Summary
Chancellor of the Exchequer Philip Hammond gave his Spring Statement in the House of Commons this afternoon, speaking to the recent achievements of the UK economy. In what is widely regarded as a fiscal non-event for its lack of newsworthy content, Hammond announced that this is the ninth consecutive year of economic growth; that unemployment, standing at 4%, is the lowest it has been since 1975; and that wages are increasing at their fastest rate in over a decade. He did, however, downgrade forecast growth this year from 1.6% in October 2018, to 1.2% today.
Following Therese May’s second heavy defeat on her Brexit agreement last night, the Government published plans to put up no tariffs on 80% of imports as a temporary measure in the event of no-deal. The Chancellor tried to win over MPs to the Government’s deal by speaking of the dividend a deal would create and the negative impact of a no-deal Brexit and offered a public spending increase of £26 billion across government departments on the condition that MPs vote with the Government on Brexit-related matters tonight and beyond. This increase is a significant jump from the £15 billion announced in the Autumn Budget. Hammond also promised a three-year spending review to be conducted over the summer in the event that the UK agrees a deal with the EU.
In addition to this Hammond offered £3 billion towards efforts to build 30,000 more affordable homes; stricter competition regulations around digital monopolies; £37 billion to a National Productivity Fund going into infrastructure projects; an extra £100 million to tackle knife crime; funding to ensure schools can provide free sanitary products to pupils to end period poverty among our school children; and a review into late payments from business to business. While those in receipt of the money will welcome it, none of these boosts are considered substantial enough to make a significant difference to the causes they support.
Shadow Chancellor John McDonnell responded to the Spring Statement, calling it a toxic mix of ‘callous complacency’ about austerity and ‘grotesque incompetence’ over Brexit. He highlighted the funding crisis in schools, increased levels of homelessness, rising infant mortality and rates of violent crime. McDonnell noted that the rate of growth forecast has had to be revised down year-on-year. The forecast deficit, which the Government initially forecast would be eliminated in 2015, still exists and there is only a 40% chance the public budget will be balanced by 2023-24, according to the Office for Budgetary Responsibility.
Brexit
As expected, a significant part of the Spring Statement was carved out to discuss Brexit. Following the defeat of Theresa May’s deal the previous night (by a majority of 149 votes) the Chancellor continued to pursue his carrot and stick approach to securing support for the current deal on the table. The carrot being a Brexit deal dividend that will increase the budgets for government departments, the stick being ‘significant (economic) disruption in the short and medium term’.
The £26 billion Brexit dividend the Chancellor is promising would be divided up between government departments in a Spending Review before the summer recess, but only if a deal is passed. This, the Chancellor argued, would be used to focus on delivering ‘high quality outcomes’ for consumers.
With the new figure significantly up from the £15 billion promised in the Autumn 2018 Budget the Chancellor has applied considerable pressure on MPs into voting for a deal.
Following last night’s failure for the government, the EU has today set out their position with EU Council President Donald Tusk emphatically stating there was ‘no more’ the EU could do to change the deal. While a spokesman for President of the European Commission Jean Claude-Juncker said, ‘if there is a solution to the current impasse, it has to be found in London’.
However, some parliamentarians are still calling the EU’s bluff and believe negotiations can be opened back up, while others maintain that the prospect of a no-deal Brexit is not as disastrous as the Chancellor deems it to be.
So, what next? It is highly likely that MPs vote to reject a no-deal Brexit tonight given the comments already made by the majority of MPs. This will be followed by a vote tomorrow asking for a request to extend article 50, giving the government more time to re-open negotiations or prepare for a no-deal Brexit.
However, nothing is certain, and Donald Tusk has warned accepting any extension request would require unanimity among the 27 remaining leaders of the EU and a ‘credible justification for a possible extension and its duration’.
Sector analysis:
Defence
- £100 million for policing violent crime
Following Home Secretary Sajid Javid’s comments last week acknowledging that there was a growing problem of violent crime and knife crime in particular, Hammond pledged another £100 million to the British police to tackle this issue.
Digital
- Competition Rules
The Chancellor welcomed the findings of the Furman Review, also published today which concluded that tech giants have become increasingly dominant. The Chancellor announced that the government will respond later in the year to the review’s calls to update competition rules, to open up the market and increase choice and innovation for consumers.
The Chancellor also confirmed he has written to the Competition and Markets Authority asking them to carry out a review of the digital advertising market which is currently dominated by a small number of companies including Google and Facebook.
Education
- International Education Strategy
In light of Brexit and the reduction of overseas students selecting the UK as a place of study, the Departments for Education and International Trade will launch a strategy to help strengthen the UK’s position as a leader in world-class education across the globe. He did not say when it would be published.
- Period Poverty
After a vociferous national campaign to tackle ‘period poverty’ in schools and widespread pressure from opposition MPs, The Chancellor announced funding for a Department for Education-led scheme to offer free sanitary products to girls in secondary schools across England. This will see girls in all schools access the products they need without being priced out.
Energy
- Future Homes Standard
A Future Homes Standard is to be introduced by 2025 that will put in place requirements for new homes relating to low carbon heating sources and the levels of energy efficiencies.
To meet climate change targets and reduce the emissions from heating, government has announced that they will consult on a mechanism to reduce our dependence on gas powered heating later this year.
The Chancellor said that as a result of the UK leaving the EU, government will be undertaking a consultation on infrastructure investment as the UK loses access to funding from the European Investment Bank.
Infrastructure
- National Infrastructure Strategy
Hammond announced that he would publish a National Infrastructure Strategy alongside the next Autumn Budget and launched a consultation on the financing of public infrastructure. He also pledged £37 billion to a National Productivity Fund which covers transport and digital infrastructure, the allocation of which will likely be determined by the consultation outcome and eventual strategy.
Transport
- Offsetting Transport Emissions
The Chancellor announced a call for evidence to give people the option to travel ‘zero carbon’. The Offsetting Transport Emissions consultation, when published, will allow individuals to build an understanding of the emissions from their journeys and the options they can take to reduce them. It will also investigate whether travel providers should be required, by law, to offer additional carbon offsets to their customers.
- Future of Mobility: Urban Strategy
The Chancellor announced a publication which will set out the Government’s approach to putting the UK at the forefront of mobility, and respond to the significant changes taking place in transport technology. The growth in electric vehicles, the development of self-driving vehicles and advances in data are all but some of the enterprises and industries The Chancellor wishes to embed in the UK economy.
