discuss the options available to your business. Whether you’re looking to combat late payments through invoice finance or boost your funding for upcoming products with an unsecured business loan, the possibilities are e/ndless, so you’ve absolutely nothing to lose and everything to gain by giving us a call.