Autumn Budget 2018 – the Brexit caveat
In my pre-Budget commentary I made the point that Phillip Hammond was facing two major problems in deciding what measures to implement in his Autumn Budget; the looming threat of Brexit, and the need to deal with the deficit whilst also attempting to honour Theresa May’s proclamation that austerity was coming to an end – writes James Francis, Partner, Ensors Chartered Accountants.
I also made the point that the Chancellor might try to avoid these issues by essentially deferring them until after Brexit negotiations have been finalised, and the UK has actually left the EU. This appears to be precisely what he has done.
This was made clear most starkly in his comments the day before the Budget, that if there was a ‘no-deal’ Brexit, a new budget would be required. This effectively means that all of the measures the Chancellor announced on Monday are contingent on some form of deal being reached between the UK and the EU.
Whilst some may view this as something of a ‘cop-out’, it seems to me that this is only sensible, as the UK leaving without a deal would have many immediate (and even more long term) implications that would have to be dealt with by the government.
By flagging this up now Mr Hammond is giving himself room to manoeuvre, allowing him to make changes that would be needed in such a scenario in order to reassure and support the economy.
Much of the media reporting of the Budget has highlighted an apparent ‘spending spree’ by the Chancellor but this is only somewhat borne out by a closer reading of the facts.
It is true that NHS funding has been increased, money has been announced for potholes, income tax thresholds have been raised and the Armed Forces budget has been expanded, amongst other things.
However, many of these were measures that had already been announced (NHS funding), were bringing forward future commitments (income tax thresholds), or are being paid for out of funds already allocated (potholes).
Nevertheless, it is fair to say that Mr Hammond has definitely spent more here than many predicted (including myself) and has moved towards to an ending of austerity and away from a balancing of the books.
This is further reinforced by the fact that (not unexpectedly) relatively little was announced in terms of increasing tax revenues, the only significant item being the new digital services tax.
In terms of the economy generally the news was mixed. On the one hand the growth forecast for 2018 was decreased from 1.5 per cent to 1.3 per cent, a disappointing outcome apparently caused by poor weather in the spring. More positively the forecast for 2019 was increased from 1.3 per cent to 1.6 per cent and for 2020 from 1.3 per cent to 1.4 per cent.
Despite these revised figures the UK continues to lag behind other major western economies such as Germany (1.9 per cent) and the USA (2.9 per cent), and there is little prospect of this changing in the near future, especially with the uncertainty surrounding Brexit.
Overall, this was a relatively safe budget that was clearly designed to provide reassurance to stock markets and outside investors whilst introducing a few modest and popular measures that would take advantage of the unexpectedly lower public borrowing figures for 2018.
The Chancellor, as with many people and businesses across the country, appears to be putting off any major decisions while he waits to see how Brexit finally plays out.