A Stronger, Fairer, Better Britain?
For the seasoned observer expectations were low for this Budget as the Chancellor of the Exchequer is changing the focus of the fiscal calendar to later in the year. There will now be one fiscal statement with the Autumn Statement upgraded to a yearly Budget.
The Chancellor confirmed that the economy had out performed the Office for Budget Responsibility’s (OBR) forecasts at the end of 2016. This has propelled the OBR’s 2017 forecasts to 2.0% (previously 1.4%). The stronger growth in the economy meant tax receipts were also above forecast, improving public finances. Though the public purse is stronger, the Chancellor will not use the additional funds to go on a spending spree, the £2bn promised in additional social care is to be funded from cost savings elsewhere and an increase in tax. Higher reserves mean the government is in a healthier position to bear economic stress in the future though the better than expected result for 2016 has had little impact on the medium-term fiscal outlook.
Proposed changes to tax and national insurance levels follows the Budget’s theme of making a fairer country. Those who are self-employed, or who have their own company will be contributing more to the exchequer. In doing this the Chancellor is looking to fund last year’s significant rise in the state pension specifically for the self-employed. In recent weeks there had also been a lot of press coverage of significant business rate increases. As expected, financial relief was announced in the forms of capped increases and a discretionary relief fund.
The Chancellor commented on the country’s low productivity, which holds back general living standards. Commitment to spending on training and infrastructure is part of the National Productivity Investment Fund announced in the Autumn Statement. Today we had details of the investment plan with funding for higher education, additional specialist schools and the introduction of T-Levels (technical qualifications) being specific examples of how the government is looking to improve the skill set of the UK, addressing weak productivity and bettering Britain.
Although the near-term data from the OBR was stronger than expectations, their forecasts further out remain largely unchanged. This has left UK interest rate forecasts as they were before the budget announcement. It would be fair to opine that the Budget has made Britain potentially stronger; the impact in productivity will not have an immediate effect. In the near term we expect the economy will be dominated by factors outside of the budget.